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Right: Even in difficult economic times, three of North Carolina's biggest retailes -- Lowe's, Belk and Family Dollar -- have been able to keep their parking lots full

What Recession?
Consumers' desire to feather their nests
leads to growing sales at many retailers

By Jerry Blackwelder

Despite workplace layoffs emptying everything from corporate suites to factory floors, a shaky stock market and skyrocketing trade deficits, many North Carolina retailers these days are scratching their heads and saying, “What recession?”

From household cleaners to leather sofas and upscale ladies apparel to lawn mowers, North Carolinians are still shopping, allowing more than a few retail companies to emerge from the latest economic storm unscathed. In fact, retail giants Lowe’s, Belk and Family Dollar — each headquartered in the state — actually came out ahead. All have launched aggressive expansion into new, untapped markets.

The downturn officially began in March of last year, according to government agencies. Joblessness in North Carolina became contagious. “We are still more dependent on manufacturing than the nation as a whole, and this recession hit manufacturing,” explains Gary Shoesmith, a professor in Wake Forest University’s Babcock School of Management.

Layoffs spread to construction and even invaded finance, insurance and real estate. Unemployment in Charlotte, the Triangle and the Triad eclipsed the recession of the early 1990s. Yet in the midst of such bad news, retail sales in North Carolina showed only a five percent drop from 2000 levels.

“Like everyone else, we would prefer to be operating in a strong economy,” says George Mahoney, executive vice president of Charlotte-based Family Dollar Stores. Nevertheless, he added, “we’ve had a very good year. We continue to open new stores and generate additional sales from existing stores.”

As of May, Family Dollar operated 264 stores in its home state, 10 more than in the previous year. The new stores were part of a significant expansion strategy to add 525 stores before the company’s fiscal year ends in September. The additions will mean Family Dollar’s presence in the retail marketplace extends to more than 5,000 storefronts in 40 states from Maine to Florida and Arizona to Minnesota.

Family Dollar also recorded substantial gains in sales and earnings during the downturn. Sales rose 12 percent in the first six months of their fiscal year, and earnings mirrored that growth.

Mahoney says three factors contributed to Family Dollar’s ability to prosper while the economy shrank. First is the strategic decision made long ago to operate small stores, ranging from 6,000 to 8,000 square feet, in neighborhoods rather than shopping malls or retail centers.

Convenience of shopping is paired with an everyday low price philosophy to keep consumer costs down. The average shopper in a Family Dollar Store spends $8.60 per trip.

The third component of the winning formula is simple, Mahoney explains. “Regardless of the economy, we sell goods that people need.” Household paper products and cleaners lead the list of low-cost products people use every day. As the economy strengthens Mahoney expects sales of Family Dollar’s discretionary items, such as giftware, candles and artificial flowers, to pick up.

Feathering the Nest

Sales of products for the home overall have fared well even as the economy faded last year. Furniture sales, long a key component in North Carolina retailing, have seen a surge in recent months. “It’s been an incredible swing for furniture retailers,” says Britt Beemer of America’s Research Group, a national consumer research firm that regularly conducts surveys of shopping habits across the country.

Many furniture stores, Beemer notes, struggled last year just to equal sales levels from 2000. Furniture fortunes turned, though, and Beemer’s Consumer Mind Reader findings in May of this year saw shoppers spending 19.6 percent more than the same month a year ago on home furnishings

That statistic is a good omen, both for furniture retailers in general and the North Carolina economy in particular. “North Carolina continues to be recognized nationally as the furniture shopping capital,” says Beemer, who has interviewed more than four million consumers since launching his Charleston, S.C.-based research firm in 1979. “I doubt that will ever change. There’s too much infrastructure in North Carolina to take away the furniture retail base. The Hickory Furniture Mart wouldn’t be built anywhere else.”

Leroy Lail, chairman of the Hickory Furniture Mart, agrees. He even investigated the possibility of branching out, but concluded that Hickory indeed was the place to be.

In 1959 the mart opened to allow area furniture manufacturers to showcase their goods, primarily during the semi-annual furniture markets that draw tens of thousands of wholesale furniture buyers to the state. By the early 1980s the manufacturers had begun relocating their showrooms to High Point, the home base of the world’s largest furniture trade show, to make it easier for buyers to see and order their goods.

In 1985 the doors of the Hickory Furniture Mart opened to the general shopping public for the first time. It had been transformed into a retail shopping Mecca for home furnishings, an entire shopping mall devoted to furniture.

The concept took hold, and the mart became one of North Carolina’s top tourist destinations. Today the mart is home to more than 100 retailers of home and office furniture, accessories, fabrics, lighting, rugs and wall coverings. Hearty shoppers can browse a thousand different product lines spread across a million square feet of enclosed stores.

Almost half a million shoppers make the trek every year, a significant portion coming from areas outside North Carolina. “We began to see a slowdown in travel last March,” Lail says, which was the same time the recession officially took hold. It appears, though, that the bulk of those who stayed home were the window shoppers. Those now coming to the Hickory Furniture Mart have done their homework, compared brands and prices, and essentially made the decision to buy. “Today’s furniture consumer is definitely more educated and aware,” he says.

Those who shop the mart aren’t greeted with a dozen sofas end-to-end on a warehouse floor, but rather displays of how the sofa might look in their living room, accessorized by lamps, tables and chairs. That’s how manufacturers originally displayed their products for wholesale buyers in the mart, and the technique of room settings obviously appeals to retail customers as well.

Manufacturers began promoting the showroom gallery display concept to their dealers in the early 1980s, and offering the shopper the opportunity to visualize how furniture might actually look at home has spread throughout the industry.

“Home, hearth and family,” Lail says. “Those are the things driving retail furniture.”

Likewise, those same priorities are propelling other home-based product sales. “We’ve seen a resurgence in interest in and focus on the home in the last 18 months or so,” says Chris Ahearn, spokesperson for Lowe’s Home Improvement Stores. That resurgence translated into the most aggressive expansion program in the entire history of the Wilkesboro-based national retailer.

“We’re having a great year,” Ahearn says, citing as evidence annual sales exceeding $20 billion for the first time, the company’s debut on the Fortune 100 listing, and the launch of 46 new stores across the country.

Lowe’s is now an established industry giant, the 13th largest retailer nationwide and the 30th largest around the world. Seven million people a week shop the aisles of nearly 800 Lowe’s Home Improvement locations in 43 states. In the mid-90s the company shifted its new store strategy toward major metro markets and now residents of Boston and New York City can shop Lowe’s stores just like homeowners in Albemarle and Boone, small towns where stores opened earlier this year.

Belk: ‘We Feel Good’

Nationally, at least one segment of the retail industry has taken a hit. The recession prompted many budget-conscious American consumers to tell Britt Beemer’s interviewers that they had abandoned or reduced their visits to department stores. The effect was so great that only one department store company in the nation showed an increase in comparable store sales.

The industry exception would be Charlotte-based Belk, which defied the trend and opened five new stores last year. The largest privately owned department store chain in the nation is adding nine new stores this year to bring its total to more than 210 locations in 13 Southeast and mid-Atlantic states. “We haven’t seen a slowdown at all,” says Steve Pernotto, spokesperson for Belk. In fact, he adds, “We feel good about the short term and the long term.’

The model Belk store is around 60,000 square feet offering branded merchandise and apparel at moderate to upper price points in medium-size and smaller towns. But that hardly tells the whole story. The key to bucking the industry and prospering lies in more than just the direction the economy is headed, Pernotto says.

“We have a number of things working in our favor at Belk,” he notes. “We’ve made some strategic merchandising decisions, we have dedicated employees, and probably most of all a loyal customer base.”

Belk has also been helped by its strategy of locating in small and medium-size markets in the South. While many national and regional department store chains suffered from losses in major metro areas in other parts of the country, Belk was able to grow its presence in existing service areas in the region.

Even so, in the midst of continuing success the company is paying attention to the bottom line. Pernotto says a grass roots initiative among Belk’s employees generated more than a thousand ideas for identifying and eliminating waste in the organization.

Consumer Confidence Rises

It’s clear that not all retailers have fallen prey to the economic slowdown. Hickory Furniture Mart’s Lail calls the current retail climate home, hearth and family driven, and Lowe’s Ahearn agrees. “People are staying closer to home and family,” she says. “For most people their home is their greatest investment, and now they’re remodeling the kitchen they had planned for two years or building a deck or landscaping the yard.”

The return to home and family, first appearing when the recession began, intensified after the terrorist attacks last Sept. 11. People began simplifying their lives, Ahearn says, traveling less and desiring to come home to a comfortable, secure environment. Homeowners today, she feels, want to create a haven from the world’s stress for their family and friends who visit.

Clearly many of  those retailers experiencing growth today are the ones who were poised to take advantage of the “return home” trend with a ready supply of needed merchandise at attractive price points.

Retail spending has also been fueled by last year’s federal tax refund and the refinancing of mortgages by homeowners, which occurred in record numbers last year thanks to low long-term interest rates.

For those retailers who have suffered along with other economic sectors, Wake Forest University’s Shoesmith says help is on the way. He notes that growing consumer confidence and increased retail sales indicate that a modest economic recovery with low inflation is already under way. He cites first quarter growth of 5.8 percent in real gross domestic product, personal consumption rising 3.5 percent and low inflation at 1.2 percent as indicators of an uptick in the economy.

Good news especially for North Carolina is a gradual turnaround in unemployment. Shoesmith says joblessness should have began to drop this summer, culminating with only a .3 percent decline in overall employment for the year. This should be followed by a 1.3 percent increase in jobs during 2003, he believes. “Overall the data indicate that the United States economy is turning the corner,” he says. “We saw positive job growth in the first quarter and this summer we should pull out of the brief recession.”

He predicts retail sales overall will begin a growth trend once the economy rights itself. And that’s more good news for North Carolina retailers.

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