I had never heard of the retailer Rue21 (not to mention been in one of their stores) before reading about them in the Wall Street Journal (Rue21 Builds Business in Smaller Towns, May 27). But I must admit that they seem like an intriguing business:
The Warrendale, Pa., company—referred to on Wall Street as the 500-store retailer nobody has heard of—is still small, but it’s growing fast. The retailer added 88 stores last year and is on track to open another 100 this year, bringing its $25 ripped jeans and $16.99 floral strapless rompers to the likes of Searcy, Ark., and Union Gap, Wash.
Rue21 is one of a handful of retailers aggressively targeting secondary markets and rural areas—cities and towns with populations smaller than 250,000 that offer plenty of shoppers and few competitors. Children’s Place Retail Stores Inc. is taking a similar tack, with plans to open 65 new locations this year, of which 40 will be in strip malls. Maurices, a division of Dress Barn Inc. with a long-held rural strategy, will open 35 stores this year.
The attraction of smaller towns is less competition. Rue21 is picking places where they can be the hippest apparel store in town and don’t have to worry about the likes of Zara or Banana Republic. Supporting this business model is an operating strategy that seems to fit well.
The retailer’s growth has come from a focus on markets with fewer than 50,000 people and average household income of less than $55,000. The strategy is all about fast and cheap. Stores start selling within six weeks of signing a lease and typically cost just $160,000 to set up, including inventory. The clothes go for low prices and turn over quickly, with new styles arriving every day. Stores are profitable within a year, [CEO Robert] Fisch says.
What goes with this is a somewhat different approach to managing inventory:
Merchandising in secondary markets requires a different strategy than typical mall retailing. Most brands in shopping centers play it “narrow and deep” — the stores carry a limited number of styles with plenty of stock in all sizes.
Retailers serving a much smaller population take a “broad and shallow” approach, carrying a limited quantity of a wide array of styles. The strategy is meant to encourage shoppers to return frequently. Rue21 says shoppers come in between one and three times a week. “We have to always have something new for them,” says Mr. Fisch.
I find this last bit interesting. To some extent, Rue21 is another fast fashion player (the article reports that Rue 21 has worked to shorten its supply chain and can have trendy t-shirts on its shelves in two weeks) but the constraints of dispersed small markets add an interesting twist. I would have initially guessed that the major implication of being in small cities would be somewhat less aggressive styles. Outlandish styles are viable in New York City because one can find enough buyers out of the millions of residents. The same doesn’t hold Tilton, New Hampshire (to pick on the Rue21 location nearest my parent’s house in rural New Hampshire). But the inability to guarantee large sales for any fashions seems a real possibility. Fashion buyers want a unique look. A shopper in Chicago can pick out blouse at Banana Republic and be reasonably confident that no one else in the office will show up to work wearing the same thing; there are just too many shopping options in the Windy City. Again, the doesn’t hold Tilton, New Hampshire. If there is one other clothes horse in the office, there is a good chance they are frequenting the same store. Frequent product turnover then not only gives a reason to come in to the store, but also offers assurance of a unique look.