Store of Knowledge Strives to Educate, for Life

From its founding, Store of Knowledge has worked in partnership with public broadcasting stations around the country and donates 1 percent of its net sales to affiliate stations. The stations also hold an equity position in the company, which hopes to go public in the future.

CEO James Berk joined the company in November of last year to engineer a turnaround in the brutally competitive specialty retail market. He also fills the duties of chairman and president. With a growth rate of 135 percent over last year—which includes revenues from 22 new stores—sales are expected to reach between $130 million and $150 million in 2000.

Berk is no stranger to learning—or the retail wars. He founded and managed
educational and teaching products retailer Teach and Play Smart in Dallas and is a 35-year veteran of the retail, distribution and manufacturing scene. He was president and CEO of office products chain BizMart and served in the same capacity for club retailer The Wholesale Club. During his tenure at both companies, Berk helped increase revenues dramatically. He hopes to do the same for Store of Knowledge.

LOHAS Journal: When and why was Store of Knowledge (SOK) formed?


James Berk: In 1994, KCET-TV in Los Angeles wanted another vehicle to fill its mission statement of education and lifelong learning and came up with the concept of a retail store that was an extension of the station. The investment firm (that has as one of its principals the current mayor of Los Angeles, Richard J. Riordan) Riordan, Lewis and Hayden partnered with KCET and became financial backers of the station to form this business. So there was a social aspect to that investment, because it was not necessarily a good financial investment.

The company went through its first phase and was initially successful, raised more capital, began an expansion program, and between 1995 and 1999 opened 71 stores. But by 1997 store performance began to show signs of decline. When I came in, we quickly put together a program to bring back focus—I think the stores had forgotten to look at the customer and were all wrapped up in their own definition of education and lifelong learning. We built a new staff with a focus on the customer and the trends happening in the real world. A lot of those trends match what's happening with the Cultural Creatives.

We drew up a new mission statement in which we made a commitment to creating a store that is the preeminent specialty retailer of fun, educational, intellectual, stimulating products that matches the mission of public TV. The net result is that, year-to-date, business is up 135 percent over last year. But the real measurement is how we're doing on a comparative basis, and we're doing near double-digits comps. Why is that happening? Because we changed the mix to match the customer.

LJ: What is the SOK customer profile?


Berk: Intuitively, we've been focused on a customer that from our description tends to be well educated, has disposable income and is interested in lifelong learning. Seventy-five percent of our customers are women; they're in the stores two to three times per month; they are, on average, in their early 40s and have one to two children under age 12. In many ways, it pretty well matches the Cultural Creative.

We just put in a whole new program that includes recycled-content bags and a new look and image, and we have put in our own private-label products. It's very clear that, given equals, the customer prefers to be environmentally friendly. However, there's not yet a strong position in the marketplace that says if you make recycled or health-oriented products, they'll buy them—unless the price is equal. I don't think we're there yet.

LJ: How big is your potential market?


Berk: That's impossible to define because it crosses over so many traditional business segments. The toy industry is about a $50 billion industry. There's a book industry, a game industry, a video industry and a music industry. We carry a mix of all those products. So is the potential for our store $100 billion? No, because we only carry small segments of that. But in the specialty store industry it's probably a $3-$5 billion market.

We will have opened up 22 stores on a base of 71—we bought leases from Learningsmith [a former Burlington, Mass.-based competitor that filed for bankruptcy in December 1999 and closed its stores] that gave us a better presence on the East Coast. Next year we'll be raising more capital for expansion, and, to the degree we're successful, we'll open more stores. My goal is to open 10 to 20 stores a year.

The capital markets are tight for retail, and now they're tight for any Internet enterprise. Our strategy of clicks and mortar, while it's in favor as compared to the pure e-commerce plays—well, it'll be interesting to see what the capital markets have for us.

What happened was this massive investment in dot coms dried up capital for many other worthy businesses. Where it really has hurt a lot of busi-nesses is in the second round of financing, because many investment companies, particularly venture capitalists, had to hold their capital back to reinforce the dot coms.

LJ: Explain the company's partnership with pubic broadcasting.


Berk: To get a national identity you really need national advertising. Our primary communication vehicle is the public broadcasting stations. We think we'll spread that word with the launch of the website [www.storeofknowledge.com] this year.

We are now affiliated with 26 stations in the United States, which covers about 40 percent of the country, and we reach about 30 million viewers. The stations run trailers on some of their shows talking about SOK, and we contribute 1 percent of the sales to the station on a local basis. Local stations add their call letters or brand, which is one of the reasons why there has been a branding problem for us. The original concept was that this would be the local store for the local market. With the Internet taking focus, we couldn't individually brand every store.

You can't put a store in every market with a public television station, so we've recently introduced our cyber agreement through which we offer smaller-market stations an opportunity to participate vis-à-vis our Web store. We're negotiating with five stations under that program.

I think the company lost its appreciation of the relationship with the stations for a period of time. We made an absolute renewed commitment to those stations when I became CEO. We give all members of public broadcasting stations a 10 percent discount. It's the same discount that we give to teachers.

LJ: What trends are you seeing in the marketplace?


Berk: The market has changed dramatically in the last five years. In 1994, SOK was unique. Then some similar stores were founded. But there is a tendency to overstore. Zany Brainy and Noodle Kidoodle [bought by Zany Brainy in July 2000], for example, are two stores that began off-mall. The market became very cluttered, which placed financial pressure on the marketplace, and I think that's what happened to SOK.

As the world has become overstored, with increased competition, I also feel that there is nothing like SOK in the marketplace. So what do I mean by competition? It's really the competition for disposable dollars in a broad spectrum of products. Zany Brainy has had its struggles as a primarily off-mall retailer. [Walt] Disney has announced the closing of 140 stores [to reverse a sales slump and in favor of a new store concept] over the next couple of years. Warner Brothers has announced the closing of its flagship store in Manhattan. Why is this happening? I think there's a trend afoot that is saying something to the effect of 'I have a dollar to spend; I have a choice of any place on earth to spend it. If I'm going to give a gift or buy something for my child, why not give the gift of knowledge or something that will last an amount of time?' It's far beyond when the test tubes break and the chemistry kit gets thrown away. That knowledge is still there. You can only buy so many
Mickey Mouses and Donald Ducks.

LJ: As a niche retailer, how do you keep your product mix unique and different?


Berk: It is at the very core of what we're doing. Our objective is to be fashion forward and create these fun, unique items, and the minute they get into mainstream, we'll exit the product unless we can be competitive in the project. We've been in the Razor scooter business since January of this year, and we'll
barely be noticeable in it this Christmas—our customer base has, to a degree, already bought them. Now it's a mass-merchant item, and we'll move on to the next item. Two-thirds of the mix in the stores this Christmas is totally different by category and look than it was last year.

LJ: What will accelerate growth of your business?


Berk: We have to understand our customer and provide the product assortment that our customer wants, and that customer is also a mall shopper. We are maybe a 10 to 20 percent destination store and an 80 percent mall-based, we-happen-to-be there, we're-going-to-shop-there store. We try to find product assortments that are exciting, different and provide a real value to our customers.
We're putting strong emphasis on the SOK brand that lives up to this commitment of high quality and high value. I think that wins in the long run. That and the combination of
recognized national brands or brands that fulfill our mission.

LJ: As a retailer, what challenges does SOK face?


Berk: Over the course of time we've now defined what a 'store of knowledge' should be. I want to make sure you find knowledge in our stores. A year ago that was not true. A year ago you walked in and found products very similar to those in the mass merchants or other stores in the mall.

LJ: What's most important to your
customers?


Berk: The most important thing to our customers is the safety, for a parent, of bringing their child into a Store of Knowledge. That manifests in two ways—they bring their kids in with them and all the products they see are OK. And we have created a very highly interactive store. A child can spend an hour playing on our play table. The child has a great experience.

One of the reasons we created the gift registry on the Web and in the store was because parents were telling us they wished there was a way for the kids to list the stuff they wanted, including things that older children might want.

We hear back from customers that they love to come back to the store because it's fun. We have committed payroll to have a door greeter at every store. That door greeter is charged with playing. Their assignment is to play with something in the store. That's the job
I want! We try to encourage fun.