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Retailers cash in on 'the wow factor'

Shoppers often go into Costco, above, T.J. Maxx and other discount stores looking for a bargain on something they need, but they end up splurging on irresistible finds.

Associated Press

Shoppers often go into Costco, above, T.J. Maxx and other discount stores looking for a bargain on something they need, but they end up splurging on irresistible finds.

Trader Joe's, the specialty grocery chain, might not have the cheapest toilet paper or the most varieties of ketchup, but it hooks customers with mango butter, chocolate-covered pomegranate seeds and cilantro-and-jalapeno hummus.

These goodies aren't on most grocery lists, but they're eye-catching enough to tempt shoppers into an impulse buy. At a time when families are watching dollars and the Web makes discount hunting easy, unexpected treasures are an increasingly important strategy for stores.

"It's the wow factor that's getting people to buy," says Wall Street Strategies analyst Brian Sozzi. "You walk into Costco for tuna and end up getting a Marc Jacobs coat."

Dollar Tree lures customers with rock-bottom prices on cleaning supplies, then tempts them with extras like leather iPod cases. And at Costco, tucked inside the hulking pallets of mayonnaise is a section where shoppers never know what they'll find.

Costco has been using the term "treasure hunt" for years to explain why up to a fifth of its stock is limited-quantity items that are in the store for as little as a week. Sometimes it's seasonal merchandise, such as margarita machines in summer. Often it's surprisingly trendy — such as bargain-priced Hunter rain boots, sold almost exclusively in the U.S. by Nordstrom.

The wholesale chain shows the treasure hunt strategy can pay. Revenue at U.S. Costco stores open at least a year was up 10 percent last quarter from a year earlier, with strong growth in nonessentials like jewelry. Walmart, on the other hand, is still trying to correct itself after a move to pare down to the basics — the opposite of the treasure hunt approach — proved unsuccessful.

Constantly cycling in fresh merchandise is critical as the Web makes it harder for stores to compete on price. After all, why drive to a store that offers "everyday low prices" when you can find the same products cheaper online? Surprises also create suspense and encourage repeat visits.

Superstores like Kmart and Walmart are getting stung by online competition. Any mass-market product — think Jif peanut butter or Hanes T-shirts — can be comparison-priced online, and people tend to buy from the cheapest source. Increasingly, that's Amazon.com or another Web retailer.

But off-price stores, such as T.J. Maxx and Marshalls, often pick up products that have been discontinued and sell them cheaply, said Michael Dart, co-author of the book The New Rules of Retail. Shoppers probably won't find them for less — or at all — online.

Jessica Zaloom, who works for a Manhattan advertising agency, buys full-priced designer clothes at department stores like Nordstrom. But she also hits T.J. Maxx every other week. She recently picked up a Marc by Marc Jacobs bathing suit, originally $158, for $39.99.

"Soon enough, you're sure to spot a find like this," Zaloom says.

Retailers cash in on 'the wow factor' 07/05/11 [Last modified: Tuesday, July 5, 2011 11:10pm]
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