WAN Improves Efficiencies
The network speeds sales more from the always-on connection than the increased bandwidth. Although some stores are getting further bandwidth upgrades, Hot Topic began by ordering 64-kilobit-per-second fractional T1 circuits, with a committed information rate of 32 Kbps. That means only half the total bandwidth is guaranteed. Credit-card authorization doesnt require a lot of bandwidth, but it works faster when theres instant network access. Over dial-up, the process took about 20 to 30 secondslonger if the modem failed to connect or if employees at different registers were trying to put through transactions at the same time. Over the WAN, credit-card authorization takes 2 to 3 seconds, and multiple transactions can go through simultaneously. In a busy season such as back-to-school or Christmas, that can make the difference between long lines or short ones, lessening the risk that frustrated customers will walk away without making a purchase. Hot Topic started connecting stores in summer 2002, after a 15-store test in the spring. About 40 stores were not connected in time for the holidays, so Hot Topic was able to contrast their sales performance with that of the wired stores. While the company will not disclose the details, it does say that an 11% increase in the number of checkout transactions, based on stores open a year or more, proved critical at the end of 2002, given that the dollar amount per transaction declined slightly, from $22.50 to $22. The net result was a 9.7% improvement in same-store sales. Sales reached $148 million during that period, bringing the total for 2002 to $443 million.Kimberly Greenberger, a Lehman Brothers stock analyst, says few other youth retailers have made a similar investment, but for Hot Topic the network linking its stores makes sense. Hot Topic enjoyed sales per square foot of $619 last year, higher than any other youth apparel retailer. By Greenbergers calculations, among apparel retailers as a whole, Hot Topics performance is second only to Chicos FAS, which sells trendy womens clothes. Faster checkout processing "means they can raise the ceiling on store productivity (another term for sales per square foot)," she writes by e-mail. She also calls the networks role in getting store employees to suggest products, bands and trends, "a real competitive advantage." A WAN investment is still exotic among operators of mall boutiques, and malls typically are not wired to make hookup easy. Hot Topic contracts for WAN service from AT&T, which in turn works with local phone companies to secure the connection to each location. But then Hot Topic finds itself dealing with phone company technicians who dont necessarily bring the connection all the way to the store. Instead, they may switch on service at the phone network access panel thats easiest for them to reach, even if its on the other side of the mall from the Hot Topic store. In one case, it was literally a mile away, Horwath says, and he had to get that one moved. More often, the answer has been to hire electrical contractors to worm their way through ceiling crawlspaces and snake a network cable over to the store. These setbacks typically added days or weeks to the process. In one case, because of particularly bad mall wiring, Hot Topic was billed for 10 months worth of access to a WAN circuit before the store there could be connected. "Wed be trying to turn on 25 stores a week, and wed hit almost none," Horwath says. "Do I sound bitter?" He cant seem to get the local phone companies to pay attention to his complaints because he had to work through AT&T as an intermediary, and so far he hasnt been convinced any other long distance carrier would do better. The only solution he has found is perseverance. As the process moves from connecting existing stores to wiring new ones, Hot Topics construction managers have learned to order the lines early and leave plenty of time for troubleshooting before the opening. For all these frustrations, Horwath, who joined the company in 2001, finds other things to like about the job. He recalls that during his job interview Chief Executive Officer Betsy McLaughlin passed him a laminated card outlining the companys values and made sure he read it. Prominent among them was "a passion for music." Store employees are expected to be able to talk knowledgeably with customers about current music and the related fashions. The same ethos is drilled into the heads of everyone at headquarters, where TV monitors hanging from the rafters play music videos all day long, and the walls are plastered with concert posters. Horwath reinforces the message with a standard "what are you listening to right now?" ice-breaker at department planning sessions. "Somebody volunteers every week to play a track or two off their CDs and talk about why theyre listening to that and what it means to them," he says. It might not be the way some other 40-somethings want to spend their day, but Horwath enjoys it. Besides, its a lot more fun than figuring out how to stretch a network connection from one end of a mall to another. Next page: Hot Topic Base Case.
Some of that increase in transactions was a matter of marketing and merchandisinggetting the right products and the right customers into the stores. Cook notes that the number of transactions has remained higher in 2003, up 7% in the most recent quarter, and the speed of credit-card processing is less of a factor after the holidays. But even if the WAN were only credited with boosting transactions by 1% during the holiday quarter, that translates into about $1 million in sales.