Villa: A Bright Spot in the Retail Gloom

While most retailers are suffering, Villa has held up relatively well, in part because its customers never got hooked on easy credit

By Steve Hamm

It's late morning in the Villa store on Penn St., the main drag in downtown Reading, Pa., and Alex Rodriguez, a 21-year-old construction worker dressed all in black from his Sox baseball cap to his Nike (NKE) ACG boots, has a huge smile on his face. Rodriguez has just laid down $150 for a pair of Air Jordan Ring 6 basketball shoes—white with shiny black patent leather sides. He'll add it to the collection of 35 pairs of Air Jordan shoes he keeps on display in his apartment like so many museum pieces. "Some people collect cars. I collect Jordans," he says.

He also shops frequently at the Villa store in Reading, one of 22 outlets the company operates in neighborhoods of large cities or downtowns of smaller burgs in Pennsylvania, New Jersey, and Delaware. In fact, Rodriguez points out that he purchased every article of clothing he is wearing at Villa.

Fortunately for the chain's management, there are a lot of shoppers like Rodriguez in Philadelphia, Pittsburgh, and other cities in the Northeast who treat the Villa stores like an all-you-can-eat buffet: They just keep coming back for more. U.S. same-store sales for November fell by 2.7% from last year, according to the International Council of Shopping Center's index of 37 stores, the largest drop in 39 years. But for now, Villa seems to be shielded from the worst of it. Its sales rose 25% in November, and gross margins rose by a healthy 6%—though the stores that had been open more than a year recorded a sales decline of 8% because of discounting. Despite facing the worst retailing climate in decades, Chief Executive Jason Lutz expects to open four or more stores in the next 12 months and to see his sales stay on an even keel. "We're not immune to what's going on in the economy, but we're positioned well to ride out the roller-coaster," he says.

The Urban Advantage

Here's why: Villa's customers, primarily African Americans and Latinos between the ages of 14 and 30, didn't get caught in the credit trap. For the most part, they don't own houses and don't have credit cards. Only 15% of Villa's sales come via plastic. Also, most of the customers or their parents work in government jobs or in service industries and are less vulnerable to layoffs than those in banking or manufacturing. The same logic goes for other chains that serve not-so-well-heeled urban folks, including Family Dollar (FDO) and Save-A-Lot.

The chain didn't start off as an urban fashion mecca. It was launched 19 years ago as Sneaker Villa by Chris and Ruth Lutz, a waitress and a steel worker, in a suburban strip mall outside Reading. Their goal was simply to be able to make enough money to pay for their kids' educations. After eldest son Jason graduated from college, he saw the opportunity to capitalize on the popularity of hip-hop culture and opened stores in urban neighborhoods. But Lutz didn't just want to sell sneakers and T-shirts in cities. He wanted his stores to become part of the communities and to help rebuild them.

Over the years the Lutzes have run numerous programs aimed at improving the lives of their customers and their communities, including discounts for high school students who don't skip school and for people who turn in guns to the police. The stores provide above-market-rate wages, plus health benefits for full-time employees, and they train people from the neighborhoods to be managers. Store managers often act like father figures for their communities, dispensing advice and setting up rap contests. Darren "Big Moe" Walton, a 310-pound former footballer who manages the company's Philadelphia stores, dreams of being CEO one day. "Hopefully, I'll sit in Jason's office and realize the American Dream," he says.

The help-the-neighborhood ethic is more than altruism. Lutz believes that if he wins the trust of shoppers and helps build up the local economies, it will boost store revenues.