At a time of slow sales and even slower growth throughout the retail industry, Woodward & Lothrop Inc. is making a $4 million leap of retail faith with a new, brightly lit specialty store at Fair Oaks Shopping Center in Fairfax.
Packed with a wide range of housewares and furniture, the Home Store at Woodward & Lothrop is really just a former department of the bigger store, spun off from the Woodies store a few doors away. With its opening Friday, the local department-store chain is trying to take one of its stronger divisions and make it into a star.
"This is a most unique venture for a department store," said Arnold Aronson, Woodies chairman and chief executive. "We've taken an entire home store, put it under a separate roof, given it its own name."
Woodies's new direction is not unique these days: With department-store sales slowing, many other retailers are diversifying by opening specialty retail outlets. J.C. Penney Co., R.H. Macy & Co., K mart Corp. and Sears, Roebuck & Co. are among the retailers that are seeing new opportunities for growth by experimenting with the specialty formula. Some, such as Woodies, have kept the parent name attached, while others leave no outward sign of the true owner.
But for department stores, the specialty retail route can be dicey -- presenting different management challenges because of the need to respond even more rapidly to changing consumer tastes. J.C. Penney's experience shows specialty's roller-coaster nature -- its Units apparel store chain is growing, while its Alcott & Andrews woman's clothier and In Detail bath stores are now shuttered.
"Department stores sat back for a while, while specialty boomed ... and now they are getting into the act," said Harris Gordon, partner in the Boston-based Deloitte Touche retail consulting group. "There is no reason they can't take strong parts of their operations and make them work better -- as long as they learn how to manage them right."
Woodies executives think they can do so with the 50,000-square-foot Home Store -- located where a Garfinckel's branch used to be at Fair Oaks. The new store brings together all the disparate home offerings of the department store nearby, including china, crystal, silver, housewares, gifts, furniture and linens, with no formal separation of departments.
Much of the store seems to concentrate on housewares, which yields a better profit margin than furniture, but Woodies officials said furniture will be a key element of the mix. In the new setting, all goods will be blended -- called "cross-merchandising."
"We wanted to get all the home-related things under one roof, strengthening further an area where Woodies has a solid reputation," said Jim Wells, executive vice president for stores at Woodies. "And customers will be able to get everything having to do with the home here in a way that was not possible to offer in the department-store setting."
In March, Woodies will pull its furniture offerings from its Chevy Chase branch and put them in a new, stand-alone store called Woodward & Lothrop Furniture and Design Gallery on the corner of Bradley Boulevard and Wisconsin Avenue in Bethesda.
Wells said the Fair Oaks specialty store can pull in more than $10 million in sales a year -- between $200 and $300 a square foot -- a figure much higher than the $150 per square foot made by the average department store. Overall, Woodies has about $1 billion in sales, including those of its John Wannamaker stores in the Philadelphia area.
The potential for higher returns with specialty stores has spurred other department-store operations to branch out to specialty retail. Macy's, burdened by heavy debt, is reportedly doing well with its more than 100 Aeropostale and Charter Club apparel stores and with the Fantasies by Morgan Taylor lingerie chain.
J.C. Penney, the multibillion-dollar retailer, also has been active with its specialty operations, including Amanda Fielding upscale women's stores and Portfolio furniture.
According to executives there, specialty stores are done on a small scale to test for growth potential before a larger rollout. Past attempts such as In Detail were quickly closed when sales and profits were not up to Penney's requirements. But its Units division turned into a moneymaker and has grown in less than five years to 200 stores nationwide.
K mart has gotten into specialty retailing in a big way, mostly through acquisitions of major subsidiaries such as Waldenbooks, Builders Square, Payless Drugstores, Pace Membership Warehouse Club and Sports Authority. The Pace and the Sports Authority deals were made just last year.
Specialty operations represent 15 percent of total sales and profits of K mart, which had $29.5 billion in total sales last year, said George Mrkonic, executive vice president of specialty retailing at K mart.
"We look to grow in areas where we can get at least $1 billion in sales within five years, or we are not interested," said Mrkonic. "Then we try to let them run autonomously ..."
Sears couldn't get that rhythm with its McKids children's stores, which were expanded to separate retail outlets two years ago from a department in Sears stores. Recently, Sears announced the closing of 47 free-standing stores -- though product lines will remain in its retail stores -- because McKids did not produce "an acceptable rate of return."
But Sears, which is struggling with its department stores, is operating a number of other specialty operations, such as Homelife Furniture, Sears Paint and Hardware, Sears Business Systems Centers, Western Auto, Tire America and National Tire Wholesale.
"Specialty outlets allow retailers to appeal to the unique needs of a market niche by offering a complete assortment in a specific category to the customer," said Sears spokesman Perry Chlan. "McKids did not work ... but we continue to work with a wide range of other store concepts, because we think it can be good business."
At least that's the idea. "It all depends on implementation, on the marketplace, on how customers feel about how it all comes together," said Deloitte Touche's Gordon. "But, most of all, department stores have to start thinking a little more like specialty operations."