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In bid for sales, discount is king

By Chris Reidy, Globe Staff, 5/20/2003

Top retail cos. All the charts

002 was a disappointment for many retail chains, ending with one of the worst holiday seasons in memory.

"In my 40 years of retail, I haven't seen so much uncertainty," said consultant John Macht of the Macht Group of Boston.

"As you look in the rearview mirror, it's not a pretty picture," added Gregg Clark, vice president of retail consulting for Cap Gemini Ernst & Young.

Even after Ames Department Stores Inc. announced plans to go out of business, there were still too many stores chasing too few customers, Macht said, and a slow economy made the competition among survivors all the more fierce. Still, there were bright spots. Despite worries about the war in Iraq, terrorism, high energy prices, and layoffs, many consumers spent steadily in 2002.

Staples Inc. of Framingham had a strong year. Staples sells office supplies to both consumers and small business operators. When research showed that small business operators were the source of most profits, Staples decided they needed even more attention. Those efforts paid off. Natick-based BJ's Wholesale Club Inc. sells food and general merchandise to consumers and small-business operators. Up against big rivals, BJ's now focuses more on its consumer customers, particularly women.

In 2002, Connecticut-based Ames disappeared from the local scene, but Wisconsin-based Kohl's moved in. Opening more than a dozen stores around Greater Boston, Kohl's sells brand-name clothing at low prices in convenient strip-mall locations.

Thanks largely to acquisitions, big sales gains were posted by two Canton-based chains -- Tweeter Home Entertainment Group and Casual Male Retail Group, which sells clothing for big and tall men. Partly because many people are reluctant to buy high-end consumer electronics in tough times, Tweeter had a loss for its fiscal year. Quincy-based J. Jill Group, which sells women's apparel, saw a nice sales gain. It opened 37 stores in 2002 to bring its year-end store count to 88. But the company lost some momentum in the fourth-quarter.

Wal-Mart and Target are two chains that took customers away from department stores even as department stores slashed prices.

"In a downturn, discounters are almost always rewarded," said Peter Dixon, a senior partner at Lippincott Mercer, a brand management consulting firm in New York.

Known for low prices on brand-name clothing, TJX Cos., the Framingham-based operator of such chains as T.J. Maxx and Marshalls, had a solid year.

"People want good value in one place," added Kusum L. Ailawadi, a professor at the Tuck School of Business at Dartmouth College who follows retail.

Being cheap and convenient may not be enough. Today's successful merchant also needs to be distinctive, she said. Touting "cheap chic," Target has managed to carve out a niche and fend off Wal-Mart, the king of low prices, but a me-too strategy landed Kmart in Chapter 11 for much of 2002. (Kmart has since emerged.) A desire to be more distinctive was one reason why Sears Roebuck & Co. bought Lands' End, a brand of outdoor clothing.

It wasn't easy selling clothes in 2002. French fashion was about as popular as French foreign policy, and many Americans have come to appreciate casual clothing as much for its price as its comfort. For the fourth-straight year, spending on clothing has trended downward, according to NPD FashionWorld. It was even tougher to sell clothing at full price, and that challenge impacted results for Talbots Inc., a Hingham-based retailer known for classic clothing mostly sold at full prices.

Chris Reidy can be reached at reidy@globe.com.

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