Unexpected goodies tempt shoppers

07/06/2011 12:00 AM

07/06/2011 6:37 AM

Trader Joe's, the specialty grocery chain, might not have the cheapest toilet paper or the most varieties of ketchup, but it hooks customers with mango butter, chocolate-covered pomegranate seeds and cilantro-and-jalapeno hummus.

These goodies aren't on most grocery lists, but they're eye-catching enough to tempt shoppers into an impulse buy. At a time when families are watching dollars and the Web makes discount-hunting easy, unexpected treasures are an increasingly important strategy for stores.

"It's the wow factor that's getting people to buy," says Wall Street Strategies analyst Brian Sozzi. "You walk into Costco for tuna and end up getting a Marc Jacobs coat."

So shoppers may go into T.J. Maxx or a DSW shoe store looking for a bargain on something they need but end up splurging on irresistible finds, from dirt-cheap Ray-Bans to half-price Puma sneakers.

Dollar Tree lures customers with rock-bottom prices on cleaning supplies, then tempts them with extras like leather iPod cases. And at Costco, tucked inside the hulking pallets of mayonnaise and paper towels is a section where shoppers never know what they'll find.

Costco has been using the term "treasure hunt" for years to explain why up to a fifth of its stock is limited-quantity items that are in the store for as little as a week. Sometimes it's seasonal merchandise, such as margarita machines in summer. Often it's surprisingly trendy — such as bargain-priced Hunter rain boots, sold almost exclusively in the U.S. by Nordstrom.

The wholesale chain shows that the treasure hunt strategy can pay. Revenue at U.S. Costco stores open at least a year was up 10 percent last quarter from last year, with strong growth in non-essentials like jewelry and home and garden.

Walmart, on the other hand, is still trying to correct itself after a move to pare down to the basics — the opposite of the treasure hunt approach — proved unsuccessful.

Constantly cycling in fresh merchandise is critical as the Web makes it harder for stores to compete on price. After all, why drive to a store that offers "everyday low prices" when you can find the same products cheaper online? Surprises also create suspense and encourage repeat visits.

TJX Cos., the parent company of T.J. Maxx and other chains that sell designer goods at a discount, gained momentum during the recession, when frugality came into style. That growth is continuing after the recession, at a time of high gas prices and stagnant incomes. First-quarter revenue at Marshalls and T.J. Maxx stores open at least a year was up 4 percent over the same period last year.

Sherry Lang, vice president of investor relations at TJX, says the company is focused on keeping trend-conscious customers as the economy improves. One advertising campaign features a real-world T.J. Maxx buyer on the prowl for hip fashions. "When I score, you score," she says.

The key is not only tracking down quality merchandise from vendors but getting it into the store quickly. To do this, T.J. Maxx and others have invested in sophisticated buying, planning and distribution systems.

The quick turnover creates a sense of urgency: If you don't buy it today, it probably won't be here tomorrow. When the economy tanked, TJX began cycling inventory through the store faster than ever before, Lang says. She believes that a rapidly changing assortment is the top driver of traffic, especially when stores are competing with the Internet.

Superstores like Kmart and Walmart are getting stung by online competition. Any mass-market product — think Jif peanut butter or Hanes T-shirts — can be comparison-priced online, and people tend to buy from the cheapest source. Increasingly, that's Amazon.com or another Web retailer.

But the off-price stores, such as T.J. Maxx and Marshalls, often pick up products that have been discontinued and sell them cheaply, says Michael Dart, co-author of the book "The New Rules of Retail." Shoppers probably won't find them for less — or at all — online.

When shoppers find these treasures, they want to share them. In the age of social media, peppering shelves with unexpected finds is a way to generate free publicity through tweets or Facebook posts. Devotees of Trader Joe's post comments on sites like Yelp about interesting new products they've tried. On Twitter, there is a "MaxxFinds" hashtag that users affix to tweets about cool stuff at T.J. Maxx stores.

"They have these consumers marketing for them," Mityas says. "If you're a retailer, that's basically the Holy Grail."

By embracing the treasure hunt, dollar stores have been able to keep the middle-income shoppers they attracted during the recession. Dollar Tree CEO Bob Strasser told analysts the store has taken the opposite approach from Walmart, expanding its assortment of "fun" discretionary products and adding more brand names. That means more surprises to tempt shoppers.

It's working. Dollar Tree's revenue at stores open at least a year was up 7.1 percent in the most recent quarter. Both traffic and the size of the average transaction increased.

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