Space for Hire
Sep 1, 2008 12:00 PM, Elaine Misonzhnik
Using extra selling space to hawk knickknacks and tchotchkes may be a long-term staple of the retail sector. In recent months, however, it's being taken to a whole new level and resulting in unusual sights as retailers expand the breadth of their merchandise in seemingly unorthodox directions.
For example, soon you can walk into a Best Buy and expect to see musical instruments. Some drugstores are now carrying extended lines of apparel. And seemingly everyone has gotten into the business of selling music.
In late July, Richfield, Minn.-based Best Buy announced plans to dedicate 2,500 square feet within 85 of its stores to sell guitars, bass, drums, keyboards and recording equipment. “Consumers have always looked to us as a resource for music in a variety of formats,” said Steve Hehir, senior vice president of musical instruments for Best Buy in a statement. “ Now they'll be able to rely on us for help with musical performance and creation too.”
Add-on merchandise can bring in hefty returns for chains, especially those with low-profit margin core products, like Barnes & Noble, says George Whalin, founder of Retail Management Consultants, a Carlsbad, Calif.-based firm. Barnes & Noble uses its extra space to sell low-cost pens, notebooks, board games — the kinds of items customers buy without long-term planning, notes Whalin. Barnes & Noble has also had success with inexpensive impulse purchases such as canvas bags and coffee mugs.
“The thing with both Starbucks and Barnes & Noble is that all of that merchandise is impulse merchandise because customers spend an enormous amount of time in those stores,” Whalin says. “Buying a $300 guitar at a Best Buy is not necessarily on impulse.”
Moreover, Guitar Center is a formidable competitor in the musical instrument space, Whalin notes. In the 1990s, a venture called Mars Music backed by former Office Depot president Mark Begelman emerged and grew to 50 stores. But the company had to liquidate in 2002, after only six years in operation, partly because it couldn't compete with the Guitar Center.
Overall, however, the venture into musical instruments is unlikely to make or break Best Buy, which commands a strong balance sheet and healthy sales figures overall.
You have to be innovative, especially today when consumers have to bear the high cost of gasoline and want to get the most out of the places they go to buy things, says Emanuel Weintraub, president and CEO of Emanuel Weintraub Associates Inc., an Englewood Cliff, N.J.-based management consulting firm. “The point is for the [extra] merchandise to be successful, it has to be well managed.
Retail consultants view more favorably the move by Walgreen Co., a Deerfield, Ill.-based drugstore chain, to sell moderately priced apparel. In April, the chain announced it was rolling out Casual Gear label clothing at 6,000 of its U.S. stores. The clothing, priced from $2.99 to $15 includes cotton capri pants, sweatpants, T-shirts and socks. “Why do drugstores have socks?” Weintraub asks.“Because the consumer is [already] in the store.”
One of the most important things retailers have to keep in mind when they consider adding non-core merchandise to their stores is that while it may help earn some extra dollars for a thriving chain, it won't help a struggling one, according to Weintraub.
Starbucks serves as an example. The Seattle-based coffeeshop chain proved successful in selling CDs produced by its Hear Music division, but now that it's experiencing difficulties, the number of CDs sold at its stores had to be reduced to just four.
“Extra merchandise is the icing on the cake,” says Weintraub. “When you have companies that don't have a strong balance sheet, that's another story. If the core business of Starbucks is coffee, selling CDs is not going to pull them out” of trouble.
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