Hot Topic rides crest of boom in cool teens

February 03, 2002|By Jay Hancock

THE hottest topic in retailing is Hot Topic, a mall chain where you can buy $43 high-heel platform go-go boots, $6 cat-themed lingerie thongs and $17 Insane Clown Posse T-shirts.

Hot Topic and its pubescent customers are ignorant of the recession.

The company has booked sales and profit increases every quarter since the summer of 1999. Each square foot of the average Hot Topic store produced about $690 in sales last year, an achievement that blows away even the numbers posted by the Gap in its 1999 heyday.

Hot Topic's clientele took note of the attacks on the World Trade Center and Pentagon. Briefly. The chain's sales plunged the week of the disaster but popped back up a week later, exceeding even the stoking results, dude, from a year earlier, in store-for-store comparisons.

The store prospers for two reasons. First, it has tapped 21st century teen-age cool in a way that has eluded the Gap, Abercrombie & Fitch and other rivals.

Founded in California in 1988 to peddle black "Gothic" styles and music-related T-shirts, Hot Topic says it carries only the latest, fabbest goods, and it conducts something approaching anthropological research to try to keep it that way.

The company buys rave and concert tickets for employees, who write up "fashion reports" based on their observations of the audiences, says Janet Dudley, manager of Hot Topic's store in the Mall at Columbia. Merchandise buyers query store workers on what's selling, and what's likely to sell.

Shelf-stocking "is totally based on what we say," says Dudley, 22, standing near a rack of colorless sweat shirts at the Columbia store. "We get items here about a year before anybody else."

It's probably true that no other store in the mall has as good a collection of Incubus, Weezer and Blink 182 merchandise or a T-shirt that says "I Love Nothing" on its front display rack. Its customers might think Hot Topic less hip if they knew its owners included Scudder Kemper Investments and J.P. Morgan Chase.

But Hot Topic and its 350 stores have something going for them besides coolness: biology.

About two decades ago the numerous baby boomers started energetically procreating, hitting a crescendo in 1991 and producing a generation rivaling their own in multitude. There are now more U.S. teen-agers than at any time since about 1982, and their ranks will continue growing for the next eight years or so. This has important commercial implications because the economics of American adolescence are, uh, unusual.

"Teens earn money, but they pay no rent," observes Kurt Barnard, president of Barnard's Retail Trend Report. "They have no mortgage or insurance costs, no medical costs. And they usually eat at home, so no food costs.

"In other words, whatever they earn, after taxes, is theirs to spend. To them gross income is almost equal to disposable income. Can you say that?"

No.

The teen wave is triggering a gusher of revenue - one firm estimates annual adolescent spending to be $150 billion - that seems impervious to recession and will get even bigger between now and 2010. Other stores - Rave, Pacific Sunwear, Wet Seal, Deb Shops - are trying to catch some of the falling money, but so far no one seems to have nailed it like Hot Topic.

In certain parts of metro Baltimore, the teen retail redux is invoking wistful remembrance of a company that was once even cooler, edgier and more profitable than Hot Topic.

Merry-Go-Round Enterprises, founded in Atlanta in 1968 by Baltimore heroes Leonard "Boogie" Weinglass and Harold Goldsmith, rode to riches and then ruin on the previous teen demographic wave. With Goldsmith as the suit-and-and-green-eyeshade guy and Boogie as the pony-tailed fashion impresario, Merry-Go-Round went on to collect a billion in yearly sales at its peak and operate more than 1,000 stores.

It helped Merry-Go-Round's coolness quotient that Weinglass was played by Mickey Rourke in Diner, the 1982 Barry Levinson film about growing up in Northwest Baltimore in the early 1960s.

But Weinglass' style sense was the chain's trump card. Boogie knew just when Boy Scout-style blouses were going to replace black-lace bustiers in teen-age closets and what obscure blue-jean brands he could sell for $45.

Merry-Go-Round failed as the result of Goldsmith's 1991 death in a plane crash, a disastrous merger with another store chain and a panicked, suicidal attempt to be more like Eddie Bauer after the consultants were brought in.

But it is clear now that demographics were just as deadly to the retail star as the ugly lumberjack shirts. It was no coincidence that Merry-Go-Round's 1994 bankruptcy filing came just after the bottom of a 13-year teen shortage as the Generation X "Baby Bust" cohort grew up. If Merry-Go-Round had pared its debt and hunkered down through the drought, it might be the one making millions today on nose-rings and thongs.

"Hot Topic is on fire," says Howard Davidowitz, chairman of Davidowitz & Associates Inc., a national retail consulting firm. "It reminds me of Merry-Go-Round in the early days."

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