'Great' early returns

$500 per sq. ft. and rising at TGI

Carole Sloan, April 30, 2001

HOFFMAN ESTATES, IL — With sales per square foot at $500 and inventory turns at 3.75, The Great Indoors, Sears' home decor/home remodeling format, is moving to better these strong early results.

Smaller store footprints, two-level stores, mall presence, a dot-com presence, gift registries, a proprietary credit card, builder programs, a catalog and other extensions of its brand all are in the planning or about-to-be-launched stage.

Since its debut in 1998, The Great Indoors has modified some of its original concepts and is shrinking the size of the store. The original unit in Denver is 157,000 sq. ft., and the fourth store opened in November in suburban Detroit is 140,000 sq. ft. Going forward, the company is looking at 133,000 square feet of selling space.

With an aggressive expansion program of 11 new stores this year, and 10 to 15 for next year, The Great Indoors also is looking at different formats, including a two-level store, said Bob Rodgers, president. The first of the two-level stores will in the Denver market later this year.

As for the future of two-level units, "there has been a healthy discussion inside Sears regarding The Great Indoors vs. Sears in terms of some of our mall stores," said Alan Lacy, chairman and ceo. "It's a highly speculative situation. But if the market demographics are right and the existing Sears store is unprofitable, it could be a possibility," Lacy said.

Another variation from the norm will be a mall store that opens in the Columbus, OH, market in the fourth quarter, giving the company yet another variable for expansion analysis, Rodgers explained.

Overall, he said, there will be two stores opening in the Chicago market in June: one in Schaumberg and the other in Lombard; and one each in Cincinnati, Denver and Phoenix. Two will open in southern California in the third quarter. And another Detroit unit, two in Houston and the Columbus store will open in fourth quarter 2001.

Next year, the business will enter new markets in New Jersey, San Francisco and the metro Washington/Baltimore market.

Lacy and Rodgers discussed the future of The Great Indoors at an analysts' meeting earlier this month in Detroit where Lacy explained the cutback in new store openings was designed to ensure that the execution of the new stores was correct.

Part of the reason for the store-opening curtailment, Rodgers explained, was that the business began with 24 people at the time of the Denver opening in 1998. The organization grew to 100 people by last yearend and will hit 200 by this yearend. "We went from five buyers to 10, and they have store opening responsibilities as well," he said.

Now The Great Indoors has established a merchandisers position that Rodgers said "is an extension of the buyers' role. Then we have recruiting and training functions."

At the same time, The Great Indoors is moving from what Rodgers calls "an essentially hand-built business" to one that will use standard prototypes which will result in savings on such things as fixtures that will become standardized.

The results for the first four stores offer some interesting insights into how customers shop, Rodgers observed. With sales of $500 per square foot and comp sales in the 20 percent bracket in 2000, inventory turns were 3.75.

On a five-year pro forma basis, Rodgers said revenues for "four wall" performance are pegged at $65 million, store profit at $10 million on a 15.4 percent margin and total capital equalling $28 million. Rodgers also elaborated on the performance of the Scottsdale, AZ, store, and the Dallas and Detroit stores. Scottsdale, he noted, had first-year revenue of $50 million — 20 percent above Denver's first year — but it was in an area with virtually no competition. As a seasonal market with an influx of new competition, the subsequent growth rate was somewhat slower.

Dallas, which opened in August 2000, also is performing above the Denver pace in a high-growth market. It is situated across from an Expo Design Center, a move Rodgers said "was done by design." Detroit, which opened in November 2000, is performing at the Denver pace, and is targeted to an older, mature, blue-collar market.

But as important as new store openings are in building revenues, Rodgers emphasized, "We are now building systems — around the format. We purposely didn't do the reverse."

The organization expansion and new store opening expenses under a prototype format rather than a hand-built one also will be key investment modes for the next two to three years, Rodgers said.

Now that four stores are open, Rodgers is looking to leverage some of its strengths. "We see an opportunity to develop a builders program, which we will start in Denver. And we're launching a gift registry and a catalog next year."

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