bargain at The Christmas Tree Shops in Warwick.
They profit from disasters and catastrophes. They are the vultures of the retail world, scavenging on the remains of the many large retail chains that have been declaring bankruptcy in recent years. And they are multiplying in this bad economy like mushrooms in the decaying trunk of a fallen tree.
They are salvage, surplus and closeout retailers, and people love them. Especially during this recession-plagued holiday season, swarms of shoppers will flock to stores like Building #19, Ocean State Job Lot and The Christmas Tree Shop in search of a bargain, and the chance of uncovering a hidden treasure.
Their modus operandi: a stock that changes by the day; often sold in shabby warehouses. They offer bargains by salvaging and selling goods that have been through fires, floods, tornadoes, truck tip-overs and train wrecks. Wares on their shelves are factory rejects and mail-order-catalog returns. These retailers make cold cash during the cold economy, by cashing in on dot-com fallouts, factory closeouts and retail bankruptcies.
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Once considered the unseemly stepchild of the retail world, salvage and closeout retailers have come of age. In recent years, as garden-variety box-store chains like Ames, Bradlees and Caldor have been squeezed out of business by the buying power of Wal-Mart and Target, retailers like Building #19, Ocean State Job Lot and The Christmas Tree Shop are experiencing double-digit growth.
On July 2, Ocean State Job Lot, which specializes in brand-name closeout merchandises opened its 62nd store at the site of the former Bradlees in Dennisport, Mass. – literally taking over the space of the retailer it’s replacing in the industry. Ocean State opened its first store, a 3,000-foot unit in North Kingstown in 1978 and had just $80 in sales that first day. The company expects more than $250 million in sales this year.
On Oct. 9, Hingham-based Building #19, announced the purchase of Spag’s Supply Co., a retail institution in central Massachusetts. Building #19 now has 14 stores in Massachusetts, New Hampshire and Rhode Island. For the last 18 months, Building #19 has experienced double-digit increases in sales figures, according to a company spokeswoman.
The same is true for The Christmas Tree Shop, an end-of-the-run manufacturer’s merchandiser on Cape Cod founded in 1970, which has 23 stores today.
“We will grow two or three stores each year – that’s our plan,” said Doreen Bilezikian, who founded the company with her husband Chuck Bilezikian.
There is a lot of hustle involved in the salvage and surplus retail trade. While Wal-Mart and Target identify markets and fill the anticipated need with products, and buy in huge quantities so they can pass on the savings to customers, the salvage retailers keep prices low by doing their homework and watching costs.
They cultivate relationships with insurance companies, and must be willing to travel across country at the ring of a phone. They go to trade shows. Their buyers have to like floods, fires, tornadoes, and be a little imaginative. This stuff doesn’t come in nice, neat boxes.
“They have no market, and no specific merchandise. They make their living by being quick on their feet and opportunistic,” said Jim Curran, an assistant professor of marketing at Bryant College.
Their profit margin isn’t as great as the big guys. But with such low overhead and such a steady stream of customers, they do OK. In 1986, Building #19’s $100 in revenue per square foot is about one-third less than the average for mainstream discounters, such as K-Mart or Wal-Mart. But with markups ranging from 50 percent to 300 percent, they make up for it, big.
As an example, shoppers browsing shelves at Building #19 will find little plastic Christmas trees pre-ticketed for $19.99, selling for $4.98. The trees got to the shelves via a rainstorm that flooded a tractor-trailer carrying the merchandise last month.
“The insurance company called us, and we bought the whole lot,” said Lea Allen, advertising manager for Building #19. “We threw away the damaged boxes and dried out the trees – they were all plastic. This was merchandise that a major national discount retailer didn’t want. Their name and price tag is still on the product being sold at a fraction of the price in our stores.”
When the people at Building #19 started out, they had to chase the merchandise. Today, the insurance companies come to them, said Allen.
“We have a very good relationship with insurance companies,” said Allen. “We are known with insurance companies as a retailer who will go out, make a bid, send our own truck, pack things up and bring it back.”
The great success of scrappy, bargain basement retailers is an interesting turn of events for a once-maligned niche of the industry. Once upon a time, they were laughed at, and it was kind of a low-class thing, five-and-dime stores for poor people who couldn’t afford to shop at Macys or Sears.
Today, most are still cheap. It is a studied lowbrow – shabby is hip, hunting in warehouses is cool – and they know it. Call it the high-concept bargain basement flea market.
Owners of the stores reported that, while they are still affordable for those with limited means, their stores have morphed into hip hunting shops for college kids, young couples with Volvos, shoppers who can afford to shop at the mall but prefer to shop at a store that reflects their urban-Bohemian aesthetic.
The stores themselves are sprawling and in some cases disorganized. Entire departments come and go. At Building #19, known for its comic-book ads and the low-rent look of its warehouses, signs printed on cheap paper hung on the walls proudly crow: “Confusion is our most important product,” and “This is my kind of place, a real dump.”
“They pride themselves on a certain atmosphere – they believe in the warehouse,” said Curran, the URI professor. “There are people who like to dig for nuggets, there’s no question, and that’s part of the allure. You have changing merchandise. It’s never the same thing.”
But despite the fact that the salvage, surplus and closeout retailers are in vogue among some shoppers who can afford to shop at more expensive stores, the stores really bank on the fact that they are cheap for everyone.
Today’s woeful economic climate looks like balmy weather for these retailers, especially with the holiday shopping season approaching, according to Curran.
“More merchandise is going to become available as other retailers fail. In the last couple of months, several have filed for bankruptcy and gone out of business,” said Curran.
“Consumers don’t have a lot to work with these days, but they’re still going to want to buy Christmas gifts, celebrate the holidays, and they’re searching for value. And they are likely to look there. As long as these stores can provide that, they should do very well,” said Curran.
