Hamilton Beach 2007 Annual Report Download - page 34

kitchenware. Consumers remain highly interested in TV celebrity
chefs and in purchasing the kitchen tools they use. However,
the effects of a challenging economy could dampen the demand
for these items.
While the outlet mall industry expanded rapidly during the
1990s, its growth has slowed as consumers began to find great
values in other retail channels, including mass retailers and the
Internet. Consumer traffic at many outlet malls declined in
2007 due, in part, to higher gasoline prices. Traffic and sales
also declined due to a general softness in consumer spending
during the important fourth-quarter holiday season. For store
formats with a widespread presence in existing outlet malls,
such as the KC stores, overall success will require optimizing
performance in each existing store rather than expansion to new
outlet malls. For store formats that have not fully expanded into
the existing outlet mall market, such as the LGC store format,
there is still opportunity for growth. Beyond outlet malls, the
company believes significant growth opportunities exist in other
retail channels, such as traditional malls and lifestyle centers.
To help KC attain its stated goals, the company has
established strategies and key programs geared to these current
industry trends. KC’s strategies and key programs are focused
on three main program areas: disciplined cost control; unique,
affordable products; and store improvement and expansion.
Programs designed to enhance profitability are especially
important in periods of reduced customer traffic in outlet malls.
In addition, programs to develop store formats beyond outlet
malls are increasingly important for generating growth.
Key Programs for Disciplined Cost Control
KC’s proven ability to aggressively manage both vendor and
store costs is accomplished through four established programs.
Corporate expense management. As part of the LGC
integration and synergy plan, KC closed LGC’s existing
headquarters in Shrewsbury, New Jersey in April 2007 and
integrated those operations into the KC headquarters in
Chillicothe, Ohio. In addition, KC is placing significant focus on
maintaining its traditionally lean, efficient corporate operation.
Store expense management. This ongoing program to
enhance profitability relies upon KC’s ability to manage store
rental and labor costs, which are key drivers of profitability.
This program is of particular importance as KC works to
optimize the profitability of the newly acquired LGC stores.
Continuous product cost management. This ongoing
program to enhance profitability draws upon KC’s significant
experience in sourcing and managing vendors. This expertise is
also being applied to the products sold in LGC stores, many of
which are supplied by companies that are relatively new to KC.
Logistics efficiency. While KC continues to improve and
enhance its KC stores’ warehouse operations in Chillicothe, Ohio,
the quality of LGC’s third-party warehouse operations has been
disappointing. KC originally believed third-party warehouse
providers for LGC could adequately satisfy the chain’s logistics
needs in the short term, but the providers did not perform to
KC’s standards, significantly hindering LGC’s store inventory
fulfillment process. KC now expects to bring these operations
in-house in 2008. The company plans to create a new LGC
warehouse operation near the KC headquarters in Chillicothe,
Ohio. The new warehouse is expected to be opened during the
second quarter of 2008, allowing proper flow of product to the
LGC stores for the key fourth-quarter holiday season. In the long
term, further efficiencies could be gained from consolidating
truckload shipments of product bound for KC stores and
LGC stores located in the same outlet malls, as well as from
Below: Le Gourmet Chef® stores feature product sampling and food-tasting stations, key elements for creating an engaging store experience and driving sales.
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