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Cap retailers hang their hats in regional malls

By Mark Seavy

As they seek to keep ahead of the latest trends, hats-only retailers are finding a home not in fashion districts, but in regional malls.

From industry leader Lids to rivals Hat World and Hat Zone, the hats-only format, with its heavy emphasis on sports, generates several hundred million dollars in annual sales catering to impulse-purchase-driven consumers that frequent these locations.

And while major discount chains carry headwear, it's the hats-only retailers that are able to revamp merchandise at the slightest shift in tastes toward, say, a low crown, unstructured hat from a form-fitted version or a visor instead of a "bucket.''

"Some of the trickiness to this business is being sophisticated both in following the trends and in regionalization because a store in Seattle and one in Boston must look different just because of the geographical area that they reside in,'' said Nancy Babine-Kucinski, president and COO of Lids, a Westwood, Mass.-based retailer that operates 350 stores in 44 states.

Indeed, that regionalization was evident in a recent visit to a Lids store in the Danbury (Conn.) Fair. While standard 800-square-foot Lids stores may carry 5,000 hats, the Danbury location placed a heavy emphasis on New York Yankee caps, including a fitted version that read "New York Yankees Est. in 1903.'' For its part, Indianapolis-based Hat World, which operates 600- to 800-square-foot outlets, has located more than half its 125 stores in college towns where regionalization takes on a parochial flavor.

"We launched this because some national chains were leaving a big hole in part of the business because no matter where you went you could find a Chicago Bears or Dallas Cowboys cap and nothing else,'' said Glenn Campbell, a senior vice president at Hat World, who left Foot Locker to help found the chain in 1995.

In seeking to cater to ever-changing tastes, Lids and Hat World are pursuing slightly different strategies. While Lids leans more toward merchandising custom-made hats that retail between $19 and $24, Hat World sticks to more tried-and- true licenses, industry officials said. While both chains may carry some upscale, fashion-oriented brands like Kangol, both rely on sports-affiliated hats for more than 60% of their annual revenues, with the remainder dedicated to brands like Polo, Tommy Hilfiger, Puma, Adidas and Nike.

"There are so many people making headwear, from fashion and athletic to generic and licensed, that it's good to have chains that are narrowly focused,'' said Gregory Beckwith, north regional sales manager for Adidas, which sells caps to both chains. "They make major presentations in their stores with headwear.''

The impetus for the rather narrow focus is the audience on which the hats-only chains rely for the bulk of their sales — mallgoing youth between 12 and 25 years old with dis posable incomes. It's a crowd that prefers adjustable hats to fitted versions by a 60% to 40% margin and may choose 100% cotton or cotton washable over wool or khaki, industry officials said.

"We know that our core demographic, which is that 12-to-25-year-old, is shopping in many environments, and the mall is still a very social environment for that core demographic,'' Babine-Kucinski said.

"We believe our biggest competition in the mall is how are those 12-to-25-year-olds going to spend their money? If we don't offer freshness, including those hats that are the hottest thing out there, then they're going to turn around and buy a CD, a T-shirt or go to the food court.''

To attract younger customers, most hats-only retailers keep prices in the sub-$25 range, although some, including those made from leather, may creep up to $39. But the bulk of the business remains in the $10 to $12 range, and many dealers have launched customer loyalty programs such as Lids' Head First, which offers a free hat with every seventh purchase. Hat World has countered with a Passport program that provides a 20% lifetime discount to loyal customers.

Both Lids and Hat World are privately held and don't disclose their financial results. But Hat World has claimed to generate sales of about $500 per square foot, while Lids has projected it sells 10 million hats annually. Both chains also are expansion minded, with Lids planning to add 75 stores annually, while Hat World has slated 50. In addition to their company-owned brick-and-mortar chains, Lids and Hat World launched e-commerce sites in 1999, although executives at both companies said online sales were a small percentage of their overall businesses. Nonetheless, an online presence "actually enhances retail because you may have 400 stores out there carrying 5,000 hats, but you can't carry every team, size, logo or brand in every store because you would never turn your inventory,'' Babine-Kucinski said. "So we're able to have Lids.com be our virtual warehouse where if there is a hat that somebody wants, we can get it.''

And while the Internet may take some sales from brick-and-mortar retailers, the hats-only retailers will likely survive the Internet onslaught and navigate changing tastes in fashion by expanding their merchandise mix, industry officials said.

"With the Internet, I'm not sure where the bricks-and-mortar business will be in a few years,'' Beckwith said. "But they can add some accessory items like wallets and key chains. The key for these guys is to continue to keep their stores well merchandised with a clean look and be innovative.''