R.I. discount retailers thrive while bucking online trend

Inside the Ocean State Job Lot store in Pawtucket, Joe Auger flipped through a sales flier. He was on the hunt for an outdoor extension cord, the one advertised at $15 for 25 feet.

One aisle over, his wife, Susan, found a gift for their great-grandson, a GMC Yukon toy truck, for $5. Not on the shopping list, but a deal nonetheless.

“Something extra,” she explained.

The Augers, like many consumers, come regularly to Ocean State Job Lot for the thrill of the bargain. Like Benny’s, another iconic Rhode Island retailer, it is enjoying consistent growth despite competition from both brick-and-mortar and online stores.

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That neither company sells online has been, at least in the Internet age, what has defined them. Nationally, Internet sales are growing faster than retail store sales. How much longer either Rhode Island-based retailer is able to buck the trend remains to be seen, but both still see a future in traditional shopping.

They are targeting old-fashioned shoppers, the people who want to feel fabric, read labels and hold items in their hands.

Ocean State Job Lot, which operates 120 stores in eight states, opened six new stores in 2015. It expects to open two to three more in the first quarter of 2016. The retailer is known for selling close-out items at a deep discount, as well as having rapid turnover of goods.

The idea is that you’ll never know what you might find. In December, it was a $99 space heater shaped as a New England Patriots helmet, quickly snapped up by football fans. In previous years, it was a small lot of Austrian crystal glasses sold for $4 each, or David Chu suits. All sold well below suggested retail prices, said David Sarlitto, a company spokesman.

“The name of the game here is value,” he said.

LOYAL FOLLOWING

Benny’s, established in Rhode Island before the Great Depression, has also had sustained growth, according to its chief executive. It operates 32 stores, including 14 in its home state.

Benny’s has less variability in its inventory than Ocean State Job Lot. It has more consistency from month to month in what customers will find. They come back from loyalty, said Arnold Bromberg, co-owner, whose grandfather, Benjamin Bromberg, founded the company.

“The population hasn’t grown in this area, but the families stay here,” he said. “We’re in neighborhoods. People count on us to have what they need, when they want it. We have top brands. Our prices are as competitive as anyone’s.”

Benny’s also enjoys a reputation for service, including employees who can find what you need, even if you can’t remember what it’s called.

“The doohickey that goes at the end of the whatchamacallit: We’re very good at that,” Bromberg said.

The two businesses are considered midsized discount retailers, according to analysts, occupying a smaller geographic footprint than Big Lots or Dollar Tree, but large enough to capitalize on scale when moving product.

Ocean State Job Lot, which employs more than 4,000, had $650 million to $700 million in sales in 2014. It has enjoyed “healthy growth” since that time, according to Sarlitto, although he declined to state a sales figure. The company has its headquarters in North Kingstown.

Established in 1977, the retailer operates 16 stores in Rhode Island. New openings now are coming, including in Massachusetts, New Jersey and New York.

Benny’s, which does not disclose sales, also claims consistent sales growth, according to Bromberg. “The recent trend is growing,” he said. “When the Rhode Island economy was terrible, it sort of was reflected [here]. But we’ve seen a nice turnaround recently.”

The business, headquartered in Smithfield, has maintained its footprint of 32 stores in Rhode Island, Connecticut and Massachusetts for several years. But it is expanding physically by increasing store size, or moving to larger stores, and economizing by selling space within stores, Bromberg explained.

“Our expansions come in cycles,” he said. “It’s not measured against anything, really. Sometimes it’s the economy. It could be changes in real estate availabilities.”

Along with retail behemoth Wal-Mart, the largest players in discount retailing include Big Lots, based in Columbus, Ohio, which operated 1,460 stores and posted $5.2 billion in sales in 2014, and Dollar Tree, based in Chesapeake, Va., which had 5,157 stores and $8.6 billion in sales, according to the National Retail Federation.

Wal-Mart, which operated 5,109 stores in 2014, continues to lead the way in sales, with $343.6 billion that year, followed by Costco, with $79.7 billion. Dollar General, based in Goodlettsville, Tenn., had 11,789 stores in 2014, generating $18.9 billion in sales, according to the retail federation’s list.

Ocean State Job Lot and Benny’s occupy a different space on the discount retail plane, according to Stephen Atlas, an assistant professor of marketing at the University of Rhode Island.

“Discount retailers create value based on their buyers’ ability to find things that can be sold at a margin,” he said in an email. “Opportunities that are attractive to Ocean State Job Lot, as a midsize discount retailer, are often economically unsuitable for large discount retailers such as Big Lots. Larger discount retailers are often looking for larger lots. Among midsize discount retailers, Ocean State is particularly efficient at identifying and obtaining what customers want, and building local word-of-mouth about its value proposition.”

That neither company engages in online sales is another aspect that distinguishes them from larger competitors.

Online sales grew faster than store sales through the Black Friday weekend in November and were expected to take an increasing share of 2015 Christmas spending, according to a National Retail Federation forecast.

The holiday season, identified as sales occurring in November and December, can account for as much as 30 percent of retailers’ annual sales, according to the federation. The federation estimated that 2015 Christmas sales would increase by 3.7 percent, while online sales would increase 6-8 percent over the 2014 season.

How do the two companies thrive without engaging in online sales?

BUCKING The TREND

Executives at both of the retailers say they are investigating online sales, but have not yet committed to it.

Ocean State Job Lot distributes coupons online, and maintains a social media presence, but CEO Marc Perlman says the method through which it procures many items may conflict with an effective online strategy.

The company receives, and sells, deeply discounted, brand-name items, in part through agreements that it not advertise the name of the manufacturer, explained Perlman.

“Part of the problem with our taking an online presence has a lot to do with our success as a retailer,” he said. “Many of the products we receive, whether it’s a food vendor, a clothing vendor, a hardware vendor or a housewares vendor, are sold to us on the condition that we don’t broadcast the name of the product.

“So, if we were to purchase a branded product and then put it online, we’re not being true to the promise we made to the seller of the merchandise,” he explained.

Benny’s, by comparison, is interested in online sales, Bromberg said. But it has not determined how to make that step. The family company takes the long view, questioning whether a trend of the past 15 years will continue through the future.

“We’re not in it yet,” Bromberg said. “We’re doing a lot of work in investigating it. We’ve got to come up with a unique way of doing it.”

By unique, he means a strategy that makes sense for the retailer. “For us, it’s the unknown. We have to find a fit that’s unique for us.”

Do they even have to compete online? Retail experts hold varying opinions.

Paul DeRoche, executive director of the Rhode Island Retail Federation, is of the mind that not competing online is a disadvantage. The biggest threat to discount retailers isn’t Wal-Mart, but Amazon.com, he said.

“The sales are coming from online retailers,” DeRoche said.

The retail federation represents large retail companies, he said, such as JC Penney, Macy’s and Sears. All sell online, but also maintain significant real estate holdings.

Neither Ocean State Job Lot nor Benny’s are members of the Rhode Island state chapter.

The stores have a niche and their own consumer base, he said. “Places like Benny’s, it’s like Dunkin’ Donuts in Rhode Island. Customers are committed to them.”

Even DeRoche, who advocates for the big-box retailers, shops at Benny’s from habit. “It was something where I could get in and out quickly. If it was the Wal-Mart on Charles Street, I’d be in there a half-hour, just at the register. That’s what makes online shopping so attractive.”

Atlas, meanwhile, who is an expert in consumer-pricing psychology, said the growth of online sales has put more pressure on traditional retailers than on discount retailers, such as Ocean State and Benny’s.

“While some retailers find themselves burdened by costly in-store retail operations, online pressure seems to have helped Ocean State’s model,” he said. “Ocean State typically opens in locations where other retailers recently shuttered, cutting costs by retaining many of the fixtures of the recently closed retailer. There are some features of offline shopping that are difficult to replicate online, such as serendipitously finding a desired product at a steep discount.”

In addition, he said, online shopping promotes direct price comparisons, “which lowers margins, and typically involves shipping surcharges, which add to total cost and can make an in-store purchase at a discount make economic sense.”

‘THEY KNOW YOU’

Executives at the two retailers take a universal view of competition.

Perlman said retailers, casinos and movie theaters all compete for discretionary spending. “When you go to the movies to see ‘Star Wars,’ they’re taking money out of your wallet. We’re competing for everyone’s dollar and trying to explain why they should take a look at us.”

Bromberg, when asked who Benny’s competes with, responded: “Everybody.”

Wal-Mart, Target, CVS Health Corp., all will carry items that are sold at Benny’s.

“All of the retailers sell the same items we sell,” he said. “Every one of them sells laundry detergent and air fresheners.”

Who shops at the discount retailers? The perception isn’t really the reality, according to Sarlitto.

Many people assume residents with low incomes are the base, but that is not true, he said.

The demographics of the customer base for Ocean State are across the board, Sarlitto said, which is reflected in the cars in the parking lots on any given weekend.

The price range within the store can be dramatic, from 25 cents to $1,000, the price of a 7,500-watt generator.

Ocean State acquires many of its goods through closeouts, which can be a decision by a manufacturer to sell off remainders due to a packaging change, or a change in flavors, or a switch in styles of sweaters. Ocean State is large enough to be able to take multiple tractor-trailer loads of closeout products, Sarlitto said, knowing they will sell.

The retailer advertised sweaters in mid-December, for example, as “famous maker” or “department store” sweaters. Inside the Pawtucket Ocean State Job Lot, shoppers could look inside, and see the Macy’s in-store brand on the label.

Advertised at a price of $15, the sweaters originally might have sold in Macy’s at prices from $30 to $100.

Those sweaters were among the top-selling items at the store in the weeks before Christmas, said the store manager, Karen Beaulieu. “They’re looking at the labels in the clothing. They know,” she said.

Maurice MacAdam is a regular. He shops at the Pawtucket store about once a week. He followed it from its original location, at a smaller store, to the new 30,000-square-foot store near the Providence line.

As is its pattern, Ocean State Job Lot acquired the real estate at a discount. It buys vacated retail stores, in this case a former supermarket. The practice is part of the strategy that allows it to sell deeply discounted merchandise.

MacAdam came in looking for something in particular, the Herr’s corn chips carried by Ocean State. He knows the employees by name, and they know him. One of the associates came over and gave him a hug when she spotted him.

He also makes a point to shop whenever the store offers 25 percent discounts to veterans.

“You walk in on a cold day, and you get a bunch of warm smiles,” MacAdam said. “You know they know you.” •

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