Fast-growing fashion retailer, Hot Topic lives for the moment, just like its Generation Y clientele. The young people ages 12 to 22 who shop the Hot Topic chain, which includes Hot Topic and the new Torrid stores, spend a lot of their time and resources following the latest, coolest music.
Whether it's the rap stylings of Jay-Z, the leather-clad panache of The Strokes, or the in-your-face hostility of Blink-182, these kids want to look the part. And Hot Topic, the City of Industry, CA-based chain of 346 high-energy stores covering 48 states mainly in malls is there to help them. The retailer provides the clothes, accessories, music and gifts that thrill the kids but drive their parents crazy in time-honored tradition.
"Our product is fashion," says Alain Krakirian, Hot Topic's vice president of planning and allocation. "It's usually not a basic, continuously replenished item; it's a one- or two-shot deal, and onto the next thing." One exception at the $336 million (sales) chain would be the Morbid threads line of private label apparel for the more gothicly inclined, which makes up about a quarter of the chain's sales.
In addition to the Morbid line, Hot Topic provides its customers an extremely eclectic, hard-to-find and fast-moving assortment. At a Hot Topic store, you can find everything from green hair dye, eyebrow rings, and skull mesh shirts, to the latest licensed concert T-shirts and other apparel from Limp Bizkit or Marilyn Manson. There are also the velvet kitty collars, safety-pin dresses, skull necklaces, and of course, CDs.
Sourcing & Allocation
How do they come up with this stuff? Hot Topic employees survey the latest styles exhibited in music magazines, on MTV and at concerts and nightclubs and report what they find. Products are sourced from established vendors, while the private-label goods are purchased on an exclusive basis.
But the real key to succeeding in this ever-changing fad-driven environment is to be equally fast on your feet when it comes to supply chain logistics. For that, the chain gets help from JDA Software's Arthur Allocation system. The software enables Hot Topic to allocate products quickly and accurately to stores from its distribution center in reaction to fast-moving teen fashion trends.
Because of the nature of its assortment, explains Krakirian, Hot Topic doesn't base its allocations on traditional classes like pants, shirts or skirts, etc. Rather, the chain manages by theme or lifestyle category such as punk, streetwear, retro-influenced lounge, club and gothic. According to Krakirian, the Arthur system accommodates this unconventional approach to allocation. "Arthur tailors products to stores based on the previous performance of similar lifestyle categories. This helps us be more accurate and efficient in our allocations."
With most systems, allocating in this way is complicated or impossible, and calculations are made laboriously at night, says Krakirian. By contrast, "Arthur is designed to dynamically and instantaneously sum up information per request and look at the business in many dimensions."
And these allocations are done literally on the fly. In a typical allocation, a shipment hits the warehouse and has to be shipped out to individual stores in 24 hours. Consequently, as goods flow into the DC, analysts spend no more than 15 minutes per item deciding which stores would have the best chance of moving the products based on the performance of similar styles or categories.
Nothing is calculated weeks or months in advance, as it often is in traditional businesses, though sometimes electronic advanced ship notices (ASNs) give the warehouse a day's notice of a shipment's arrival. Most products are shipped by ground and arrive in no more than three days, though some go out by air.
Before adopting Arthur in June 1999, Hot Topic employed a system developed in-house designed for no more than 20 to 30 stores, though it was still being used after the chain grew to 70 stores. "It couldn't handle the volume of data," says Krakirian. With Arthur, allocation time has been cut by two-thirds, he notes. "Our business is so fickle and dynamic that we want to make allocation decisions at the latest possible minute."