The Great Indoors pulls into Home Depot's Expo market - Statistical Data Included

Discount Store News, March 20, 2000 by Peter J. Gallanis

HOFFMAN ESTATES, ILL. -- As Sears' Denver and Scottsdale Great Indoors stores post double-digit comps, the fledgling chain prepares to enter the ultra-competitive Dallas market this fall and go head to head with its major competitor, Home Depot's Expo Design Center chain.

The growth plan calls for 15 additional stores in the next 18 months for a total of 150 stores in 40 U.S. markets within five years.

But with only two Great Indoors stores in operation, the chain has some catching up to do. There are 15 Expo design centers in operation; one already has a foothold in the Dallas market, and a Houston store will open later this year. Additionally, Home Depot announced plans to open 11 more stores in 2000, bringing the total to 26.

The chains have similar end-game plans: The Great Indoors plans for 150 stores in five years, and the Expo Design Centers plans for 200 stores in about the same time period.

While the Expo Design Centers are banking on the familiar Home Depot name, The Great Indoors is going to great pains to separate itself from its Sears parent. According to Sears, The Great Indoors doesn't want to lose its target market, which is more upscale than the full-line stores.

Apparently the strategy is working. According to Arthur Martinez, Sears chairman, president and ceo, the Denver store did an estimated $42 million in sales in its first year. Martinez expects sales to hit $50 million for 1999. The Scottsdale store is projected to take in $45 million in 2000.

That's good news, according to the analyst community. Skip Helm, a retail analyst with Chicago-based William Blair & Co., said the average volume for the Home Depot is about $40 million.

Since both chains are going after the higher-end market in a booming economy, Helm said he believes there's room for both chains in the market. But while it took Home Depot 10 years from conception to the first store opening, the first Great Indoors opened about 16 months after its conception. "At this point, I'm unsure if The Great Indoors is ready for prime time," Helm said.

He said he sees the biggest difference is the chains' offerings. Where The Great Indoors offers lots of "take with you" merchandise, the Expo Design Center chain carries much more special-order merchandise.

Further, The Great Indoors will face competition from other retailers, such as Bed Bath & Beyond, which posted an impressive 26.6% sales increase for the third quarter of 1999. The Great Indoors hoped to become category killers with other more traditional retailers, but unless it is ready to fight a two-front war, it may get caught in the middle.

Martinez expects the business to account for $10 billion in revenues and, with plans for 150 stores in five years and $22 million per store (in 2000 dollars), the total investment will top $33 billion.

Such an aggressive and expensive plan came to fruition due to overwhelming consumer response and results of in-house shoppers. Susan Smith, vp of operations for The Great Indoors, said "secret shoppers" were sent into the store to judge consumer response and how well the staff was serving the needs of the consumer.

"Our secret shoppers dropped their pens and began shopping themselves," Smith told DSN.

Smith, a 26-year Sears' veteran, said the chain currently has a skeleton crew and all team members wear several hats. She said The Great Indoors learned several lessons from both the Denver and Scottsdale stores, which it will apply to new openings.

One lesson learned was the differences in consumer wants from one market to the next. In the Scottsdale store, the chain is expanding the idea of decorative hardware, such as doorknobs. "Within four days we did $34,000, and that's a lot of knobs," she said.

The tile department has been expanded, and rugs have been moved to the great room department. The Dallas store will add kids bedding.

Other elements that are working well are matching skew offerings to each market. Where the Denver store has the look and feel of a ski lodge, the Scottsdale store offers a more casual, elegant look. The chain expects the Dallas store will be a bit more opulent to match that market.

One of the biggest challenges so far is trying to staff a store in markets where unemployment levels are at all-time lows, Smith said. "An average store needs 250 to 300 people." She said one advantage The Great Indoors has is the backing of Sears, which offers attractive benefits and competitive salaries.

Another problem is getting merchandise to the stores because the consumers are buying skews as fast as they can supply them. Part of the credit for the disappearing merchandise is attributed to Kassie Jones, vp of merchandising, soft home. Recruited three years ago, Jones was in on The Great Indoors from the beginning.

The merchandising techniques were formulated from listening to the customer. "Our customers told us the shopping experience was their number one concern," Jones said.

Research indicated that consumers were bored, they couldn't find what was advertised, and the service level from store associates was below expectations. "The shopper wants to be inspired, they want guidance, but they don't want to be told how to do something," she said,.