Hot Topic: Small Companies, Big Returns

At least once a year, Hot Topic Vice President of Technology John Horwath spends a day working at one of the chains stores, selling body jewelry, spiked chokers and other current emblems of "alternative" youth culture.

At 44, Horwath is old enough to be the target of youth rebellion, with a daughter starting college and a son in high school. In a company where purple hair and pierced tongues are part of the corporate culture, he hasnt taken the plunge for anything more radical than a diamond stud earring. He professes a sincere affection for the music of Kid Rock and Linkin Park, but also enjoys country artists like Kenny "No Shoes, No Shirt, No Problems" Chesney.

Of course, what matters to Hot Topic is not so much Horwaths musical tastes as his ability to help the retailer stay in tune with its customers needs—which is why he considers the creation of a wide area network one of his greatest hits. To Horwath, its not about the technology: Its about giving the stores staff the means to be the companys eyes and ears for new selling opportunities. Moving fast on that personal market research is critical in the youth fashion business.

Hot Topic made a $1.5 million capital investment in the network in 2002. Keeping more than 500 stores connected will add more than $1 million to the chains operating expenses this year. Those expenditures can be partly justified by shorter lines at cash registers thanks to faster credit-card verification, and by savings on supplies made obsolete by Web applications, such as paper forms and printed reference materials.

But the big hidden benefit is the new hot line connecting the store employees to marketing and other managers at the companys offices in City of Industry, Calif.

After all, whos in a better position to know what music the customers are listening to and what clothes and accessories theyre wearing than the employees who see them every day?

Its a natural extension of a broader program encouraging suggestions from the field. By longstanding policy, Hot Topic translates its "All About the Music" slogan into action by reimbursing store employees for concert tickets if they write up a report on the fashions they saw at the show. The network encourages store employees to share style tips and suggestions by dashing off a quick e-mail from the same personal computer that powers the cash register. Alternatively, they can pick up a Cisco IP (Internet Protocol) phone and make a toll-free call to headquarters to tip off buyers for the chain on a trendlet that might be forming.

"If a local band is doing really well, our store people can e-mail the music buyers and the rock T [shirt] buyers so they know to stock that product in that particular store," Horwath says. Before the WAN, the stores didnt make much use of e-mail because messages could be sent only at the beginning or end of the day, when the modem lines were no longer needed for credit-card transactions.

Justine Schunick, 23, who manages a Hot Topic in Mentor, Ohio, says all-hours e-mail helps because she is often too busy to pick up the phone when she has an idea she wants to share. She describes herself as "like the more freaky customer we have—color hair dye all the time, lots of piercing. Anything thats big, black and scary is what I buy." Still, what she wants for her store is what the customers want to find there, whether its her style or not, and she has lots of suggestions for the buyers at headquarters. She can tell headquarters is listening. "A hundred times Ive hit Send on an e-mail, and the phone has rung," Schunick says. "Or someone will e-mail me right back, and in five minutes well have had a whole conversation."

That tighter connection with store employees is proving to be one of the main benefits of the network, says president Jerry Cook, who championed the project. "Theyre like a cubicle away" from headquarters, Cook says. "That real-time linkup of all the store associates just aids the store communication process thats already in place at Hot Topic."

Since opening its first store in 1989, Hot Topic has used its knowledge of alternative styles to build a business projected to reach $550 million in sales this year. Many merchandising ideas, like a reversible plaid skirt thats a current hot seller, came from store employee suggestions. The number of stores in the chain has more than doubled in the past three years, to over 500, and Hot Topic has added a second brand, Torrid, that sells to girls size 12-26.

Next page: The WAN improves efficiencies with instant access.