Jackie Harrold, 17, is totally stoked. At the Hot Topic store in West Covina, Calif., she's about to buy a poster of the band AFI for her boyfriend and a pair of shoelaces featuring the 1980s cartoon Rainbow Brite for herself. As punk music blares from store speakers, Harrold browses shelves stuffed with Kermit the Frog underwear, studded leather belts, and long vinyl coats like the ones in the movie The Matrix: Reloaded/Revolutions. "It's rare to find any store where you can get these kind of items," she says.
Hot Topic's growing reputation as the go-to source for everything teen propelled it into the No. 6 spot on this year's Hot Growth list. Founded as a single store in 1989 by Orv Madden, who retired two years ago, Hot Topic Inc. now has 450 stores in malls across the country and is run by retail veteran Elizabeth M. "Betsy" McLaughlin, 41. In 2001, it launched a new chain, Torrid, which caters to plus-size teen girls. Revenues rose an average 37% annually over the past three years, to $443.3 million, with profit growth up an average 35% a year, to $34.6 million. And while mall traffic has slowed for many retailers, Hot Topic keeps pulling them in, thanks to the teen grapevine: Same-store sales rose 9% in April.
The company, based in City of Industry, outside Los Angeles, prides itself on quickly stocking what its customers crave: hard-to-find fashions coming out of pop culture. "If Gwen Stefani of [the band] No Doubt is wearing plaid pants, then we have plaid pants in the stores," says CEO McLaughlin, who joined Hot Topic as vice-president of store operations in 1993 after stints at department-store chain Broadway Stores and mall clothier Millers Outpost. McLaughlin reads the more than 1,000 comment cards and e-mails that kids send in each month and answers some personally: "They thank me and call me 'dude."' While Hot Topic's teen clerks tune in to MTV to spot new trends, McLaughlin frequents rock concerts to the same end. Just this year, she has seen Linkin Park, AFI, and The All-American Rejects.
When teen taste suddenly changes, as it inevitably does, Hot Topic moves fast. Customers recently started raving about the Rejects, an up-and-coming rock band from Stillwater, Okla. Hot Topic's buyers got hold of t-shirts with the band's logo, tested them in a few stores, and rolled them out nationwide within eight weeks. To understand how fast that is, consider that Gap Inc. takes an average of nine months to bring a new product from conception to store shelves, says Anne-Marie Peterson, an analyst for Thomas Weisel Partners LLC. This year, she estimates, Hot Topic will earn $42.9 million on $545.8 million in sales. "It's a very nimble company," says Peterson.
Some of that growth will come from Torrid, which was started after Hot Topic got a flood of requests for larger sizes. "We tested a size-15 pair of vinyl jeans," McLaughlin says. "Customers asked for more. And they wanted a store of their own." There are 37 Torrid stores, with another 15 openings planned this year.
Still, Hot Topic could easily fall victim to its own success. It could grow so large that it becomes just the sort of company kids find uncool. Analysts say that is the biggest risk for any company catering to teens. On the other hand, any company that can get $18 for an Insane Clown Posse hat probably already has a pretty good idea of what the kids want.
By Arlene Weintraub in Los Angeles
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