Traffic-building strategies boost productivity - Discount Store News Productivity Report

Discount Store News, August 5, 1996

Two key consumer trends are affecting the productivity and growth of a variety of product categories in discount department stores.

The increasingly popular home-based hobbies of caring for pets, computing, cooking and gardening are driving sales in those areas. Even more pronounced, the fierce battle to increase foot traffic is forcing retailers to focus more thought and action on store traffic-builders from prepared foods to stationery to health & beauty care.

The recently announced strategic contract between Kmart and Daka International is but one indication of the importance of food in driving top line volume. While not considered a "core business" by Kmart, the $350 million (1995 revenues) foodservice operation is certainly vital, since the chain could have decided to drop it altogether. By forming a joint venture, Kmart hopes to capitalize on its 1,850 fast food locations, which include more than 500 Little Caesar's franchises--and free store personnel for general merchandise duty.

Bradlees is one upscaling regional that may offer shoppers the choice of trading up in fast food even as they find higher-quality apparel and domestics in the store. Its new Bistro concept--which reportedly performs 50% better than Bradlees' generic snack bar--combines branded Pizza Hut or Taco Bell offerings with nonbranded selections including gourmet coffee, fancy desserts and health-oriented food. The seating and display ambiance, in a smart black and white motif, is on a par with mall-based food operations.

Healthier foods have been an option at Target snack bars for several years. Meanwhile the importance of food service is underscored in at least one Wal-Mart super-center. The Harrison, Ark., supercenter sports a wall plaque within the McDonald's area, with portraits of the founders of these strategic partners, Sam Walton and legendary hamburger hustler Ray Kroc.

Packaged foods are at least as important as prepared foods to go. The high-visibility test of Kmart's Pantry initiative points to the priority that Kmart president of merchandising Warren Flick has assigned to this traffic-drawing business.

The influence of lessons learned in supercenters and clubs is visible in the productivity surge of household chemicals. Deploying bulk multi-packs on endcaps might be mistaken for an extension of the discount store loss-leader tradition, but with floor space at a premium it means that chains have found a way to gain incremental margins.

H&BC is another traffic-builder. Wal-Mart rolled out staffed cosmetics counters several years ago, and has steadily gained access to more designer and brand name goods. Venture's appointment of [H.sub.2]O Plus ceo Kim Delsing to the board of directors coincided with its announcement that it will station new bath and body shops in its stores. This initiative will add skus to the current product mix and romance the goods as a separate department.

Stationery, long a traffic driver, has pushed impulse purchases to a new level by virtue of vendors' development of more attractive total-concept special occasion/office/scholastic departments with highly customized fixtures. The result is that more discount chains are devoting prime store real estate to stationery. Margins have remained at a robust 40%, and suppliers are working overtime to realize greater turn by playing up the seasonality and micro-marketing potential.

On the home front, the combined demographics of nesting by Baby Boomers and new household formation by Baby Busters is driving the productivity of higher-quality RTA furniture, notably chairs, stools and solid-wood items such as butcher block tables. Venture recently announced it will expand RTA furniture from 90 skus to about 115 skus, including more home office pieces. Most chains are expanding their tabletop home decor and giftware/collectibles sections, another component of the consumer cocooning phenomenon.

Turning cooking into more of an entertainment option, mass channel shoppers are spending more on cookware, serveware and kitchen storage and accessories.

Gardening and pets are top areas of expenditure by consumers, whose lavish affections for rutabagas and rottweilers translate into relatively high productivity for lawncare and backyard accessories, as well as pet supplies.

With more PCs than televisions sold in 1995, home computing has reached prime impact level in the mass market. Computer accessories are a good margin opportunity for discount department stores; together with video games, they make home computing both a destination and an impulse buy category.