CSG Industry Experts:



Natasha Perry

Apparel & Department

Rebecca Ewing

Grocery & C-store

Arthur Rosenberg

Home, Hardware, & Discount

Loren McCollom

Restaurant

Brian List

Drug, & HBC

 

Our panel of Industry Experts and authors of CSG Through The Ages, brings you this year’s series: Recession Busters

Businesses need vision, strategy, and the right leadership to find success even in a tough economy.

Using the vast CSG database of historical data and inside knowledge of each industry, our expert panelists have followed the trends for the last decade and selected the Top 10 companies in each segment that survived the recession.

Each month we reveal a top company that weathered the storm. We will examine what they did, how they did it, and where they are going in the future.

Apparel & Department Store Retailers

 

Lululemon’s first real store opened in the beach area of Vancouver, BC in November of 2000. The first store shared its retail space with a yoga studio and an underground yoga-clothing movement was born. The success of the clothing was dependent on the feedback from yoga instructors who were asked to wear the products and provide their insights. The brands technical yoga and athletic apparel are now available in countries all over the world.

The company opened its first corporate-owned store in the United States in 2003. In 2005 the company had 20 stores in the US. Despite some more recent setbacks, the company has really busted through the recession. In 2010, Lululemon Athletica Inc. was featured in Chain Store Guide’s Fastest Growing Apparel Companies, and in 2011 the company appeared in Chain Store Guide’s Companies to Watch report. Lululemon’s total sales grew 489% from 2007 to 2013, a comfortable $270 million to a whopping $1.6 billion. Growth in store count from 2007 to its current total is 218%, growing from 80 to 254 locations.

Setting the bar in technical fabrics and functional designs, Lululemon continues to work with yogis and athletes in local communities for research and product feedback. All Lululemon locations have strong ties to local communities. Stores host in-store events ranging from self-defense to goal-setting workshops to complimentary yoga classes.

While Lululemon’s international expansion is under way and the chain’s first men’s stores will open by 2016, investor worries persist about its U.S. business, which represents two-thirds of sales. The company’s image is still recovering from the yoga pants recall and a controversy in November 2013 when founder Chip Wilson said some women’s shapes “actually don’t work” with Lululemon’s yoga pants.

Currently lead by Laurent Potdevin, the retailer is about to face a new headache: stepped up competition from rival yoga retailers, department stores and hot new brands. The company is facing aggressive competition from stores such as Gap Inc’s Athleta, VF Corp’s Lucy, Macy’s Inc. and others selling activewear at lower prices at far more locations. The biggest competition is expected to come from Athleta, which will open some 35 stores this year, tripling its locations to 100 stores in just two years.

 

 

 

Discount, Dollar, & Hardware Retailers

 

Before the recession was even reported on as the economy-killer it proved to be, our major national news sources were investigating what was to become the subprime catastrophe. This proved to be the economy killer of the home center/hardware/building industry as the recession approached and the building bubble burst.

As the weak underpinnings of the subprime fiasco became more apparent and so many consumers were finding their investments sinking under water, builders began to gasp for breath. They were followed in their difficulties by their suppliers, first the pro dealers and then ultimately by most members of the home channel supply chain, especially retailers. The recession then served to place a strong chokehold on a gasping industry.

Shortly prior to the sub-prime crisis, Home Depot’s second generation of management, headed by CEO Robert Nardelli, had decided to diversify the model home center warehouse dealer.  Under Nardelli’s guidance the company acquired several well-run, strong, regional pro dealers.

As the recession enveloped the economy, it became clear that Home Depot was then essentially becoming a jack of all trades and a perhaps a master of none. Questions arose throughout the industry as to where the focus of Home Depot could possibly be. After a very vocal rebellion by stockholders at an annual meeting, Nardelli was deposed.  His successor, Frank Blake was determined to fix the company’s financial challenges by returning the company to its roots and acted quickly and decisively to do so.

Under the Blake administration, the company almost immediately sold off all the pro dealer holdings the company had acquired through Nardelli’s leadership, at a considerable, though prudent loss.  At this time Home Depot also closed down a number of store types which had been established as almost ancillary investments to support the Home Depot retail brand. Blake’s focus was on getting back to the company founder’s vision, roots and financial successes.

Blake then used the harsh effects of the recession to turn the company on a more solid course, while indeed returning to those once precious roots. During Home Depot’s first generation of leadership, the company had instituted an exemplary system of recruiting and promoting talent, especially to man the company’s vast sales floors.  Under Nardelli’s guidance which often focused on pleasing Wall Street by cutting the bottom line, the company strayed away from its initial human resources track and not surprisingly found itself with a growing reputation for considerably weaker customer service. In the tough world of DIY this is a doomsday scenario.

Blake took advantage of the industry’s dire employment picture and began to implement a return to the old system by aggressively seeking the hiring of the many very qualified candidates who through no fault of their own were suddenly unemployed. Professional plumbers, electricians and carpenters soon were proudly serving Home Depot’s quickly returning customer base. Home Depot re-instituted its professional training program and its merit-based system of promotions- and customers were even more delighted.

Through no fault of its own, this industry was easily the most ravaged in U.S. retailing, first by the sub-prime mess and then by the recession. As with most of the industry, Home Depot took a tremendous hit as home building and buying virtually dried up or was under water. The moves of the Blake regime righted many corporate wrongs through rapid, bold and decisive actions. This includes competition-busting, merchandising implementations, especially in terms of all important seasonal offerings and appliances.

The company’s recent buoyant stock prices reflect its having left the ravages of the recession long behind. Home Depot is currently investing aggressively in a vast upgrade to its website capabilities, accompanying its building of three enormous fulfillment centers to promote a new distribution network designed to speed up delivery to customers in the modern world. This system is soon expected to greatly increase the variety and depth of products customers will be expecting from Home Depot, way beyond industry norms. It is expected that Home Depot will soon invoke a merchandising and delivery platform which can begin to emulate versatile giants such as Amazon.

 

 

 

Drug Store & HBC Chains

 

In the traditional sense of our methodology, Rite Aid is not a true recession buster. The company has experienced declines in both revenue and store counts over the past seven years. However, when thinking about a drug chain that has emerged from the recession a stronger and healthier company, the nation’s third largest drug chain immediately comes to mind.

Rite Aid attempted to get bigger and compete with the top two pharmacy operators in the country, CVS and Walgreens, with its acquisition of Brooks/Eckerd in August of 2007. Integrating the newly acquired 1,850 locations into its network proved costly: in December 2007, Rite Aid had record-breaking losses.  Shares of the company’s stock fell 75% and eventually dropped under $1. Today, the company is considerably healthier and stock prices are up exponentially from all-time lows. After 21 consecutive quarters of losses, Rite Aid has posted six straight quarterly profits and fiscal 2014 sales increased 0.5% as a result of same store sales increases from a leaner pharmacy network.

In addition to eliminating debt from the Brooks/Eckerd acquisition and trimming down its store network, Rite Aid can attribute a few distinct operational aspects to its recent success. Rite Aid acquired RediClinic, a retail clinic operator with 30 in-store locations. Many current Rite Aid locations have been remodeled to the company’s new ‘wellness’ theme format, a process that began in 2011. These stores feature an updated interior layout, new healthy food offerings, and an enhanced pharmacy department with smoking cessation centers as well as a GNC ‘store-within-a-store.’ Store employees used iPads to look up product information, coupons, or enroll customers in benefit programs. Current CEO John Standley, who was promoted from COO in June 2010 and current COO Ken Martinsdale, previously President of Pathmark, appear to have the company trending in the ‘Rite’ direction.

 

 

 

Grocery & C-Store Chains

 

Trader Joe’s is one of leading supermarket chains in the nation. It strives to help customers make healthy choices and feel good when walking through the door. The company guarantees that its products have been approved by a taste testing panel and will have no artificial flavors, preservatives, GMOs, partially hydrogenated oils, and are ultimately healthy and unique. Not only are customers enticed to shop there because of the amazing food, but the workers, all wearing Hawaiian shirts, are extremely helpful. If you have never been, just check out their website; I don’t even cook and the recipes they post online made me want to immediately rush to the store and throw a dinner party.

What is surprising about this healthy oasis, is that in 1958, when it was founded, it was actually a convenience store called Pronto Markets in Pasadena, CA. It wasn’t until 9 years later that the name was changed to Trader Joe’s. The most unique aspect of the store is that most of the products are from its own private label. Want Mexican? Try Trader Jose. Want Italian? Try Trader Giotto. Want wine? Try their delicious Two Buck Chuck, which are bottles of California wine for only $2.99.  Because it is all private label, prices stay down and instead of having coupons; every day is a sale day.

The company focuses on five main attributes in order to keep prices down. The first is that it buys directly from suppliers when possible and bargains to get the best prices. Second, if an item doesn’t pull its weight in stores, it goes away and is replaced with a new one. Thirdly, it buys food in volume and contracts with suppliers early in order to get the best prices. Forth, it doesn’t charge suppliers fees for putting an item on the shelves. Lastly, the company keeps costs low because, “every penny we save is a penny you save.” Every aspect of their business model reflects their motto of: great food + great prices = great value.

In the past ten years alone, Trader Joe’s has grown from having 214 stores to 437 today. The company is showing no signs of slowing down either, with 20 planned store openings by the end of the year. Along with its growing stores, its sales have grown from $2.5 billion in 2004, to an estimated $11.75 billion today. Most stores are between 8,000 to 12,000 sq. ft. and the company has the highest sales per square foot of any grocer with about $1,700.

Trader Joe’s also donates millions to charity each year. In 2013 alone, it donated over $260 million worth of products to food banks. The company also has a Birdies to Break Hunger program, where it teamed up with five LPGA players and donates $75 to food banks every time one of the players makes a Birdie. To date the company has donated $46,950. Each store also has its own Donations Coordinator in which the store can contribute to the neighborhood it is in.

If nothing else, the store is definitely an experience to go to, even if just to walk in and look at all the unique foods. If there isn’t a Trader Joe’s in your city, don’t worry, the company plans to continue expanding; so just sign up for their newsletter or download the app and be prepared for sensory overload once it opens in a neighborhood near you.

 

 

 

Restaurant Chains

 

“Return all telephone calls, even negative ones – you can turn them into positives, it has worked many times for me.”
– Frederick “Freddy” Simon

The above quote is only one of the many “Freddyisms” spoken by the founder of Wichita’s most famous frozen custard and steakburger concept. Fortunately for Freddy’s, returning a telephone call isn’t the only reason for the restaurant chain’s success during the recession – the credit goes to the food.

Although Freddy’s LLC was founded in 2002, its history dates back to the 1950′s when WWII veteran Freddy Simon returned home and began cooking up more than just steakburgers for dinner. According to the website, Freddy wanted his steakburger to be “reminiscent of an era focused on quality, cooked-to-order meals that bring families and loved ones together.”

After some time, two of Freddy’s sons, Bill and Randy, along with restaurateur, Scott Redler, worked to replicate Freddy’s original recipe in their first Freddy’s Custard & Steakburgers restaurant in Wichita, KS. In 2004, Freddy’s LLC decided to franchise its restaurant concept and increased its units to four. With 12 locations prior to the recession in 2007, Freddy’s LCC doubled its location count to 24 at the end of 2008 and almost doubled again to 40 locations by the end of the following year.

As of August 2014, there are more than 120 locations in 22 states with nine locations opening soon and near future development deals in ID, TN, and WY. With a 408% growth in locations since the beginning of the recession, Freddy’s LLC has no plans to stop providing fresh food, quality service, and helpful “Freddyisms” any time soon.