Using their lids Featured

9:28am EDT February 26, 2004
In 1995, when Glenn Campbell and Scott Molander developed the concept for Hat World, their dream was to have, at most, five stores. And although skeptics said their idea would fail, they were confident they had identified a business opportunity with great potential.

"We had a lot of retail experience with Foot Locker," says Campbell, executive vice president and general merchandise manager of the nearly 3,000-employee company. "We noticed a lot of people came in and asked for hats. But we never envisioned what we have now."

What Campbell and Molander, executive vice president of real estate, have is a 468-store chain that has achieved an amazing 1,312 percent growth rate over the past five years. They have been so successful that on Feb. 5, Hat World announced it had signed a definitive agreement for Genesco Inc., a marketer of branded footwear and accessories based in Nashville, to acquire Hat World for $165 million.

It's a far cry from the company's humble beginnings nine years ago, when the two recognized that carrying a small selection of hats was not profitable for specialty sporting goods stores such as Foot Locker.

That Christmas season, they took a chance. They rented floor space at a local mall and stocked it with hats. When the mall's management heard they had sold more than 6,000 hats in six weeks, it offered them permanent retail space.

Within a year, Campbell and Molander had launched five Hat World stores.

"All of them were within a three-hour drive of us," says Campbell.

The pair kept costs in check by managing the stores from Campbell's home, where his garage became the company warehouse. And he delivered the inventory himself.

"The managers would meet me halfway (between the stores and my house), and I'd buy them McDonald's," he says.

Looking back, Campbell admits their "fly by the seat of their pants" style was a little too casual. "We didn't think of the dangers," he says. "We didn't have time. We should've been more selective where we located, but we just kept opening stores. Many things could've happened, but didn't. It's a small miracle that we pulled it off. What we did right was surround ourselves with good people."

One of those was Bob Dennis -- who, along with Campbell and Molander, will stay on following the sale to Genesco. He joined Hat World after it acquired its financially troubled competitor LIDS Corp. in the spring of 2001. At the time of the acquisition, LIDS had 266 stores -- Hat World had 157 -- and had just filed for Chapter 11 bankruptcy protection to reorganize. Campbell admits the purchase was risky.

"It was the scariest decision I ever made," he says. "I knew I was putting the company on the line. We were either going to make it happen or go down in flames."

More important, with the acquisition and the corporate expansion that accompanied it -- the size of Hat World more than doubled with that one transaction -- Campbell and Molander knew it was imperative to bring someone in to strategically lead the larger organization. "We knew we needed someone that had a different skill set than we had," Campbell says. "Bob (Dennis) had a great background and was a fit for our culture. Bob is Wall Street savvy -- he's dealt with boards and investors."

Dennis arrived with restraint, Campbell says, refusing to step in on Day One and begin spouting orders. "He didn't come in with an iron fist," Campbell says. "He listened. We made the right decision. Thank God we made the right decision."

The hire allowed Campbell and Molander to manage Hat World's day-to-day operations, while Dennis focuses on developing and implementing long- and short-term corporate strategy.

Inside Bob Dennis's world

When Dennis, a Harvard Business School grad, stepped in as Hat World's chairman and CEO, his first order of business was to integrate the stores and employees of LIDS into the Hat World family.

Dennis brought with him a strong leadership background, including stints with Asbury Automotive, a $4.5 billion retail auto group that he helped build, and McKinsey and Co., an international consulting firm. This experience helped him through the process of merging two companies, and by January 2003, the integration was complete.

They cut the fat from the LIDS organization, closing 100 unprofitable stores, and developed a more organized plan for growth than Campbell and Molander had previously been able to envision.

In November 2002, Hat World acquired Hat Zone Inc., and last February, it acquired Cap Factory Inc.

"We have a very ambitious plan for growth," Dennis says. "(It) calls for adding 50 stores a year in the next five years."

To do this, they've identified more than 400 potential locations.

"A lot of the growth is in nontraditional spaces," Dennis says. "We are targeting airports, which are underpenetrated, college campuses and tourist destinations."

Tourist destinations are a relatively new -- and successful -- market for Hat World. The company's five locations in Hawaii are doing well, says Dennis, and "the tourist angle is one we really want to develop."

This expansion is the result of in-depth market research, which identified who Hat World's best prospective customers are and where they're located.

"Most are between 15 and 25 years of age," Dennis says. "Another big segment of our business is the dedicated sports fans. Their ages vary widely."

But even with the targeted marking, the company's aggressive growth plan is tempered with caution.

"What we don't want to do is lose our discipline," Dennis says. "We have a very disciplined approach, and we watch trends carefully -- what's working and what isn't. When a store isn't working, we get out."

Because Hat World's fortunes are dependent on its locations, store placement within malls, airports or shopping centers is crucial.

"We know that when we get our desired location, we are successful," Dennis says. "All stores opened in the last 18 months under our location guidelines outperformed our expectations."

And because the company does not invest heavily in advertising and marketing, its desired locations -- close to heavy customer traffic and usually close to food and beverage outlets -- carry even more weight in the company's formula for success.

"The most highly trafficked areas of a mall or airport are off the food court or anywhere there is food and drink, with the emphasis on drink," says Dennis.

Buying into the dream

Hat World's next goal is to build an international brand; it established the first of five locations in South Korea in September, and has a licensing agreement to open at least 75 more in the next five years.

"We chose Korea because it is a country that embraces U.S. fashions and has a good economy," Dennis says. "We've been approached to do other Asian locations, but we are keeping them on hold. We're using Korea as a test lab to see how it (international expansion) works."

In the meantime, Dennis, Campbell and Molander are working to further define the corporate culture. And a big part of that are the people who work at Hat World.

"At the end of the day, it's the people working here that have made the difference," says Campbell.

In the beginning, he and Molander were able to hire high-quality people, even though they couldn't pay them much. "We sold them on a dream," Campbell says.

That dream has come true, even more so than the sales pitch offered. But the company's leaders still remember where they began, how far they've come and the importance of maintaining a sense of humor.

"Every time we start getting too serious, I say, 'Hey, we sell hats,'" Campbell says. "Let's keep it simple. Let's keep it fun."

And don't look for other sporting goods or accessories to show up in the stores any time soon. "Never say never," Dennis says. "But we're sticking to the name. Headwear is our category, and we will maintain that focus." HOW TO REACH: Hat World Inc., (888) 564-HATS or www.hatworld.com