Grandma Got Run Over by Bad Research
THE BUSINESS: Children's upscale clothing retailer
FOUNDED: 1994 CLOSED: 1997
PRIMARY CAUSE OF DEATH: Flawed market research
Irene Viento's store, GrandKids, was a baby spoiler's paradise, stocked with tiny gowns and suits and handcrafted wooden toys. Unfortunately, there just weren't enough customers for them in Pelham, N.Y.
Viento was targeting grandparents, a fertile market segment she knew something about since she had become one herself, four years earlier. Her early market research supported her vision. From local school data and statistics provided by an advertising-circular company, Viento estimated that about 10,000 families lived in Pelham.
Even though there were already 10 comparable shops within an eight-mile radius of her home there, not one was in her hometown. Surely, she reasoned, Pelham, a posh Manhattan suburb, could support another. Specialty retailers like GrandKids brought in $941 million last year, making them the largest segment of the $6.4-billion infant-and-toddler clothing market.
So when prime commercial space on busy Route 1 in Westchester County opened up, Viento jumped into retail. A bank had vacated the strip-mall location, subletting 1,800 square feet to her for $2,200 a month. She signed on for three years.
Viento spent about $16,000 renovating the space and another $50,000 stocking inventory for children up to age 10. She opened her doors on September 24, and by the end of her first year in business, sales had reached $150,000. But at $100 per square foot of selling space, her sales fell short of the industry average of roughly $140. Viento failed to show a profit and wasn't drawing a salary. In year two, sales rose 10%, but Viento still wasn't making any money. "We worked on 100% markup, but I found out right away I had to discount to move the inventory." Ultimately, because she fell prey to heavy discounting, she was unable to set and hold prices at a level to cover expenses and make a profit.
When Viento's sublease came up for renewal, in May 1997, the landlord planned to raise her rent to $5,000 a month. "There was no way I could do that," Viento says. "I was just paying bills and salaries at $2,200."
Adding to her financial woes were serious flaws in her makeshift market research. The 1990 census for Pelham lists 12,006 residents and just 3,219 families. Only 31% of town residents were 50 and older; the largest group ranged from 22 to 49, hardly the grandparents she wanted. Viento also should have asked local shoppers if they minded driving out of town to buy children's clothing, says marketing expert Roger D. Blackwell, author of From Mind to Market: Reinventing the Retail Supply Chain (HarperBusiness, 1997). "Buying behavior is not just about people and income but also about how dissatisfied they are with present alternatives," he says.
In April Viento held one last sale and closed up shop. Although she managed to recoup about $60,000 from the closeout sale, she estimates that she lost $40,000 during GrandKids' three years of operations. The space was recently reopened as a bakery. "A few people warned me this town can't support local merchants," Viento says. "Of course, you don't want to hear that when you're all hopped up about the idea."