High Markups Help Gift Shop Chain Flourish : Elson’s Theory: It’s Better to Give and Receive
Edward E. Elson had a simple idea in 1967: Instead of newsstands that sell gifts, he’d have gift shops that sell newspapers.
Last fall Elson, who was the first chairman of National Public Radio, sold his thriving chain of hotel, airport and office-building gift shops for $65 million to W. H. Smith & Son PLC, the giant British newspaper and book retailer.
“Shops in hotels historically were mom-and-pop operations, merely placed there for the convenience of guests and selling essentials,” Elson said in a recent interview.
“They were always located in dark, dank, dusty, musty corners of the hotel between the elevators and the men’s room. I saw something different. I saw the stores in the hotels as entertainment.”
Elson also recognized that the busy business traveler would pay premium prices for gifts, in addition to buying newspapers and toiletries.
With more than $100 million in revenue, the handsome-looking Elson’s stores operate with even handsomer profit margins, ranging from 28% in office buildings to about 53% in some hotels, he said.
“They are obviously benefiting from the explosive growth in airline travel,” said Fred Wintzer, an analyst with Alex. Brown & Sons. “They have a captive audience. It is a license to steal. It is a monopoly.
“When you are in an airport and you need a pack of cigarettes or a candy bar, there is no place else to go. When people travel, they buy a lot of gifts. People who are away from home feel guilty and buy something for members of their family.”
Although he sold the business, Elson has agreed to continue operating the chain and to concentrate on guiding its growth for W. H. Smith.
Ambitious Plans for Growth
The plans for growth are ambitious--the company wants to expand from 235 shops across the country to 270 by the end of the year. Elson talks of extending the chain to Japan, Singapore, Hong Kong and Australia.
The biggest problem with the business these days, Elson said, is stolen merchandise. That problem is especially troublesome in railway terminal shops in New York’s Penn Station and Grand Central Station, where shrinkage can exceed 10%.
But even though W. H. Smith is uncomfortable with such a high level of theft, Elson admits that the markup on souvenir items is “so extraordinary, a person would have to steal 10 for every one I sell.”
With the Elson name on every store, the Atlanta executive appears eager to be recognized as a man who has made a significant contribution to the evolution of specialty retailing in America.
“It was my name, and I didn’t like the image of the newsstand,” Elson said. “I wanted to have a more upscale image.
“It was my ego that was operating. I want to be Stanley Marcus (of Neiman-Marcus), or I want to be Mr. Andrew Goodman of Bergdorf Goodman. And the name Elson will have the same aura, the Tiffany of whatever I am doing, so to speak. Our stores complement and enhance the hotels themselves.”
Success in Gift Sales
Elson understood newspaper and magazine retailing, because his father owned the Atlanta News Agency, a major distributor of periodicals and books in Georgia.
But Elson wanted to sell more, and he argues that while newspapers and toiletries draw travelers into his shops, the true test of his retailing prowess has been his ability to sell gifts, which account for about 35% of the chain’s revenue and a higher percentage of its profits.
For example, Elson sells ceramic model cars that actually are cookie jars for several hundred dollars apiece.
He believes the chain is the nation’s largest retailer of high-priced, authentic autographs. Travelers eagerly buy autographs of former Presidents, Elson said.
“The autograph has historic value,” he said. “It is unique, it is very attractive and elegant. It is a very refined gift.
“Its price can be unlimited. If I were to cover up the price, you would have no idea what the prices were. What is a Calvin Coolidge (worth) versus a Herbert Hoover?”
Gifts have been a natural in his shops since Elson opened his first store in Atlanta’s Hyatt Regency in 1967.
“You feel affluent just being in the Hyatt environment,” Elson said, “and it is an encouragement to shop. If people went to little spinning restaurants on the roof and paid $2.50 for a cup of coffee in those days, which probably goes for $7 today, why wouldn’t they be interested in buying an interesting item or a fine gift?”
During a recent visit to the Elson’s shop in the Sheraton Washington, Elson described the merchandising concept that has made his business grow.
“When you look at this shop,” he said, “you cannot see the merchandise from the outside, but (you see) the color, the elegance, the eloquent statement, the glass, the wood grain, the color.
“My most important customer isn’t the fellow staying in the hotel who is ringing the register. My most important customer is the man who owns this hotel.
“I have to sell him to put me in his hotels whenever he builds one. He will spend more money decorating and designing this lobby than any portion of the hotel. He is my first customer. I have to design a store where the guest who isn’t interested in going to the store sees it as an aesthetic addition to the hotel.”
Genesis of B. Dalton
Before he launched his chain of gift shops, Elson operated bookstores in shopping malls around Atlanta beginning in 1963. He abandoned that idea after finding that it was not profitable enough, but not before his description of the concept led others to enter the business.
“I saw Ed Dayton (of Dayton-Hudson Corp.), and I have a big mouth and unfortunately told him too much about it,” Elson said. “That is how B. Dalton (bookstores) came to be.
“My idea was to use the traffic of the shopping center to promote the sale of a low-priced, high-volume item. The key to it was that everyone bought the same 10 books, but you had to have a huge variety in order to encourage people to come in your store.”
Elson said the most dramatic decision in his career was deciding to sell his business. Although he had known W. H. Smith executives for years, he said he orally agreed to sell the business to another company, which he refused to name.
But after reaching an agreement on the terms of the sale, the party he was negotiating with failed to recognize the emotional importance of the moment for Elson.
Instead of congratulating Elson and inviting him for a drink, the party asked Elson if he could call him a car.
Elson, upset over the way he had been treated, said he changed his mind and offered W. H. Smith the chance to buy the business for the same price.
“How insensitive,” Elson said. “Didn’t this man realize the moment? It was the most significant moment in our family history. Didn’t this man realize it? If he was that insensitive to me, how was he going to be with our people?
“I expected him to say, ‘Let us open a bottle of champagne; call (your wife) and we’ll have dinner.’ And he says, ‘It’s 6 p.m., I’ll call you a car.’
“I said, ‘No thanks, I’ll take a taxi.’ And I changed my mind.”