Specialty Retail
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Industry Overview
Some 400,000 specialty retail stores operate in the US, with combined annual sales of about $350 billion. Large specialty retailers include The Gap, Best Buy, The Sports Authority, Barnes & Noble, and Toys "R" Us. The market consists of shoes and clothing ($125 billion); electronics and appliances ($85 billion); jewelry ($25 billion); sporting goods ($25 billion); books ($15 billion); toys, music, luggage, and pet supplies. The typical specialty retailer operates a single store, with annual revenue under $1 million.
Competitive Landscape
Demand for many specialty retail goods is driven by gains in consumer income. Large competitors can offer lower prices because they buy in quantity. Small retailers can compete with large ones by offering different merchandise or providing a higher level of service. Despite the presence of some large chains, specialty retail markets are highly fragmented. Barnes & Noble, for example, with over 900 stores, is the largest US bookseller but has a market share of only about 15 percent.
Products, Operations & Technology
Specialty retailers sell one type or product, as opposed to department stores that sell many different kinds. Like other retailers, they acquire selling locations, hire, train, and supervise store personnel, buy merchandise, manage inventory, and market products to consumers. Unlike department stores, which offer the convenience of shopping for different products in one location, specialty retailers offer a much larger selection of items within a product category. Numerous market segments can exist within each product specialty. Limited Brands operates six different store chains targeting different segments of the women’s clothing market.
Although specialty retailers may operate stand-alone stores in urban locations, most operate from leased space in shopping centers - either strip centers, enclosed malls, or newer stand-alone "superstore" malls. Some retailers lease space in department stores; Finlay operates 1,100 jewelry locations in 30 department store chains. Lease terms in shopping centers often call for a five- to ten-year contract; rents typically include a base payment and a percentage of sales. Failure rates for individual stores are high. Retailers with more than one store often operate one or several distribution centers that receive all merchandise from manufacturers.
Merchandising is the main preoccupation of most retailers, especially in fashion-driven markets like women’s clothing and computer games. Merchandise decisions must usually be made many months ahead of the actual receipt of the product in stores. Many products are bought at trade shows, also a major source of information about new products. Purchasing terms vary widely by market. In the retail book market, virtually all unsold book purchases can be returned to publishers at full credit; in the clothing business, returns of unsold items are unusual.
Inventory management is closely tied to merchandising. A good inventory information system will identify which items sell well and which don't. Specialty retailers must generally stock a wide range of items, although only a limited number are big sellers. Even small toy retailers stock 15,000 items, while the typical Barnes & Noble bookstore carries between 60,000 and 175,000 titles. Theft from stores and inventory (inventory shrinkage) is such a big problem that many retailers put electronic tags on merchandise.
