New Facility: Music, Put-to-Light Keeps Hot Topic in Sync

July 1, 2005
New distribution center supports customer focus of hot teen retailer.

High volume, fast flow and great customer service is the beat that Hot Topic, Inc. rocks to with its musicinspired clothing and other trendy products. Music with a reverberating bass, and dècor that's hip and industrial draws teens to its stores. T-shirts, CDs from the hottest groups, cool clothes, accessories, jewelry, and licensed gear from the latest movies and TV hits, and a friendly staff keeps them coming back.

The City of Industry, Calif.-based company moves a lot of product through its 592 Hot Topic stores and 76 Torrid stores, which offer plus-size female-oriented product lines, in the United States and Puerto Rico. Sales for 2004 totaled $657 million, a 15 percent increase over the previous year. To hit the right chords with its target audience, Hot Topic sends employees to concerts to spot the latest trends.

"It's all about the music," says Sue McPherson, Hot Topic's vice president of distribution. Music permeates the entire company from its headquarters to its climatecontrolled distribution centers and retail stores. Televisions in common areas are always tuned to MTV, MTV2, FUSE or VH-1. "We are watching or hearing music all of the time," she notes.

The result? During a recent weekend, teenagers kept the cash registers humming at the store in Parma, Ohio (a middle-class Cleveland suburb). Fast flow from Hot Topic's newly opened Nashville distribution center makes replenishment easy for store manager Crystin Stoll. "We get cases of merchandise from our Nashville distribution center Monday through Friday," she reports.

It's obvious Stoll and her staff enjoys what they do. They excel at customer service whether it is assisting a teen looking for a CD or a lost-looking middle-aged woman in a preppy polo shirt trying to find someone to answer a few questions. Stoll says she started as a seasonal sales associate three years ago and now manages the store. District and regional managers visit her store regularly, and the company flies her to a yearly meeting at its California headquarters.

Customer Service is Priority One
The banner in the Nashville DC says it all: "Customer Service is Priority One." Customer service is more than just servicing customers in the stores, McPherson says. "We all have the responsibility to service all of our customers throughout the organization."

The drive for customer service—internal and external—starts at the top with CEO Elizabeth McLaughlin. Aaron Miller, a principal with Tompkins Associates (Raleigh, N.C.) who helped select and implement Hot Topic's warehouse management system in Nashville, says McLaughlin is the charismatic visionary who digs into the customer service forms and calls customers. "Upper management really sets the tone to work well within their organization and to put the right face out there when customers-walk through the door," he explains.

At the company's headquarters, there are no offices with doors. Everybody, including the CEO, president and top executives, works in a big office with televisions, monitors, desks and chairs. Music is always playing.

"It is actually very conducive to getting things done," McPherson explains. Miller agrees. During one of his visits, he had a conversation with his counterpart and the CIO overheard it. "If he were tucked away in an office, we would not have gotten his input, which we used."

Hot Topic takes the time to create an open and friendly work environment. "People spend more time in the workplace than they do anywhere else in their life so you want people to feel comfortable, to feel like it is a special place, and be proud of it, and to treat it well," McPherson says. Facility interiors feature architectural details, a lot of color, and comfortable furniture purchased at home-furnishing stores, not office-furniture outlets. As an added touch, gargoyles guard the front doors.

"We work hard to develop people," McPherson says, "and hold people accountable for development of their employees." She says they look for people who have talent and passion for what they do as opposed to experience. "We believe that talented people can be trained on the functional aspects of any job." She encourages her managers to take the time to sit down with their employees and ask them what they are passionate about? What do they really want to do? What is exciting to them? What gets their blood pumping? "We have people moving cross-departmentally from stores to headquarters, from headquarters to stores, from human resources to the DC, from DC to purchasing. It really depends on what their passions and talents are," she says.

A DC with No Storage
That's right, Hot Topic has no dedicated storage area in the 300,000 sq.-ft. DC it opened in May 2005—and recently agreed to purchase for $14.3 million in cash—in La Vergne, Tenn., about 15 miles south of Nashville. "We are not a warehouse. We are a flow-through distribution center," McPherson explains. "Product comes in and it is our job to get it out to the stores as quickly as possible. We are a very trend-oriented business. Our customers know what they want and they want it now. Our job is to get it to them now."

According to Tompkins' Miller, "This [lack of storage] is what makes this building really exciting. Within 24 hours of receipt, the product is shipped to Hot Topic stores." The new facility, he adds, will handle more than 50 percent of Hot Topic's stores. Hot Topic's DCs are designed to support its business model and be responsive to customers' demands and changing market conditions, Miller says. Both its Nashville and City of Industry DCs have receiving zones, and areas for put-to-light, valueadded services, special handling, jewelry, CDs, posters, packaging and shipping. The new DC has a training room and training area that will be used as a proving ground for training staff prior to going on the DC floor. It contains a mini setup of the technical pieces in its new DC. Here, new employees practice scanning boxes and working with a put-to-light system that has six lights instead of 75. " After about a half-day of training," McPherson explains, "they are moved to the live production so they get a more realistic feel of the process."

The Nashville DC has 15 shipping and 15 receiving docks. "That's a lot and we won't use them all," McPherson says. The company built a building to grow with it. With the building as it is today, she adds, "We believe we can handle our growth through 2010. We will have to add more material handling equipment as we grow, but we planned for that and it will be simple drop-ins of more putto-light aisles."

Lightning Pick put-to-light systems from PCC Systems LLC (Germantown, Wis.) and a Manhattan Associates (Atlanta) warehouse management system keep product flowing. A conveyor system routes received items to value-added services or the put-to-light system where product is packed into individual store cartons. Every time a carton is full, it is shipped to a store. Each of its 592 stores receives, on average, four to five cartons every day, five days a week. The company's allocations come from a planning and allocations team. Visibility for this team extends to the unit level, but not the case pack, McPherson explains, so the warehouse management system looks for matches and routes full cases for cross-docking.

Products are made ready for stores in a value-added services area. Here, clothes are folded, sensors and size strips are applied and tags and tickets are attached. However, as store manager Stoll reports, her team still needs to put some clothes on hangers. McPherson says only about five percent of product comes in not already ticketed. Items that are fragile or that require special packaging are also packed in this area.

The fast flow-through in Hot Topic's DCs has a rhythm of its own. Product comes in and is sorted, packed and shipped. Customers are satisfied. The beat goes on.

The entrance to Hot Topic's Nashville distribution center.

The office space of Hot Topic's new Nashville distribution center mirrors that of its California DC: no walls or doors. Everybody, including the CEO, president and top executives, works in a big office with televisions, monitors, desks and chairs. Employees say it is a productive work environment.

Hot Topic's Nashville distribution center has 15 shipping and 15 receiving docks. The company built the building to handle its growth through 2010. It includes space to add more puttolight aisles as its business expands.

Product moves through Hot Topic's DCs within 24 to 48 hours of receipt. The conveyor system routes received items to value-added services or the put-to-light system where product is distributed into individual store cartons. Full-case packs that match the allocation for a store are cross-docked.

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