Fans of rap star Lil Wayne can stop by teen retailer Hot Topic and buy a T-shirt adorned with his image, pick up his latest CD and even get Lil Wayne-branded ear buds.
The City of Industry retailer has been selling more music-related items and fashion accessories, such as hats and bangles. Those segments of the fashion chain’s business posted increases in sales last month.
The good news follows Hot Topic Inc.’s announcement last month that it’s closing 40 to 50 underperforming stores, cutting the number of employees in corporate and field management positions by 14 percent and reducing capital expenses by about 37 percent. Wall Street seems to approve: Shares rose about 16 percent since the company announced the plan Nov. 16. Shortly before the cost-cutting was announced, two activist shareholders, Steven Becker and Matt Drapkin of Dallas-based Becker Drapkin Management, joined the company’s board.
Will better sales of accessories and music-related items, along with management changes, be enough to keep Hot Topic’s remaining 600-plus stores open? Some are skeptical.
“This is a business of right merchandise, right price, right time and right place,” said Howard Davidowitz, chairman of New York retail consulting and investment banking firm Davidowitz & Associates Inc. “They don’t have it right yet.”
Hot Topic was popular for its goth merchandise in the 1990s. The chain now sells pop culture-related clothes and accessories such as Lady Gaga T-shirts, brightly colored skinny jeans and even an electronic DJ set. Sales of “Twilight”-themed merchandise dropped off last summer.
However, sales of fashion accessories increased 12 percent in November compared with the same period last year, while sales of music-related merchandise jumped 23 percent for the same period.
Jeff Van Sinderen, a senior analyst at West L.A.’s B. Riley & Co., said one of Hot Topic’s biggest challenges was to improve its fashion accessories business. He said a new merchandise buyer has changed the type of accessories the chain sells, and appears successful.
“Fashion accessories is a big part of their business,” Van Sinderen said. “And it could potentially be a high-margin business for them.”
Van Sinderen is the only analyst following Hot Topic to rate its stock a “buy.” He’s bullish on the company’s cost-reduction plan and also praises the restructuring of its licensing business to include a broader range of products.
“It should be a little bit cleaner in terms of how things work at the corporate headquarters,” Van Sinderen said. “And closing 50 stores goes without saying; they were negative contribution stores and they should be closed. It will be a substantial benefit to the operating line.”
