Rue21’s Small Town Strategy
By Tom Ryan
Rue21, the off-price teen fashion chain, added 88 stores last year
and looks to open another 100 this year — but you may not see them. The expansion
intentionally focuses on secondary markets such as Canton, Ohio, Greeneville,
TN, and Union Gap, WA.
“The further we go out from metropolitan areas, the more profit and the
more sales we achieve,” chief executive Robert Fisch told The Wall
Street Journal. “The beauty of these under-served markets is there
is limited competition. They’re starved for fashion.”
The secondary market strategy also entails
lower operating costs. The retailer, which went public last November, focuses
on markets with fewer than 50,000 people and average household income of less
than $55,000. Stores typically cost $160,000 to set up, including inventory,
and start selling within six weeks of signing a lease. With a focus on low
prices and quick turns, stores are profitable within a year, Mr. Fisch said.
few other retailers — The Children’s Place and Maurices — likewise
are expanding rapidly in secondary or rural markets.
Hibbett Sporting Goods
targets county populations that range from 30,000 to 100,000. In its 10K, Hibbett
noted that targeting these smaller markets provides them with “important
strategic advantages,” including expansion opportunities,
comparatively low operating costs and a more limited competitive environment
than generally faced in larger markets. Added Hibbett, “In addition, we
establish greater customer, vendor and landlord recognition as the leading
sporting goods retailer in these local communities.”
One risk with
a secondary market strategy is competition from big-box retailers they often
sit alongside. Wal-Mart has an exclusive agreement to carry a line from teen
singer Miley Cyrus. Reality-television star Lauren Conrad launched a line at
Kohl’s. Target has been rolling out collections in collaboration with high-end
designers, including Zac Posen, and has a Converse fashion collection.
For some of these apparel stores, opening up next to these big boxes is strategic.
The hope is that customers go to discount stores for basics, such as plain
T-shirts, but look elsewhere for more current styles.
“They draw a lot of traffic,” David Jaffe, chief executive of Dress
Barn, which operates Maurices, told the Journal. “Everybody’s coming
for Wal-Mart, but at the same time they see our stores.”
Discussion Questions: What are the pros and cons of a secondary market expansion
focus such as the one employed by Rue21? How great a risk is competition
from big box retailers such as Wal-Mart or Kohl’s in the future?
- Rue21 Builds Business in Smaller Towns – The Wall Street
- Hibbett Sporting Goods 10K – Hibbett Sports