June 2004 Seeing Daylight By W. Matt Meyer
Stand-alone or strip, Kirkland’s ventures outside to meet shareholder expectations
From a single shop in 1966 to nearly 300 stores in 34 states today, Kirkland’s Inc. knows how to grow.
The Jackson-based home décor retailer has fueled its growth by locating stores near its customers. Historically, that has meant enclosed shopping malls.
But as the number of new mall construction dwindles—only a dozen or so were built last year—Kirkland’s is looking elsewhere for the growth it needs to meet shareholders’ demands. For Kirkland’s (NASDAQ: KIRK), these mall alternatives include standalone stores and strip centers, for which there is more construction activity on the horizon.
In fact, the company’s hometown store—one of the first tenants of the nearly 30-year-old Old Hickory Mall—is moving from the mall to a power retail center in the city’s high growth area.
“We want to be in the best place in every market,” says Kirkland’s Chief Financial Officer Rennie Faulkner. “For the long-term, it’s a healthy move.”
The company will open a stand-alone store—its largest store yet at 11,000 square feet—in a prime retail development that is also home to Home Depot, Best Buy, Books-a-Million, and Bed, Bath & Beyond. The area soon will see the openings of Kohl’s and Old Navy.
But making such smart moves across the country may be more difficult than making them in one’s own backyard. One commercial real estate expert points out that the desire for growth to meet Wall Street expectations can put Kirkland’s—or any publicly held retail company—at a disadvantage.
“You have to work at it, and you have to be patient,” says experienced retail industry developer David Crabtree of Brookside Properties in Nashville. “If growth projections are set too high, they may force themselves to find new locations that aren’t the best deal … I have not seen this with Kirkland’s, but now they are under the gun,” he says.
Kirkland’s plans to open 42 stores in the current fiscal year, which ends Jan. 31, 2005. Of those, 25 likely will be mall stores, Faulkner says.
To secure strong same-store sales and unit growth—leading indicators of strength in retailers—Kirkland’s is under pressure to find the right spots, concurs Jefferies & Co. senior analyst Robin Murchison. “[Numbers] need to be high to show that Kirkland’s is worthy of being a public company,” Murchison says. “To get people to come back to your store is important. And being in the right location is a good way to do that.”
Kirkland’s isn’t alone in the tweaking of its business plan: an officer with Plano, Texas-based J.C. Penney said in April that the retailer will depart from its mall strategy by opening seven stores this year at off-mall sites and might add as many as 100 stores in non-traditional locations in coming years.
Kirkland’s is pleased with its current stable of non-mall stores. In fact, one of its top performing stores is a stand-alone outlet near Dollywood in Pigeon Forge. It helped push up the company's 2003 sales 8% to $369 million.
“We are happy to be in the malls, but many of our customers have shown a preference for different shopping venues,” Faulkner says. “Our investments are following that.”
Locating in standalone stores or in strip centers tends to boost marketing and advertising costs—and a recent annual report suggests this might nip at Kirkland’s bottom line. The company is in the process of hiring an executive to oversee new efforts to raise the company’s profile.
Kirkland’s challenge is straightforward, according to company co-founder and CEO Carl Kirkland: “Getting the word out, that’s the name of the game right now.”
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