ris digs deep into hard data to spotlight the best-of-the

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RIS News is excited to unveil the first in a series of Top 10 Retailer lists it will pub-

lish in 2014. For our inaugural report we define specialty retailer as a merchant that

focuses on a specific and specialized range of products, such as sporting goods,

home improvement, auto parts, toys, electronics and so forth. Identifying which re-

tailers qualify as a specialty retailer was difficult, but RIS News and our research

partner wRatings are confident that our unique methodology and reliance on hard

numbers sets this series apart. The members of the Top 10 earned their spot on the

list through top performance on seven crucial metrics that examined not only a

company’s financial position but its social initiatives, customer loyalty and em-

ployee satisfaction. Throughout 2014 RIS News will be releasing three more Top

10s featuring Department Stores, Discounters and Apparel Retailers. Congratu-

lations to all the members of the Top 10 Specialty Retailers list.

RIS DIgS Deep InTo hARD DATA To SpoTlIghT The beST-oF-The-beST ReTAIleRS In The SpeCIAlTy CATegoRy

SponSoReD by:

B y T i m o T h y D e n m a n

C o V e R S T o R y

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Carter’sThe children and baby apparel and accessories retailer enjoyed its 25th consecutive year of sales growth in 2013, impressive considering the birth rate continues to drop to all-time lows. Carter’s turned in the greatest profit growth among the specialty retailers examined

with a 35.5% increase year-over-year. Sales numbers are expected to continue to climb — the retailer projects an average of 8% to 10% growth each of the next five years. To grow sales in spite of a shrinking demographic base, Carter’s continues to expand its retail footprint opening more than 60 locations in 2013 to bring its total to over 600-branded locations. In addition to its new-store expansion, Carter’s is investing in a new multichannel distribution center, supply-chain enhancements and upgrades to its order management system. The IT expenditures are in re-sponse to the company’s explosive online growth. In Q3 2013, e-commerce sales increased 50%, with earnings up 100%. The online success is due in no small part to the company’s strong social media presence — the retailer finished second in the social strength ranking.

Tumi HoldingsThe luxury travel, business and lifestyle accessories brand finished in the top five in five of the seven categories examined. The retailer took second place in both Glassdoor categories indicating a satis-fied workforce that agrees with the general direction of the company. Tumi Holdings has an extremely loyal international customer base which it is dedicated to growing by focusing its marketing efforts on its next generation customers. In Q3 2013 the company in-creased its marketing spend by almost 40% to build brand awareness through both traditional and so-cial media. The retailer is investing heavily in tech-nology to enhance the customer experience, in-stalling interactive digital concierges to promote and demonstrate products and assist customers. The technological advancements go beyond the brick-and-mortar space — the luxury goods re-tailer is preparing to launch a new e-commerce platform in mid-2014.

lululemon athleticaThe athletic apparel retailer came in first place in three of the categories examined — revenue change, W-Score and social strength — helping propel it to number three on the list. The Canadi-

an-based, yoga-wear purveyor came under fire last year when it botched a recall of defective pants. Founder and then chair-man of the board Dennis “Chip” Wilson blamed the defect on the size of the thighs of some of lululemon’s customers. Wil-son’s comments produced a media firestorm and public rela-tions nightmare for the brand, contributing to a more than 30% plunge in stock price — the second largest drop seen in this report. Despite the backlash, lululemon’s customers remained loyal to the brand, helping produce a 36.9% increase in revenue year-over-year and a near-perfect W-Score rating, symbolizing the retailer met customer expectations at an incredible rate. The retailer instituted a community-building program called “No Humbug” over the holiday shopping season, surprising shoppers with random acts of kindness to cultivate customer satisfaction and build in-store engagement.

Foot LockerDespite the seemingly endless options available to customers for athletic shoes and apparel, Foot Locker controls a 20% share of the U.S. sneaker market. It maintains market share through a vast brick-and-mortar presence, technology investments and clever advertising campaigns. The retailer provides an engaging customer experi-ence through one-on-one interaction with sales associates and innovative technology offerings at its more than 3,500 stores. Its sneaker customization tool at its Times Square location allows users to choose the color, fabric, logos, laces and heels of New Balance’s 574 model sneaker. In addition to the personalization of the shoes, the kiosk allows users to share their designs on Facebook and Twitter. Foot Locker is known for its pioneering marketing efforts. Whether it is sponsoring the three-point con-test at the NBA All-Star Game or producing buzz-worthy televi-sion commercials like the recent spot featuring Mike Tyson and Evander Holyfield, the retailer is able connect with customers and maintain its hip image. The athletic shoe retailer’s marketing efforts have paid off — the company posted double-digit percent-age growth in stock price, revenue and profit year-over-year.

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Home DepotThe largest home improvement retailer in the U.S. turned in top five results in both employee satisfaction and CEO ratings on Glassdoor. The long-held belief that the company is a qual-ity place to work was bolstered with hard numbers, helping pro-pel Home Depot to number five on this list. The retailer pro-vides a slew of benefits to its employees including health, paid time off and a profit sharing program — in 2013 the company allocated nearly $250 million into the retirement plan. Keeping the employee base satisfied and engaged with the brand is part of Home Depot’s overall omnichannel strategy. The retailer is focused on bridging the gap between online and in-store with a host of fulfillment options. To successfully implement the strategy Home Depot is leveraging two of its greatest assets: over 2,000 brick-and-mortar locations and its loyal associates.

The Container StoreThe Container Store strives to put the employee first in everything it does, a noble undertaking that has paid huge dividends in employee satisfaction.

The purveyor of all things organizational in storage posted a top five employee satisfaction rating and continues to roll out employee-centric initiatives to keep its workers engaged. On Valentine’s Day 2014 the retailer launched its Employee First Fund, with a $100,000 kick start. The program is designed to be employee-funded following the company’s seed money, and aims to provide financial relief to fellow employees suffering from unforeseen economic hardships. After 35 years as a pri-vate company the Container Store went public on November 1, 2013, and the influx of capital will be used in part to increase the retailer’s store count from 63 to over 300. In addition to

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rank SPECIaLTY rETaILEr

STOCk PrICE CHanGE YEar-OVEr-YEar

rEVEnUE CHanGE YEar-OVEr-YEar

PrOFIT CHanGE YEar-OVEr-YEar

W-SCOrE SOCIaL STrEnGTH

GLaSSDOOr CEO raTInG

GLaSSDOOr EMPLOYEE SaTISFaC-TIOn raTInG

FInaL SCOrE

1 Carter's 11.1% 12.9% 35.5% 87.9 85.5 76 3.0 50

2 Tumi Holdings -9.4% 20.8% 20.9% 88.2 77.7 89 3.4 53

3 lululemon athletica -32.7% 36.9% 34.0% 95.3 90.6 62 3.0 68

4 Foot Locker 11.7% 9.9% 13.3% 80.1 76.3 72 3.1 80

5 Home Depot 14.2% 6.2% 6.5 % 70.0 77.8 81 3.2 85

6 The Containter Store* 1.5% 11.5% 13.2% 68.5 75.6 70 3.2 88

7 O'reilly auto Parts 40.3% 6.8% 9.2% 87.6 68.8 67 3.2 89

7 Pier 1 Imports -12.7% 11.4 % 14.1% 85.0 77.2 69 3.0 89

8 Build-a-Bear Workshop 72.9% -3.4% -5.9% 68.9 78.2 94 3.8 92

9 The Finish Line 38.1% 5.4 % 0.9% 83.2 76.6 62 3.2 97

9 Dick's Sporting Goods 9.6% 12% 15.2% 67.1 77.2 64 2.9 97

10 Best Buy 46.1% 1.9% 0.3% 56.7 80.6 78 3.3 98

* Stock price examined from November 1, 2013 (IPO date) to January 31, 2014.


brick-and-mortar expansion, the retailer has upgraded its mobile expe-rience, strengthening visual navigation and social integration to help build on its 50% mobile growth.

O’Reilly Auto PartsO’Reilly’s stock price jumped over 40% during the pe-riod examined and continues to climb. The stock’s performance is in response to the auto parts retailer’s solid financial performance, with sales increasing 7% in 2013 to $6.6 billion. The retailer received a top five W-Score, indicating the company is consistently meeting customer expec-tations, helping to drive sales. O’Reilly opened 190 new locations in 2013 and plans to unveil an additional 200 in 2014, as well as three new distribution centers in 2014. Not only is the quickly-expanding retailer investing in stores and distribution, O’Reilly is dedicating capital to improve the customer experience as well. A loyalty card program was rolled out in all locations in Q4 2013, with four million customers already registered. A new POS system is in the works that will add flexibility and support sales efforts and dynamic targeted promotions.

Pier 1 ImportsPersonalization is the future of retail and the home fur-nishings and accessories retailer is on the forefront of the trend in both its product assortment and marketing efforts. The retailer scored in the top 10 in meeting the customer expectations metric, W-Score, fueled in no small part by providing shoppers with a host of per-sonalized options. Its home furnishings are available in a large assortment of colors, fabrics and styles — far more than Pier 1 could ever stock in its stores. Furniture shoppers require a lot of choices, but also demand delivery of their special orders as quickly as possible. In response, last year Pier 1 introduced Express Request allowing customers to special or-der furniture and take delivery in-store in 10 days or less. The company focuses a large portion of its marketing efforts on e-mail, and has upgraded its e-mail solution to disseminate personalized mes-sages to customers to help drive traffic.

Find Your Playing FieldBy Gary A. Williams

Warren Buffett’s annual letter came out recently and, as always, he put in a whole lot of gems. Due to my love of sports, my favorite this year was: “Games are won by players who focus on the playing field — not by those whose eyes are glued to the scoreboard.” In other words, focus on the future productivity of the company rather than its daily fluctuating stock price.

That got me thinking about the Top 10 Specialty Retailer list and how it would measure up to Warren’s guidance. The short answer: Excellent. I took the top 10 retailers (actually 12 on list) and stacked them against the bottom 10 (again 12). Investing $1,000 in each for the one-year period nets a return of 24.2% for the top 10. For the bottom 10, the yield is almost the same at 23.1%. Strange? Not really.

Let’s stop looking at the scoreboard and focus on the playing field. The average W-Score, a measure of the retailer’s competitive strength, is 78.2 in the top 10 and 53.2 in the bottom 10. To put this in perspective, that’s a jump of 1,179 companies in our universe of coverage between the top and bottom 10.

Digging deeper into the W-Scores, I can see three reasons why the top 10 outperforms the rest. First, they are far superior at product availability and products in-demand are in-stock. Next is the competency of the ser-vice staff. This is not only in-store but also on the web and social media. The retailers are more consistent throughout the customer’s journey. And lastly, the quality/price equation is fully aligned. Customers see the value of doing business with them, even if that may mean paying more.

The end result is that the top 10 grew revenue by 11.0% and profits by 13.1% over one year, whereas the bottom 10 shrunk their revenue by -2.0% and profits by -0.6%. Rather than focusing on the playing field where specialty retailers really win or lose, most investors remain glued to the stock price scoreboard.

Gary A. Williams is founder & CEO for wRatings. For more

information go to www.ratings.com.



RANK SPECIALTY RETAILER W-SCORE

1 Carter's 87.9

2 lululemon athletica 95.3

3 Coach 90.9

4 Tumi Holdings 88.2

5 O'Reilly Auto Parts 87.6

6 Advance Auto Parts 86.2

7 Pier 1 Imports 85.0

8 The Finish Line 83.2

9 Foot Locker 80.1

10 Big 5 Sporting Goods 77.7


Build-A-Bear WorkshopBuild-A-Bear Workshops enjoyed the highest year-over-year stock change of any retailer in the Top 10, posting an impres-sive 72.9% stock price increase. The retailer’s stock was down since early 2012, but rebounded following an impressive Q3 re-port that saw same store sales increase by 6.4%. The stuffed ani-mal retailer posted first place finishes in both Glassdoor metrics examined — employee satisfaction and CEO approval rating —

helping propel Build-A-Bear to a top 10 finish. Employee morale and job satisfaction is bolstered in no small part by the company’s generous benefits package — hourly employees are offered medi-cal coverage with the retailer absorbing 75% of the premium. The toy seller finished in the top 10 in social strength, powered by the company’s dedication to mobile as a brand-building tool.

The Finish LineThe athletic shoe, apparel and accessories retailer’s stock price increased 38% during the period exam-ined. The stock has continued to trend upward, hitting an all-time high in February, adding another 6% to investors’ portfolios. The Finish Line has upgraded its in-store and back-room technology over the past year to increase customer engagement, posting a top 10 finish in W-Score. To help boost associate and customer interaction and speed up the checkout process during peak periods, the retailer introduced handheld POS units across the chain. The company has invested in its supply-chain infra-structure to shorten at-home delivery times, while simul-taneously taking the burden off of its brick-and-mortar locations to stock product.

Dick’s Sporting GoodsThe sporting goods retailer finished in the top 10 in both revenue and profit change. A major contributor to Dick’s in-creased profitability has been the growth of its e-commerce business. In Q3 the retailer’s online business totalled 6.5%

of sales. The purveyor of everything sport expects e-commerce to be a $1 billion business for the brand by 2017 and is investing in technology and processes to support that growth and establish its web platforms as a core part of its overall omnichannel strategy. To help manage the increased sales volume the retailer plans to upgrade its transportation management systems, implement an e-commerce fulfillment solution and expand one of its four distribution centers. The retailer also plans to open two new DCs in 2016 and 2017.

Best BuyFollowing two straight years of stock price declines the electronics retailer enjoyed bullish returns in 2013 with shares increasing over 46% year-over-year. In fact, savvy investors with an eye for timing could have en-joyed even greater returns had they sold before Best Buy reported disappointing holiday numbers and share price took a bit of a dip at the start of the year. The retailer’s rebound in 2013 certainly had an effect on employee engagement with top five finishes in both CEO rating and employee satisfaction — propelling Best Buy to the Top 10. Customers have a strong affiliation with the brand, highlighted by Best Buy’s sixth place finish in social strength. Helping cement its relation-ship with shoppers was the introduction of ship-from-store fulfillment at 1,400 locations, leveraging the chains brick-and-mortar infrastructure for speedy home delivery. Over the holiday season Best Buy was able to post delivery speeds that bested online giant Amazon. RIS



MethodologyTo compile the Top 10 Specialty Retailers list RIS News examined more than 35 of the top retailers in the segment. Seven key metrics were used to compare the companies: stock price change year-over-year, revenue change year-over-year, profit change year-over-year, W-Score, social strength, Glassdoor CEO rating, and Glassdoor employee satisfaction rating. For stock price change, share price on January 31, 2013 and January 31, 2014 were compared. For revenue and profit change the last two full years of reported financials were examined, in some instances the last two reported years were 2011 and 2012. W-Score and social strength were compiled by our research partner wRatings. Social strength is a company’s ability to create long-term and emotional relationships with customers, while a company’s W-Score refers to its ability to meet customer expectations. Glassdoor.com’s survey results were utilized for the CEO and employee satisfaction ratings.

For each category, retailers were ranked from best to worst. The retailer with the best score in a category received one point. A perfect overall score would be seven. After ranking all seven metrics the retailer with the lowest combined score, Carter’s, was declared the winner. There are actually 12 members of the Top 10 due to ties at the 7th and 9th positions.


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