Industry Profiles: Miscellaneous Shopping Goods Stores

Overview

Specialty goods stores faced accelerated competition in the early 2000s from large discount general merchandise stores such as Wal-Mart and Kmart, as well as from office supply giants such as Staples, Office Depot, and OfficeMax. These chains spread their outlets across the country and provided consumers not only with lower prices than small specialty shops but also with greater shopping convenience.

Nonetheless, numerous chain and independent specialty goods stores still operated and thrived in the early 2000s. Specialty stores often have a few competitive advantages over their general merchandise and office supply rivals, namely larger selections of special items and better service. Different sectors in the industry include book stores, jewelry stores, sporting goods stores, toy stores, and sewing and needlework stores.

History of the Industry

Bookstores The first bookstores appeared in the American colonies as early as 1640, with Boston becoming a pre-Revolutionary War center for both bookselling and publishing. By the time Benjamin Harris, who published the first newspaper in the colonies, opened a bookstore in 1686, there were already seven other booksellers in Boston.

Early bookstores were also more like variety stores than bookstores in the modern sense. For example, Andrew Bradford offered his customers merchandise ranging from feathers to pickled sturgeon. Thomas Fleet, a publisher of children's books in Boston, sold slaves from his bookstore. Moreover, colonial bookstores often carried a remarkable variety of books. In 1766, Boston shop owner John Mein published a catalogue listing more than 1,700 titles. Religion and philosophy dominated the early book trade. The widespread availability of books by John Locke and other philosophers who wrote about natural rights helped set the stage for the American Revolution and booksellers were often among the intellectual leaders of the colonies. However, novels were also popular.

Bookstores flourished between 1845 and the beginning of the Civil War. However, bookselling began to change dramatically about the time the war ended. In the late 1860s, most large publishers were operating their own bookstores in competition with independent booksellers. In addition, publishers began offering volume discounts to large drygoods stores that opened up book departments. Volume discounts eventually cut bookstores out of the textbook trade altogether and would remain an issue of contention between publishers and bookstores up until the present time, especially with the development of chain stores in the 1970s.

Drug Stores The drug store industry originated in the mid-1800s, when Americans began using patent remedies to treat illnesses. Some early pharmacists operated out of village apothecaries, where they purchased chemicals in bulk and mixed them on the premises to fill prescriptions. Following the Great Depression, pharmaceutical companies grew rapidly and opened sophisticated research facilities. The number of patents issued for drug products increased from fewer than 100 before 1940 to over 4,000 by the 1950s. Medicines began to be marketed in final-dosage form under a manufacturer's brand name rather than in bulk as generic ingredients. As a result, the number of drug stores increased, while pharmacists adopted a service-oriented role in dispensing prescriptions.

Jewelry Stores Since the beginning of time, jewelry has enriched human life in many ways. Jewelry has been used for gifts, ceremonies, and as a symbol of wealth. Ancient Egyptian kings were mummified with jewelry wrapped in the folds of their burial cloths. Turkish sultans lavished jewelry upon the women in their harems to enhance the women's beauty. Many religions symbolize marriage and other ceremonies with jewelry such as rings, crosses, and rosaries. Until recent history, each piece of jewelry was handcrafted. Now many pieces are mass-produced. Because many people consider jewelry a luxury item, sales are driven by the state of the economy.

The retail fine jewelry industry is divided into two types of enterprise: chain stores and independents, with chain stores predominating. The cyclical nature of the business had ushered in a recessionary era of poor sales in the early 1990s, but the industry had rebounded by mid-decade.

Independent retail jewelers fought a tough battle to maintain their identity in the competitive jewelry business of the 1990s. One such tactic has been the introduction of in-house credit cards, offered by the retailer and his or her bank. As the retail jewelry industry neared the twenty-first century, it faced heavy competition from home shopping channels. Successful jewelers, however, lured customers by adhering to traditional standards of excellence and offering products that could be trusted at reasonable prices.

Toy Stores With the opening of the first Toys "R" Us in the 1950s, retailing of toys in the United States changed forever. The vast retail chain began as a bicycle shop, was transformed into a juvenile furniture store, and finally became a toy store. Additional Toys "R" Us stores were soon opened. These outlets emphasize deep discounts and wide selections.

Another key factor in the growth of the retail sale of toys was the increase in the use of television advertising. In the late 1950s and early 1960s, television promotions reached into many homes where toy purchasing decisions were made.

Many toy manufacturers helped toy stores sell items by licensing products that were perceived as popular, or "hot toys." The late 1970s and early 1980s also saw the introduction of electronic games and toys. While retailers were enthusiastic about the tendency of buyers to purchase these items year-round, they suffered from a glut of products left on their shelves. These unsold items became so costly for some retailers that losses forced them to close in the late 1980s. This led to the consolidation of stores that occurred in the 1990s.

Sporting Goods Stores As the fitness industry sparked consumer appeal for exercise equipment, accessories, and athletic wear, trends gradually shifted from sporting goods stores, which were typically sole proprietorships and small "pro shops," to franchises and eventually sporting goods chains. Bicycle shops have even begun billing themselves as "bicycling and fitness" shops and have expanded their product mixes to include exercise bicycles, treadmills, climbers, and weight machines to capitalize on the craze. These types of stores appeal to a growing number of consumers who are exercising in their own home gyms. Although the fitness craze has leveled off, the demand for other sporting goods such as camping equipment, in-line skates, mountain bikes, and accessories has helped fill the void.

Sewing and Needlework Stores Many of the businesses in this industry opened in the 1940s and early 1950s as basic fabric outlets. Carrying garment-oriented sewing supplies, these stores catered to the post-World War II mother who sewed a large percentage of her family's clothing. Throughout the 1950s and into the 1960s, businesses in the home sewing industry prospered. Some businesses, such as Fabri-Centers of America, were able to grow from small local enterprises into national chains by acquiring or merging with other fabric retailers. In the late 1960s, however, the home-sewing market began to decline due to the increase of working mothers and affordable "off-the-rack" clothing.

Fortunately for retailers, the decline of home sewing was succeeded by a series of fads in other sewing and needlework segments. Entering the 1970s, the yarn and needlework crafts fared better than garment sewing. These types of crafts took less time and therefore were attractive to time-pressed women.

The industry continued to evolve as different sewing and needlework segments gained and lost popularity. Successive waves of craft trends dictated store inventories. In the late 1980s, for example, quilting became popular, immediately followed by fabric painting. The 1990s saw a revival of cross stitch and embroidery popularity. Though the colors changed year after year, the different crafts required the same raw materials like fabric, yarn, and notions.

Significant Events Affecting the Industry

The retail industry became dominated by large discount general merchandise stores that sold everything from clothes and food to books and household appliances. These stores included Wal-Mart, Target, and Kmart. Because of their large inventories, these stores can sell their products for less than small stores that specialize in one product line such as books, jewelry, or sporting goods. However, these large chains usually cannot provide the kind of personalized customer service available at specialty stores.

Specialty retailers also faced competition from catalog and mail order houses, which provided consumers with the convenience of shopping at home as well as competitive prices. Furthermore, the growth of the Internet allowed merchants to sell their products online, offering the same conveniences as mail order retailers. Some of these operations have experienced remarkable success. For example, Amazon.com, Inc. not only claims to be the largest online bookstore and the world's biggest bookstore (the company literally offered millions of titles at its Web-based store in the early 2000s), it also claims to have "the Earth's biggest selection of products." In addition to books, the Web site's offerings included CDs, DVDs, videos, games, toys, kitchenware, computers, and electronics. With infinite shelf space and no retail rent, overhead can remain low resulting in lower prices to consumers.

Key Competitors

Barnes & Noble, Inc. is the largest bookseller in the United States. In 2001, it operated almost 900 stores, including 590 superstores. The company is credited with introducing the superstore concept (which Borders has embraced) and has also established a significant online presence in an alliance with Bertelsmann. With the acquisition of Marboro Books in 1979, it entered the mail-order and publishing business. Barnes & Noble's subsidiary GameStop is the nation's top seller of video games. The company was first publicly traded in 1993. Sales reached $4.9 billion in 2001, up 11 percent from 2000. In addition to selling books, Barnes & Noble was planning to increase its publishing efforts in the early 2000s.

Once the largest bookstore operator in the United States, Borders Group, Inc. has been second to Barnes & Noble since 1992. Borders Group operates more than 1,200 retail stores, including 385 superstores, across the country. In addition to Borders stores, the company sells books online in partnership with Amazon.com and operates retail locations under the name Waldenbooks. Borders' revenues for 2002 climbed almost four percent to $3.4 billion.

The Sports Authority, Inc. led the sporting goods segment with $1.4 billion in sales in 2001, at which time it operated approximately 200 stores. The Sports Authority was the 1994 brainchild of Kmart. In 1998, Woolworth agreed to purchase the company. Other significant companies in the early 2000s included Gart Sports Company with 2002 sales of $936 million, Big 5 Sporting Goods Corporation with 2001 sales of $623 million, and Sports Chalet with 2001 sales of $215 million.

Although Wal-Mart was the industry's leading toy-seller overall, Toys "R" Us was one of the world's largest toy retailers in the early 2000s, with 2002 sales of $11.0 billion. At that time, the company operated 1,600 discount toy stores in the United States and other countries. K-B Toys also was among the leading American toy retailers, running more than 1,300 toy stores. K-B operates stores domestically and internationally, and also sells toys via the Web. Bain Capital owns K-B, which posted estimated sales of $2 billion in 2001.

Jo-Ann Stores, Inc. led the sewing and needlework segment of the industry. The company operates 960 stores throughout the United States and most of its stores are located in strip malls. Jo-Ann Stores was formerly named Fabri-Centers of America. The firm operates stores under the name Jo-Ann Fabrics and Crafts, as well as Jo-Ann Etc. In 2002, the company's sales rose to $1.6 billion. Hancock Fabrics, Inc. was another one of the country's major sewing and needlework stores in the early 2000s. In 2002 Hancock boasted of 440 stores all over the country and booked sales of $412 million.

Industry Projections

In the early 2000s, superstores continued to dominate the book store segment, with Barnes & Noble the undisputed leader. In 2001 book sales totaled $25.4 billion, barely increasing from 2000 levels of $25.3 billion, according to a Publishers Weekly report. However, this did represent a steady increase over 1997 levels of $21.3 billion. In 2001, book club sales accounted for five percent or $1.3 billion of total book sales. The higher education segment posted $3.5 billion in revenues from textbooks, up seven percent from 2000. In the consumer segment, sales fell about three percent in 2001, reaching $6.4 billion. Sales of both hard cover and paperback adult books fell more than two percent, reaching $2.6 billion and $1.9 billion respectively. Sales of children's paperback books rose almost 18 percent to $888 million, while children's hard cover book sales plunged approximately 23 percent to $929 million. Professional book sales fell almost eight percent to $4.7 billion, due to slack demand, especially in the category of computer books.

The sporting goods segment benefited from the U.S. fitness craze, which led to increased demand for sporting goods and bicycles in the 1990s and early 2000s. By 1996, there were more than 23,000 sporting goods stores and bicycle shops serving the nation. Retail sales of sporting goods more than doubled from $7.5 billion in 1983 to $17.3 billion in 1996. By 2001, manufacturer (wholesale) sales alone totaled approximately $15 billion. According to the National Bicycle Dealers Association, retail sales of bicycles were estimated to exceed $5 billion in the early 2000s. While adults between the ages of 25 and 44 constitute the mainstay of purchasers, industry leaders recognize a need to focus their marketing strategies on the inclusion of both younger as well as older consumer groups.

By the early 2000s, the toy segment had given way to intense competition from discount general merchandise stores, which, according to the Toy Industry Association (TIA), accounted for almost 42 percent of retail sales, followed by toy stores (21 percent). According to TIA, sales volume for the American toy industry in 2000 was $29 billion, a slight decrease from 1999 levels of $30 billion, but up from $27 billion in 1998. Stores ranged from independent shops to national chains that sold toys and hobby supplies exclusively. Leading toys during this period included Hot Wheels Basic Cars, PooChi Robotic Dogs, and Leap Pads. Computer/video games also remained popular during this period.

Although the sewing and needlework segment is dominated by a few large national chains, hundreds of small shops are scattered throughout the country. According to the Hobby Industry Association (HIA), in the early 2000s, needlecraft was the second-most-popular area of the $26 billion U.S. craft and hobby industry, accounting for almost 30 percent of sales. The big chain stores are a dominant industry force, with the top two firms having combined revenues in excess of $2.0 billion. The industry expanded in the mid- to late 1990s as a result of the popularity of arts and crafts and home decorating during this period. However, when discount general merchandise stores became aware of these consumer trends, they quickly expanded their selections of supplies related to sewing needlework, causing heightened competition in the industry. Consequently, stores specializing in sewing and needlework supplies began to consolidate, falling from 2,700 stores in 1991 to 2,000 in 1996. By 2001 discount stores generated 25 percent of overall craft and hobby industry sales, followed by craft chains (19 percent) and fabric and craft chains (12 percent).

Jewelry stores overcame the country's economic recession of the early 1990s with moderate growth in the mid-1990s. As sales picked up at the end of the decade, jewelry stores introduced a number of new products, including many new brands of watches. They also launched an extensive advertising campaign during this period to boost their sales. Sport watches remained one of their leading products. According to National Jeweler, this segment of the industry grew more than 40 percent during the decade of the 1990s, and revenues totaled $41 billion in 2000. However, sales fell after mid-2000 and were expected to continue falling into the early 2000s in the wake of a weak economy.

Shops that specialize in gifts and souvenirs were a billion dollar industry by the early 2000s. Gift and souvenir shops began growing in the mid- to late 1990s as U.S. consumers had more money to spend on non-essential merchandise during the country's economic prosperity. Collectible dolls, figurines, and ornaments accounted for a strong share of this segment's sales. In the early 2000s, the industry posted more than $55 billion in sales, according to Gift & Decorative Accessories. Home accessories and accents accounted for 30 percent of sales, followed by general gifts like desk accessories and children's gifts (25 percent). Stationary products accounted for another 25 percent of sales. While these segments all were experiencing growth, the seasonal items category remained flat, and sales of collectible items decreased almost seven percent.

Global Presence

Although U.S. toy stores have enjoyed some success abroad, the United States remains the world's largest market for toys. International trade has been a major part of the toy industry and a significant influence on the sporting goods segment as well. By value, the United States imports more than twice the amount of toys than it manufactures, with an average of almost $13 billion in goods imported each year in the late 1990s and early 2000s. China is the leading source of U.S. imports, supplying more than half, followed by Japan and Mexico. Important external markets for U.S. toys and sporting goods include Canada, Japan, the United Kingdom, and Mexico. According to the Toy Industry Association, nearly 45 percent of global retail sales took place in North America in the early 2000s. Many American toy stores have tried to capitalize on the changing face of the world. Toys "R" Us was one of the first U.S. retail stores to open in Japan, where it had established itself as the leading toy retailer by the early 2000s.

Sources for Further Study

"americas new bestsellers: how independent bookstores are shaking off the chains." u.s. news & world report, 16 april 1990.

barbato, joseph. "chain superstores: good business for small presses?" publishers weekly, 9 november 1992.

"consumers in doubt: in a time of uncertainty, how will the gift industry fare?" gift & decorative accessories, december 2001.

hobby industry association. "1996 nationwide craft/hobby consumer study," 23 february 1996. available at http://www.hobby.org/hia/cons.html.

hobby industry association. "2001 nationwide craft & hobby consumer usage study," 6 may 2002. available at http://www.hobby.org.

"industry trends debated at leadership council meeting." business product industry association (bpia) industry report, 15 march 1997.

janowski, ben. "mall stores: how strong a future?" jewelers' circular-keystone, january 1996.

lazich, robert s., ed. market share reporter. detroit, mi: gale research, 1997.

leib, jeffrey. "excess baggage? major changes are planned for samsonite, but what will they be?" denver post, 30 september 1996.

levenson, maurice. "fabri-centers." the value line investment survey, 22 november 1996.

———. "hancock fabrics." the value line investment survey, 22 november 1996.

———. "michaels stores." the value line investment survey, 22 november 1996.

meltzer, stephanie. "a bear market for teddies." american demographics, february 1996.

milloit, jim. "bisg predicts a 5 percent gain in book sales for 1997." publishers weekly, 7 july 1997.

mutter, john and karen angel. "sad tiding of the new year: superstores, location and local economies drive some bookstores out of business." publishers weekly, 29 january 1996.

"the sale of the year: great retail stocks." money, january 1996.

specialty retail update: industry report. new york: sanford c. bernstein & company, inc., 24 october 1996.

"state of the jewelry industry." national jeweler, 1 august 2001.

taylor, dennis. "very best not good enough." the business journal, 18 november 1996.

2001-2002 toy industry fact book. new york: toy industry association inc, 2001. available at http://www.toy-tia.org.