What are some of the strategies of the most successful businesses around the world? Why does Trader Joe’s offer a limited range of items? How does T.J. Maxx thrive in recessions?

From Primark and Barnes & Noble, to Domino’s and Chipotle, WSJ talked to CEOs and business leaders about their unique approach leading these major brands.

Chapters:
0:00 Trader Joe’s
4:54 Primark
12:00 Spirit Halloween
17:52 Chipotle 
25:01 T.J. Maxx
30:42 Used Rolexes
37:20 Nintendo 
42:31 Barnes & Noble 
48:24 Lego
54:14 Domino’s 

The Economics Of
How do the world's most successful companies generate revenue? In this explainer series, we'll dive into the surprising stories behind how businesses work--exploring everything from Costco's "treasure-hunt" model to the economics behind Amazon's AWS.

#TraderJoes #Chipotle #WSJ

Businesses find all sorts of ways to stand apart from their competition, from cutting out the middleman to bucking the e-commerce trend.

We explore the strategies behind some of the biggest names in business to see what makes them profitable, unique, and able to survive or even thrive in an economic downturn.

First, we dive into how Trader Joe's threatened conventional supermarkets with its limited options and cult favorite products.

And about 25 years ago, bananas at Trader Joe's cost 19 cents.

As of 2020, Trader Joe's gross average sales per square foot was more than double those of other major grocery store chains.

And it's been ranked the highest rated grocery store for customer satisfaction.

So how does Trader Joe's manage to keep prices low while outcompeting traditional grocery stores by selling fewer products?

Trader Joe's stores are smaller and they tend to carry fewer items and the vast majority of what they sell is private label.

When the store first opened in 1967, Trader Joe's founder, Joe Coulombe, emphasized stocking products that were unconventional to shoppers at the time, like Dijon mustard and granola.

In 1979, Trader Joe's was bought by the German discount grocery store chain Aldi Nord.

And today, Trader Joe's has built its image around selling trendy, quirky, and seasonal items.

It helps with fueling the experience for customers.

People can go and kind of feel like they're discovering something new.

And these products have created a large and loyal customer fan base.

I went to Trader Joe's and I accidentally got, I got way too much stuff.

Its Popularity on social media is helpful for the company because Trader Joe's doesn't do a lot of advertising.

Actually, the grocery store doesn't do a lot of things that other grocery stores do.

There's no loyalty program, no online shopping platform and no deli counter.

The Trader Joe's fan base is strong and they are dedicated, they are mega fans.

People will sell Trader Joe's products on places like eBay for a much higher price tag than what you would find at the stores.

Trader Joe's smaller selection can make the in-store shopping experience more efficient for customers, according to psychologist and professor Barry Schwartz.

For example, instead of having to pick between many different brands of tomato sauce at a conventional grocery store, customers at Trader Joe's can quickly select 1 from its more limited options.

By selling a small selection of house brands, Trader Joe's can control its own supply chain, which it says brings down prices.

Trader Joe's items tend to be cheaper because they buy directly from producers and manufacturers whenever they can.

So this cuts costs that would typically go to the middleman.

And the company says they are able to pass that along to shoppers.

Trader Joe's says it buys in bulk and often pays for items up front whenever possible from suppliers.

The grocery store chain also says it pays for some products, like Dijon mustard, in local currency.

So if the currency fluctuates, Trader Joe's takes on the risk, not the supplier.

And by assuming the risk, Trader Joe's says it can negotiate better prices with suppliers.

This control over its products and supply chain means Trader Joe's can easily add and remove items from its shelves.

1 of the unique things about Trader Joe's is they're constantly changing their shelves.

If products aren't selling as well as they thought they would, they remove them from their shelves to make room for something better.

Some grocery stores charge brands various marketing fees to stock products.

But Trader Joe's says it only makes money when customers make a purchase.

So according to Trader Joe's, this incentivizes it to only stock products that customers like.

From JoJo's sandwich cookies to Kung Pao chicken.

There isn't really another chain that does what they do.

There are other discounters that sell for cheaper, but you're not gonna find the innovation and the fun products there.

The traditional grocery stores have tried to go that route, but Trader Joe's is Trader Joe's.

Let's say you wanted to buy this Primark t-shirt.

If you're shopping on Primark's website, you'll quickly discover that you can't.

Over the past 10 years, e-commerce sales have more than doubled.

But last year, European fast-fashion retailer Primark made $9.5 billion in sales revenue without a single penny from online shopping.

We made a very clear choice and our clear choice is bricks and mortar.

This comes at an uncertain time for struggling clothing retailers.

Retailers like Forever 21, JCPenney and Neiman Marcus have closed stores and filed for bankruptcy.

And While a UBS report shows up to 80,000 retail stores will close in the next 5 years, Primark plans to expand to 60 stores in the same time frame.

Is driving 2 hours from Toronto to Buffalo to shop at Primark worth it?

Heck yes, I used to fly 6 hours to do so.

So how is Primark expanding without online shopping?

Fashion retail is incredibly competitive, more so than ever.

There's not many players, especially in fast fashion, that are making fat margins.

Pretty much the thinking everywhere is that you have to have this online presence.

But online shopping is actually incredibly expensive for retailers.

You have to have a logistical hub from which you would dispatch the goods and then you probably have a local distribution center from which you have to do last mile delivery.

Each step of that just is an extra layer of cost that just eats away at the margin, which in fashion is very, very slim anyway.

But the real killer for e-commerce is that somebody who buys something on the Internet is far more likely to return that product than somebody who goes into a store.

Returns are 1 of the biggest profit losses for online retailers.

On average, processing a return for $100 worth of merchandise bought online costs a company $26.50.

For years, online retailers just ate these expenses.

Only now are more of them deciding to pass the cost back to the consumer.

Primark have just said right from the beginning, we don't think we can make money out of e-commerce.

We're going to focus all our resources on the physical store and protect our margins.

And that wasn't an issue for the retailer until.

Now Primark is expected to close all 189 of its UK stores tonight.

And it doesn't have an online offering to fall back on.

E-commerce was a lifeline for a lot of retailers during the pandemic.

They couldn't open their stores, but they were still able to make some sales on the Internet.

But Primark didn't budge, even as consumers urged for it to offer online shopping.

And even after its revenue dropped by almost 2000000000 pounds.

And I think their confidence in this model of having no digital sales and only using stores, I think, was probably shaken by the pandemic.

Who knows what would have happened if it had gone on for longer?

I think the closures weren't quite long enough to really tip the scales and force them to fundamentally rethink the model.

Instead of traditional online shopping, in 2022, Primark launched a trial service called Click and Collect in select UK stores.

Customers can select certain products online, then pick up their orders in-store.

So Primark still has some cost to maintain its website, but it's cheaper than running a true online shop.

So Primark makes a sale, but they don't have any of the logistical costs that would be involved in packing it up and then shipping it out to your home.

Since the customer has to go inside to collect their purchase, they're likely to browse around and maybe even buy more.

They make the sale online but then they have a good chance of making some extra sales when that person visits them.

Consumer psychologists call this shopping momentum.

Essentially, once you've already decided to make a purchase, it's easier to justify adding more to your cart.

It always feels just overwhelmingly busy with people who are in there looking for bargains.

Primark lures consumers with beauty, home and travel products similar to a department store.

What we like to say about Primark here in the U.S.

Is that, you know, we're all treasure without the hunt.

So Customers may go in for a new t-shirt and leave with a suitcase.

But a Primark that I can drive to and don't have to fly to is a dream because that means there's no limit to what I can buy and bring home.

To carry this vast selection of items, Primark finds large retail spaces because it relies on selling a lot.

It's 1 of the largest retailers in the UK by volume and 1 of the largest across all of Europe.

Last year, Primark made about $9.5 billion in sales revenue in part by selling a lot of things at low profit margins.

And it does this by sourcing a lot of its clothing from Asia.

Combined with not offering online shopping, this enables Primark to sell its merchandise at lower prices, even lower than many other fast fashion retailers.

Where they do have serious rivals on price is with the digital-only players, like Shein, for example.

They are often even cheaper than Primark.

But according to the National Retail Federation, 80% of shopping still happens in-store, giving Primark an edge over its digital-only competitors.

Even so, its in-store shopping model got off to a rocky start in the U.S.

Although it was already popular in the U.K., its U.S.

After years of experimentation, Primark learned it would have to change to succeed in the U.S.

When we first opened, we took a similar store size that we would have had in Europe.

But when Primark opened its stores across the Northeast, it struggled to find the right store density.

Is that retail is so much more competitive.

There's a lot more retail in downtown areas in the U.S.

So you just can't support a massive store.

It's just not possible to get enough revenue for the size.

To support its large store sizes, it needed a lot of foot traffic.

Stores, which were located in constantly busy areas, U.S.

Stores were mostly in malls, where during the week, foot traffic dwindled.

We learned that actually 35,000 square foot of retail selling space is actually the sweet spot for us.

They didn't face the commercial pressure that a publicly owned company might have faced to suddenly open 100 stores and get really big really quickly and then possibly risk disaster because they hadn't thought it through.

The culture of Primark has always been to take our time and to test and learn.

And we've done that in every country where we've introduced the brand.

This wasn't about, you know, growing market share at all costs.

And the overall retail market is shifting.

Online shopping hit a peak during COVID, but now growth is beginning to slow as people return to stores.

And I think that's never been so important as it is since we came out of COVID.

I think there has been a massive rediscovery of being in malls, being together, physical shopping.

And I think as a business that took the decision a long time ago to have that as our core strategy, you know, has continued to allow us to be successful.

It's that time of year when vacant storefronts temporarily transform into Spirit Halloween's.

That spooky, seasonal retailer that's seemingly everywhere overnight.

For Spirit Halloween, a pop-up lease is ideal because then they're only paying for space when they truly need it.

And with consumers expected to spend a record amount for the holiday, Spirit Halloween has opened more stores than ever this year.

So how does Spirit Halloween capitalize on abandoned spaces in local markets?

And how does it manage to transform those vacant storefronts so quickly?

This is the economics of Spirit Halloween.

The first Spirit Halloween popped up in 1983 in Castro Valley, California.

It was an extension of founder Joe Marver's women's clothing store.

Traditionally, October is a very slow month for retail in general, and there was a Halloween store in the strip center that he operated, and he saw that there were lines coming out, so I said, that might be a good idea.

So with that, he turned his boutique into a Halloween store, and kind of the rest is history.

In 1999, Marver sold the company to Spencer Gifts, that mall store known for gag gifts.

And it's built a reputation among those who love Halloween.

So much so that more than 2,000 fans showed up to the July grand opening of the flagship store in New Jersey.

But the retailer is hoping last-minute shoppers come through the door, too.

1 of the advantages is that they're everywhere.

So if someone has forgotten about Halloween and needs to get a last-minute costume and can't wait fo it was bought online, the a spirit Halloween

while fair on the company's web its physical locations op

prefers a temporary lease year round business.

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ago when we sat down with got this idea, we got a pop up Halloween store, we're going to come for 2 months, we get the look of, you know, really what, you know, why, why would I bother with that?

Though landlords tend to prefer long-term leases, pop-ups can be an alternative to empty space.

In the years following the Great Recession, as retail vacancies increase, landlords found that pop-ups were an effective way of filling space that had been vacant for a long time, because of course some revenue is better than no revenue.

And to make temporary leases more attractive to landlords, the company adds kick-out clauses.

If they find a space where they want to open, but the landlord finds another tenant who's willing to sign a long-term lease before a certain day, maybe it's middle of June, for example, then Spirit Halloween loses that space.

For Spirit Halloween, finding real estate is a year-round business.

When stores shut down for 1 season, the company is already talking to landlords about the next.

Big spaces are key, up to 50,000 square feet, often where big box retailers used to live.

Those storefronts are often in shopping centers or strip malls, but can also be standalone.

And signing the lease is just the beginning.

The retailer says setting up the stores is another logistical challenge.

I mean, literally, we are starting from scratch in every single store.

We inherit an empty location And we have to bring in not only all the merchandise, but all the fixturing.

According to the National Retail Federation, spending on Halloween is expected to hit a record $10.6 billion in 2022.

On average, customers are planning to spend $100 each on costumes, decor, candy and cards this year.

And 36% of customers plan to shop at specialty stores like Spirit Halloween.

And Canada, It's 1 of the most ubiquitous.

It's kind of like you get your pumpkin spice latte, you're back to school, you see Spirit Halloween open up in shopping centers on your drive to work.

1 of its biggest competitors, Party City's pop-up branch, Halloween City, operated 275 stores in 2019, and scaled back during the pandemic.

Spirit Halloween's pop-up model has become such a fixture of the season that it's inspired a new movie.

People joke about how quickly the company moves in after something else shuts down.

We kind of enjoy the meme value of Spirit.

We bring life and we bring joy, we bring energy, we bring a whole, you know, new reason.

And so the meme value of Spirit is recognition of that value.

That's part of the reason Spirit Halloween decided to open all of its planned

And so the main v recognition of that value

reason Spirit Halloween d planned 1400 stores in 20 fewer during the COVID-19 it experienced product de costs.

Last year, we didn of the issue with the supply chain until April, when suddenly everything dried up.

By the end of the season, we had received all of our merchandise, but it was through some really difficult cartwheels and somersaults.

The retailer says all of its locations are fully stocked this year.

For fans of Halloween, the company wants to be the beginning of the holiday.

Coming to a Spirit Halloween is an event.

It's something that the fans really look forward to.

And when we come, that's when Halloween starts.

And for landlords with empty storefronts, Spirit Halloween continues to temporarily bring life back to those abandoned spaces.

Chipotle's menu only has a few items, but it's highly customizable.

Born in 1993, that's what's made Chipotle 1 of the most successful fast-casual restaurant chains in the U.S.

But in recent years, Chipotle's faced many challenges.

Between 2015 to 2018, Chipotle dealt with 5 foodborne illness outbreaks.

Like most of the restaurant industry, Chipotle's revenue took a big hit during the beginning of the coronavirus pandemic.

And today, it's dealing with inflation that's increased labor, transportation, and food costs.

Yet despite these setbacks, Chipotle's sales are actually growing.

Here's how Chipotle's focus on efficiency and innovation helped it bounce back and become 1 of the country's most valuable quick service chains.

Chipotle's revenue has increased by more than 200 percent over the past decade.

Its stock price has increased about 400% in the last 5 years.

Much of Chipotle's success comes from its efficient and what it calls transparent in-store experience.

Chipotle has really, in a lot of ways, made the whole fast, casual category for restaurants.

They've generated a lot of sales from people who want this alternative that seems fresher and faster than fast food, but it's not a full-service experience.

Fast, casual design can help them reduce some of their labor expenses, which helps with profits.

Chipotle's menu is relatively small, but it's easy to customize.

There's tons of stuff you can put on your meal.

That's proteins, that's cheeses, that's vegetables, that's all the salsas and sauces.

And for a customer, that makes it exciting.

They get lots of different things they can customize their meal with.

The more limited menu in general is better for restaurants and their profits.

It's less things to train the restaurant workers on.

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The Business Strategies Behind Trader Joe’s, Primark, Chipotle and More | WSJ The Economics Of