Retailers Expanding Internally

As an outside salesperson who does most of my selling outside of my office, one of the best ways to increase my sales is to sell more to customers that I already have. You can call it upselling, repeat sales, even brand extension.

Retailers have been expanding their offerings for years, either on a small scale such as convenience stores that sell nearly everything, to Walmart based super stores. Here's the latest move:

Stores Stretch Playlist

Guitars at Best Buy. Frozen pizzas at Menards. Yoga pants at Walgreens.

As the economy slows and the retail industry cuts back on investment in new-store construction, the time is ripe for dusting off a tried-and-true retail strategy: Sell more products in the stores you have.

Sometimes it works. For instance, Barnes & Noble Inc. changed the bookselling business by putting coffee shops inside its stores.

Other times, it's a strategy that sends merchants far into the weeds. Remember when Jewel sold lumber? But the temptation to stray from what a retailer does best is hard to resist when sales need a boost.

Over the past year, Eau Claire, Wis.-based Menard Inc., the home improvement chain, set up grocery aisles in three out of every four of its 240 stores, so shoppers can buy milk, canned goods, boxed dinners and frozen pizza alongside roofing materials and insulation.

Drugstore chain Walgreen Co. introduced a clothing line, called Casual Gear, at most of its 6,000 stores in April.

And last week Best Buy Co., the consumer electronics powerhouse, began selling musical instruments and music lessons at more than 75 of its 965 stores. The in-store shops offer more than 1,000 guitars, bass, drums, keyboards and recording equipment. Band instruments including entry-level trumpets, violins, clarinets, saxophones and flutes from Suzuki are available online.

It's not just the economic slowdown spurring merchants to get more creative with the categories they sell. Many existing retail concepts will reach the end of their "expansion runway" by 2015, at least in the U.S., TNS Retail Forward and PricewaterhouseCoopers LLP predicted in a recent report. That leaves firms with limited options for growth: Look for new markets overseas, develop a new retail concept or get more out of existing locations.

"Best Buy and a number of other large retail chains realize they're running out of space to open new stores," said Mary Brett Whitfield, analyst at TNS Retail Forward, a Columbus, Ohio-based market research firm. "If you look at the run rate of the major retailers for the past 10 to 15 years, it's just going to be physically impossible to keep that up in perpetuity. A lot of retailers are looking at 'How can I sell more things to the people already in my store.' "

Time for new items

Abt Electronics, a family-owned consumer electronics and appliance emporium in Glenview, IL, opened a 900-square-foot watch boutique, called Time, inside the 65,000-square-foot showroom in November. It intends to have a watchmaker on the premises later this year.

President Michael Abt admits selling watches is a stretch, but customers asked for them in surveys the store conducted. Abt already caters to well-heeled customers with image-conscious appliance and electronic brands such as Sub-Zero and Bang & Olufsen. The hope is that those same shoppers will be in the market for a $2,000 Rado or $12,000 Chronoswiss.

Abt is courting Patek Philippe and Rolex in hopes the prestigious watchmakers will allow Abt to carry their lines. And Abt is considering carrying handcrafted leather luggage by the end of this year.

"The limits of what these big boxes are leads retailers to continue to want to find a way to experiment," said Neil Stern, senior partner at Chicago-based retail consulting firm McMillan Doolittle LLP. "The question from the consumer is, what do you accept from the brand and what feels foreign."

Home Depot, for example, went too far off base when it opened a handful of convenience stores that sold candy bars, cigarettes, coffee and fuel in the parking lots of its stores in Georgia and Tennessee. The sixth and last store opened in June 2007 and there are no plans to open any more, said Sheriee Bowman, a spokeswoman for the Atlanta-based home improvement store. Still, Home Depot struck gold when it ventured into refrigerators and washers and dryers, and it has been chipping away at industry leader Sears Holdings Corp.'s market share.

Likewise, Starbucks garnered a lot of attention for selling books and CDs in its coffee houses in recent years. But now the Seattle-based chain is in the middle of a retrenchment, closing stores, laying off workers and refocusing on its main business of selling coffee.

"Retailers are trying to give the shopper a reason to hang out in their store rather than just come in and purchase what they need," said Barb Fabing, senior vice president of retail design and strategy at Arc Worldwide, a Chicago-based marketing services firm.

A natural course

Best Buy, for its part, views its foray into music as a logical extension of its existing business of selling music players, home theater equipment and compact discs, said Justin Barber, a spokesman for the Minneapolis-based company.

"Consumers have looked to us as a resource for music for quite a while," Barber said.

With the sales of CDs and DVDs on the decline as consumers download movies and music online, Best Buy is wise to look for new revenue streams, said Burt Flickinger, managing director of Strategic Resource Group, a New York-based consulting firm.

"There is so little competition, beyond Guitar Center and local independent stores, it should be a real destination category for Best Buy," he said.

(Source: Chicago Tribune, 8/4/08)

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