In 2001, the future looked bleak for Hold It, a San Diego-based retailer of storage and organization products for the home.
As Mike McAllister, the owner and merchandiser of the single-store retailer, tells it, the storage concept retailer was at a crossroads then.
“We just about went out of business,” the 48-year-old Cincinnati native said.
At the time, the 14-year-old retail company owned by San Diego-based Lifestyle Concepts Inc. closed one of its two San Diego stores , shutting down a Kearny Mesa location and leaving open its store in Mission Valley , and hired a local retail consultant, San Marcos-based George Whalin, to guide it through its turnaround.
The big box retail chains such as Wal-Mart, Kmart and Target had caught on to the growing trend in container merchandise , closet organizers, kitchen and bathroom storage containers and shelving , and Hold It was losing its share of that market in San Diego, McAllister said.
“The consultant basically said we were operating in the midst of mass marketers who were formidable competitors, and we needed to differentiate our business,” said McAllister.
A New Approach
Differentiate is exactly what it did, shifting more than 60 percent of its business into upscale housewares and furniture, away from storage products, similar to those offerings at the nearby Container Store, a national chain with its headquarters in Dallas and seven locations scattered across California, including one in San Diego.
From 2003 through 2004, Hold It saw a 65 percent increase in sales volume. The company increased its employees from 10 sales assistants and designers to 20 last year.
McAllister said the company began selling big-ticket items , beds, sofas, dining room furniture , and the average transaction size per customer multiplied. In 2001, McAllister estimates the average customer transaction was about $35 vs. the average transaction today, which approaches $200.
“(After the re-merchandising), Hold It customers would come in to buy a shoebox and walk out with a bed,” said McAllister.
At the end of April, Hold It re-emerged from the four-year turnaround process fundamentally transformed. McAllister tacked on some words to the name of the store, and changed its official name to Hold It Contemporary Home.
McAllister estimates that he invested $250,000 over four years to complete the re-branding.
Hold It’s 8,000-square-foot location on Camino de la Reina in Mission Valley has been completely revamped. McAllister exchanged aisles of plastic gadgets resembling Tupperware, for a design center and gallery featuring European contemporary furniture.
Among its merchandise assortment of what McAllister calls “modern lifestyle home offerings” are original works of art, bed linens, bath and body products, music and even jewelry.
European furniture designers and distributors, such as Danish Co., Club 8 and Italian designer Calligaris, are sold through the Mission Valley store.
Business Is Booming
During the first five months of this year, sales have grown 65 percent, identical to the size of the increase during the 12 months of 2004, said McAllister. In April, he leased a 2,000-square-foot warehouse in Kearny Mesa.
McAllister said he sees the business now as having become “an urban design solution center,” as opposed to the mere retailer it once was.
Prices, which he considers midrange, are higher than they once were.
McAllister said a sofa can range from $900 to $6,000; king and queen size bed frames sell for $400 to $1,000; and dining room sets range from $500 to $4,000.
In contrast, at the recently opened West Elm in Mission Valley, a modern furniture chain owned by San Francisco-based national specialty retailer Williams-Sonoma, Inc., which McAllister considers middle market as well, sofas range from $699 to $799 and king size bed frames start at $270 for wood and $500 for metal.
McAllister said lifestyle retailers such as West Elm, Pottery Barn (also owned by Williams-Sonoma) and Chicago-based Crate and Barrel, are competitors.
“But the difference is really in our contemporary European products and designs,” he added.
According to Whalin, there’s a niche in San Diego for Hold It, despite the presence of this cluster of modern furniture and lifestyle retailers within a 1-mile radius.
“There’s a big market out there for this type of retail, and it’s only growing bigger,” he said.
Whalin said the market for urban, modern and, more importantly for Hold It, affordable furniture is not terribly new.
“Ikea’s been doing this a long time but the Ikea shopping center is not exactly wonderful: It’s a big box, it’s hard to get in and out of and it’s often very busy,” said Whalin.
He said that while Hold It might not be able to compete with Ikea on price, because Ikea sources and designs the majority of its own furniture, a smaller retailer such as Hold It can focus more on fashion and design trends.
For this reason, Whalin said, Hold It particularly appeals to young professionals.
“This is a market dominated by younger consumers and younger consumers have discovered that fixing their home to make it look nice is easy because of knock-down furniture and easily convertible furniture,” Whalin added.
McAllister described the profile of the typical Hold It shopper as “young, upwardly mobile professionals.” But he added, “more and more our customers are middle aged this fits back to our look of clean line and European contemporary design.”
Hold It is benefiting from demographic changes in the San Diego region, catalyzed by the marked increase in condo conversion and multifamily construction during the last few years, McAllister said.
According to McAllister, Downtown growth in residential real estate has fueled demand for furniture, especially furniture that is modular and adjustable.
In areas such as Downtown and Mission Valley, where apartments and condos are the dominant residences, people are faced with the issue of needing to furnish homes that lack big, open spaces in most cases, and that may be temporary or transition homes for young people.
McAllister said Hold It’s furniture is designed just for this: “It’s livable and affordable.”
But the real estate market is cyclical, and McAllister said he acknowledges that a slowdown in the volume of real estate sales is inevitable in San Diego. He started his career as a residential real estate developer in Ohio and experienced the recession of 1990-1991, accompanied by plunging home prices, firsthand.
Hold It, however, is hedging its bets.
“We are a middle market retailer with affordable prices. When the recession comes, the high-end furniture retailers will suffer the most,” said McAllister.
The efforts the retailer has invested into repositioning and differentiating itself should pay off.
McAllister said he’s already looking to expand into other markets outside of San Diego, mainly in Los Angeles and the surrounding area.