Features

LOS ANGELES – Hot Topic’s counterculture approach is evident at the industrial complex just east of Los Angeles where three stone gargoyles guard the entrance to the teen retailer’s headquarters. 

The gothic guardians sit above arched double dungeon doors that lead inside, where a black-clad receptionist named Serena — with streaked blond hair and a nose ring — cheerily greets visitors. 

Beyond Serena lies a 30,000-square-foot sea of desks and computers. In one niche, candles flicker in front of portraits of Elvis Presley, Jerry Garcia and Kurt Cobain at a shrine to dead rockers. MTV streams from dozens of monitors throughout the building. 

This un-corporate-like headquarters belies a serious business. At a time of mixed performance for retailers catering to teens, investors have snapped up shares of Hot Topic with the ardor of music fans lining up for tickets to the latest Limp Bizkit concert. Wall Street is impressed with how Hot Topic’s tight inventory control, smart marketing and savvy research — including the use of employees as a sort of teen intelligence patrol — add up to some of the best growth in the retailing industry. 

Hot Topic Inc. shares have risen 77 percent this year as teens flock to its 274 stores to purchase its mix of extreme apparel, cutting-edge music CDs and odd sundries such as leopard-skin license-plate holders. 

Virtually all the inspiration for the product mix at Hot Topic stores comes from what’s happening in the alternative music and modern rock scene. The theory is that one of the main drivers of teen fashion is what popular musicians wear. Hot Topic has grabbed this slice of the market outside the mainstream. Britney Spears and Christina Aguilera wannabes best shop elsewhere. 

Orval Madden, 51, a former senior vice president of children’s clothes at Federated Department Stores, opened the first Hot Topic 11 years ago to sell the types of clothes and fashions kids saw on music videos. 

His concept worked and attracted outside funding for expansion into what is now 45 states. The company first sold stock to the public in 1996 and has a market value approaching $400 million. 

Lack of debt, strong cash flow and soaring earnings have powered the Hot Topic stock through one of the worst Nasdaq stock markets in almost two decades. That’s in contrast to many of the retailers catering to the teen and early-20s market. 

“It was a tough spring and summer for teen retailers,” said Elizabeth Pierce of Wedbush Morgan Securities in Los Angeles. “Nothing was driving store traffic. There was a lack of newness, a feeling of sameness.” 

Not at Hot Topic. Indeed, it is the company’s contrarian approach, its willingness to cater to underground teen cultures such as punk, goth and rave that has set the chain apart. 

“There’s not another store in the Laguna Hills Mall where you can get belts with spikes, shirts that say ’So many boys, such little minds,’ and T-shirts for like Nine Inch Nails and Blink-182,” said Ariana Sandoval, an 18-year-old shopper from nearby Mission Viejo. 

“Music too loud? Just buy a gift certificate,” reads the sign outside the Hot Topic store in Laguna Hills, as the heavy-metal sound of the Deftones blasted into the mall from the store’s interior, a brick-and-concrete design Hot Topic describes as “club/industrial.” 

Shannon Tucknies, a bright-smiled assistant manager with fuchsia hair, works the cash register — the hair dye is one aisle over and is good for 20 washes, she informs a visitor. 

The shoppers’ sense of kinship with the clerks results from one of the savviest uses of grass-roots market research in the retailing industry, according to analysts. 

Tucknies not only sells a customer a $40 sweat shirt emblazoned with the Deftones’ “White Pony” CD logo, along with a $17 Slipknot T-shirt with portraits of the band’s eight members on the back — she also keeps tabs on what young people are wearing, how they act and what they listen to at local concerts. 

Hot Topic buys concert tickets for employees if they write a fashion report detailing what they observe at the concert. 

“We ask them what the band was wearing, what the fans wore, which of our products did they see? Did they see any products that we should carry?” said Elizabeth McLaughlin, 39, the chain’s president and chief executive. 

“Being in touch with the consumer is the key to our success. And we have found that if you ask teen-agers what they think, and you are willing to listen, you will get more information than you can comprehend,” said McLaughlin, a former Millers Outpost executive who joined Hot Topic in 1993 when it had only 15 stores. 

“We are selling to the kids who want to be first with a fashion,” said McLaughlin. “When it starts to show up in other specialty stores we move out of it.” 

Hot Topic plays a constant game of chicken with its inventory, holding off orders until the last minute and distributing goods to its stores based upon sales trends just days old. 

Analysts say Hot Topic’s grass-roots approach to fashion places it closer to its youthful customers than more traditional retailers, 

Such a system leaves the chain vulnerable to not having enough merchandise to ride a hot trend to its peak, but also reduces its risk of having stacks of leftovers it can move only through markdowns. 

McLaughlin said she’s willing to give up some sales for an element of control in what is a notoriously fickle market. “What teens like today is history three months from now,” she said. 

With sales at Hot Topic stores averaging $632 per square foot, one of the highest ratios in the industry, she’s not about to change a winning formula.