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RETAIL OFFSHOOTS

Already popular chains opening new concepts to serve niche markets

By Kimberly Pfaff

Hot Topic, one of the most popular mall chains among young people, serves trendy, plus-size teens through its Torrid store.

To capitalize on their success, an increasing number of chains are launching offshoots that offer specialty wares or services.

Retailers are broadening their customer base by targeting new and specialized markets. The concept innovations include Hot Topic’s trendy, plus-size Torrid; Abercrombie & Fitch’s surfer-chic spin-off, Hollister Co., and its children’s store, abercrombie; Christopher & Banks’ new plus-size concept, C.J. Banks; and Charlotte Russe’s lifestyle offshoot, Charlotte’s Room.

In some cases, the new concept is aimed at an entirely new demographic group, such as Limited Too’s teen store, Mishmash. In others, it’s a whole new product category aimed at the same consumer, such as Victoria’s Secret’s spin-off, Beauty, which sells cosmetics, skin care products and personal accessories.

Often, rather than embark on a grand-scale rollout, a company will test the concept first. Aura Science, for example, the new beauty and skin care joint venture store from Limited Brands (formerly The Limited) and Shiseido Co., is debuting with about 11 units this year in Chicago; Columbus, Ohio; Miami; Paramus, N.J.; and Washington, D.C., as the concept is developed and refined.

And the list keeps growing. This fall Gymboree will test a high-end baby-gift store concept called Janie & Jack, on the West Coast. Meanwhile, Chico’s is planning a spin-off aimed at women younger than the chain’s typical 35-to-55 age range. And The TJX Cos. has entered the mix, expanding on its off-price niche with A.J. Wright, a chain of lower-priced clothing for even less.

For retailers intent on growth, there are only so many routes to choose. If they’re not interested in pursuing acquisitions, expanding internationally or rolling out thousands of stores, then a new concept is often the best plan for continued growth and greater volume.

“It’s sort of like a brand-extension strategy,” said Howard Davidowitz, chairman of Davidowitz & Associates, a national retail consulting firm based in New York City. “In America there are only 400 ‘A’ malls; once you cover the top malls, what do you do? How do you enhance the value for shareholders? How do you encourage growth? That’s why these specialty store concepts grow like weeds. And offshoots have historically been a success.”

Limited Brands now offers skin care and beauty treatments through its spin-off, Aura Science.

Indeed, there is nothing new about the phenomenon. “It’s been going on for 35 years. The grandfather of it was the Limited — they had eight divisions, from Casual Corner to Petite Sophisticates,” said Davidowitz.

But there’s no denying that there are more of them coming out now, and across many channels of the retail spectrum. After all, capturing the consumer’s attention has never been more challenging than it is today.

“Retailers have to come up with new concepts at a more frequent pace than in the past, because there does seem to be more of a burnout rate earlier than there used to be,” said Irma Zandl, president of The Zandl Group, a New York City-based retail trend consulting firm. Zandl said she approves of the approach taken by some chains to experiment first before rolling out a slew of stores.

Candace Corlett, a partner at WSL Strategic Retail, a consulting firm based in New York City, agrees.

“Unique retail formats, interesting retail formats that consumers flock to, have such a short life cycle,” she said. “Shoppers get bored so easily today, and their attention span is only a couple of years before they’re ready to move on to something else. There’s tremendous pressure to keep up the innovation in your existing store when other specialty stores are moving past you; it becomes almost an impossible situation.”

As a result, she noted, retailers are “leapfrogging themselves” within a category, just to stay ahead. “Look at Abercrombie,” she noted. “How much more of a run could they have? It’s smart for them to [launch Hollister] before the customer gets bored.”

That drive to keep creating something new is good news for developers, who thrive on the constant buzz that fresh, novel stores bring — and who appreciate the peace of mind that comes from trying out a new concept that’s backed by a well-financed company with a proven retail track record.

“It’s always important for us to find new things to fit into the centers,” said Joe Tagliola, executive vice president of leasing at Los Angeles-based Westfield America.

“If you’ve got a new concept from an established retailer that has great systems, talented management and great experience, one can feel comfortable and confident that the company will put together a compelling offering,” said Courtney Lord, senior vice president of leasing at Taubman Centers, Bloomfield Hills, Mich.

Limited Too’s Mishmash, a teen store, is an offshoot of an offshoot.

Not that well-capitalized chains are the only source of new concepts, Lord is quick to add. “We also do a lot of business with independents who have a great concept and good management, and we want that type of tenant, too,” he said.

Of course, industry executives note that the very same business factors that make a spin-off store so appealing can also be a drawback.

“If that company has a misstep, it conceivably impacts all the divisions,” Lord said.

Still, industry observers say, overall the peace-of-mind factor is a large draw.

“A developer is much happier signing a lease that’s guaranteed by a large parent company than going with some new guy with 50 stores who might turn around and file Chapter 11 and say, ‘See ya,’ ” Davidowitz said.

Perhaps, then, the larger question is, with the economy still so uncertain, does it make good business sense for retailers — and developers — to take a chance on a new concept? Surprisingly, most industry executives say yes.

“The best time in any business model to expand and take advantage of economies of scale, is on a down time,” said Tagliola. “We see now as being a huge opportunity for retailers because of the need for developers to make sure they have the right product, fresh product, in the market.”

Consultant Zandl affirmed: “A new store is always good. No matter how many are out there, I think consumers are always looking for something new, and so having a new destination, something new to explore, is a good thing.”

Besides, some say, piquing people’s interest by offering them a new reason to shop at a center might actually go a long way to overcoming the current retail doldrums.

“The reality is that consumers are still shopping,” said WSL’s Corlett, “and the retail numbers are supporting it. The strong chains continue to grow; the mass merchants continue to grow.”

She noted that data from her firm’s latest “How America Shops” consumer survey reveal that when consumers weren’t shopping, the main reason was not fear of a sliding economy, but simply dissatisfaction with the stores available.

“While there may have been some recession jitters that caused some people to stop shopping,” Corlett said, “the real concern was that people were bored with the retail offerings.”

So, experts agree, the industry is likely to see a continuing supply of new concepts.

“The logic of it is impeccable,” Davidowitz said. “It makes sense, and it meets all the tests: diversify, protect the shareholders, continue a new growth vehicle, develop a brand extension, and leverage your costs. So I think there’s a very powerful case to be made for it.”

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