HOT TOPICS’S NEW FLAME
THIS FAST-GROWING RETAILER IS READYING A CONCEPT GEARED AT PLUS-SIZED TEENS.
Byline: Kristin Young
CITY OF INDUSTRY, Calif. — A large cardboard box filled with hundreds of messages from Hot Topic customers sits on the desk of Betsy McLaughlin — and the chief executive officer and president of the trendy, mall-based chain has read every one.
“‘You guys need less Abercrombie-friendly stuff, I love your store.’ We get this one a lot,”‘ McLaughlin said with a laugh.
It’s just one of the thousands of such musings from teens who flock to Hot Topic to snap up rebellious clothing and music-influenced merchandise.
“They don’t joke,” she said. “This is serious stuff because not many people ask teenagers what they think. This is where the idea for a plus-size store came from.”
McLaughlin is referring to Torrid, a new plus-size retail concept and the latest venture for the publicly held chain, which now has 274 stores. It seems strange that the gothic retailer would head into the plus-sized arena, which has not been the trendiest apparel segment.
However, under the guidance of Orv Madden, Hot Topic’s founder and until recently its ceo, the company determined that from 40 million to 65 million large-sized women ages 15 to 30 can’t find cool streetwear or clubwear. Plus-sized retailers such as Lane Bryant offer large-sized careerwear or casual clothes, but not edgy fashion.
In the past two years, a flood of notes, phone calls and e-mails have poured in requesting plus-size versions of vinyl or leopard pants, mesh tops with flame prints on the sleeves, or metal pyramid-studded belts. So, Hot Topic began testing sizes 15 and up and found favorable results.
“It became our number one request and they wanted a store of their own,” said McLaughlin, noting that more than 30 percent of teenagers are a size 14 or higher. “It’s a different plus-size customer than it was 10 years ago.”
Hot Topic will open its first Torrid store on April 19 at the Brea Mall in Brea, Calif., and an additional five stores are slated to open in geographically diverse U.S. markets in May and June, although McLaughlin remains mum about their locations.
Torrid will offer street-, club- and casualwear, but beyond a 10-to-15 percent crossover in styles, little else will link the two concepts, said McLaughlin. The company plans to watch how Torrid does during the back-to-school and holiday seasons and then begin a full-fledged rollout in 2002.
“I don’t think we know best,” she said. “I think we’re going to learn so much from that customer when that customer walks into our store.”
McLaughlin declined to reveal first-year projections for Torrid, but said she expects it to be a growth vehicle for Hot Topic. Analysts said the chain expects to spend less than $1 million on Torrid and break even or lose a little in 2001 or early 2002.
Hot Topic has been in growth mode since 1992, when the mall-based chain burst onto the scene with a new concept and 15 stores. Now, it plans to open 60 units a year until it hits the 800 mark.
“We have an anticonventional way of doing things,” said McLaughlin. “We will put one store in every major market and then we’ll go back and fill in [additional stores]. Most go into markets where we already are.”
All new and renovated stores will sport a fresh design, which is less gothic and more “club-oriented” with large iron tunnels guiding store entrances. A Laguna Hills, Calif., unit already sports the new interior presentation.
Hot Topic has become a Wall Street darling and not surprisingly, considering the store’s numbers. Monthly same-store sales increases are consistently in the double-digits. Third-quarter sales of $74 million, ahead of last year’s figures by about 54 percent, indicates the retailer is on its way to another stellar year. Same-store sales shot up 15.3 percent for the quarter ended Oct. 28. Continued growth is also expected from its e-commerce site, which has been profitable since 1997.
With more than 26 categories, no brand or classification represents any significant portion of the retailer’s inventory. Among the labels it offers are Caffeine, UFO, Dickies, Replicant, Kik Wear, Lip Service and Serious.
The retailer stays true to the 50/50 rule, said McLaughlin. That is, 50 percent women and 50 percent men’s offerings, 50 percent apparel and 50 percent accessories, 50 percent music licensed goods and 50 percent music-influenced merchandise. The chain has been fairly consistent with this rule for the past five years. Early on, the store was more accessories oriented.
Markdowns are generally about 10 percent of total inventory, with aging goods making up about five percent.
“As far as I’m concerned, you’ve got to bring in enough product to maximize the category and if you can keep markdowns down and keep currency around 95 percent, you have a healthy business,” said McLaughlin. “And that’s one of the reasons why we’re consistently higher than industry standards.”
The store’s demographics aren’t shabby either. Teens are outpacing the total population growth and the most significant increases are expected within the next five years, studies have indicated.
With its strong financial results, one would expect to see an army of conventional buttoned-up bean counters at the company’s headquarters. Instead, there are young employees, many of whom sport pink and green hair, pierced chins and eyebrows and platform shoes. A boardroom has a coffin in one corner. Another has an opium pipe propped up on one wall. The assembly area, where shareholder meetings are held, looks like a nightclub.
But if there’s one secret to Hot Topic’s success, it’s the company’s keen awareness of the alternative music scene that is a direct result of intense contact with the customer. The company even reimburses store employees who go out to a concert and come back with a fashion report.
McLaughlin even attended a Marilyn Manson concert on a recent Saturday night.
“If Gwen Stefani colors her hair cupcake pink and puts a bindi on her forehead, we’re going to have it first because we were there and saw it first,” she said, noting the pressure to carry the next big thing sometimes keeps her up at night.
Keeping with its populist theme, the store’s buyers are encouraged to answer their phones at all times because a store employee just might have the next million-dollar idea. The chain has even become a credible voice among its vendors because of its ability to gather information.
“We can put a message out on our Web site and ask if our customers have heard of a particular band,” said McLaughlin. “The next day, we get hundreds, if not thousands, of responses from every area of the country saying what they think about the band. It’s that kind of information flow that’s so valuable.”
That doesn’t mean Hot Topic won’t reject an idea. The store will not carry anything Satanic, violent or anything advocating drugs.
“We recognize that when you’re in a mall and mothers are walking by with their little kids they can see in and there’s a certain amount of responsibility there,” she said.
Mainstream offerings are shunned, as well, so don’t expect to find a Madonna or ‘NSync T-shirt on the shelves.
Like communicating with customers, Laughlin champions an open-door policy with company employees. The executive sits at a desk in a huge central room, within earshot of about 150 workers.
“We’ve been selling to Hot Topic since 1992,” said Magnus, the owner of Los Angeles-based streetwear firm Serious, who goes only by his first name. “They really value the vendor relationship. The beauty is that they’ve stuck with us through the highs and lows of our career, and we get paid on time.”
Drew from Lip Service concurs: “They’re the only chain we deal with,” said the first-named owner of the Los Angeles streetwear firm. “If we run into production snags, they’re totally understanding. We haven’t even entertained other chains. We politely decline.”
McLaughlin already has Hot Topic’s next big idea in mind, but stay tuned, because, she said, “I’m not going to tell you what it is.”