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Shopping Centers Today -> April 2004
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SURF’S UP
Pacific Sunwear has grown up by listening closely to those who haven’t
BY LEE KESSLER
The
ability to listen to teen-agers is a skill most adults never master.
But the adults at Pacific Sunwear of California are doing pretty
well at it, if recent corporate performance is an indicator.
Anaheim, Calif.-based Pacific Sunwear began in 1980 as a little surf shop in Newport Beach, Calif. Today PacSun, as it is known for short, is a national, mall-based retailer of clothing, footwear and accessories for teens and young adults. Just as surfers follow the waves, PacSun followed the surfers, who when not at the beach were at the mall. The company opened its first mall store in 1981, at Santa Monica (Calif.) Place, then owned by The Hahn Co., and more of them began appearing all up and down the California coast. By 1987 PacSun was running 21 stores, the first of their kind to go into the malls.
“Historically, young people don’t find shopping in a department store cool — and everything they do has to be cool,” said Greg Weaver, PacSun’s chairman and CEO, in an August 2000 interview with The Motley Fool, a multimedia financial education company. “A young customer is always going to shop in a specialty store that is purely catering to them.”
On a recent visit to a PacSun at Wilmorite’s Danbury (Conn.) Fair Mall, an employee greeting customers at the door was as solicitous of one father’s 12-year-old son as he was of the “old man.” Once inside, the boy explored the territory with no inhibitions, firing questions at a saleswoman who treated him not as a pest but as a peer and pointed him toward a rack of Independent T-shirts emblazoned with large formée-shaped crosses. The shirt’s appeal? “I just think it’s cool,” said the youngster.
And with that approach, PacSun has grown. When the chain went public in 1993, it was operating 60 stores. Today there are 691 PacSun stores and 75 PacSun Outlets in the 50 states and Puerto Rico. The 13-to-22 domestic demographic, which PacSun estimates to be about 130 million strong, spent a total of some $170 billion last year. Average sales per square foot at PacSun stores are at $360, and at D.e.m.o. stores, the chain’s urban concept, they exceed $400. Sales last year for the three concepts totaled $883 million.
To catch some more of that wave, PacSun opened 100 new stores in 2003. This year, Weaver says, PacSun will open 111 new stores. Of these, 66 will be PacSuns, five will be PacSun Outlets, and 40 will be D.e.m.o. stores. By 2007 the company wants to have about 1,000 PacSun and PacSun Outlet units and some 400 D.e.m.o. stores domestically.
Weaver told SCT that the company has no plans to expand internationally, explaining that PacSun needs to focus its resources on meeting the domestic goals.
Before 1999 the company had done no appreciable advertising, but that year the number of stores reached a level sufficient to justify the cost of national magazine ads. Today PacSun runs ads in seven national magazines geared to the teen market, such as Seventeen and Spin. But the company believes that its longevity relies less on advertising than on its knack for listening to customers.
“We run focus groups and teen panels,” said Weaver. “We also survey all our store managers every quarter to get their feedback and customer comments.” The results of these surveys (he declined to specify exactly what customers were asked) are tabulated and shared among all the store managers.
That same approach underlies the D.e.m.o. concept, which is targeted to slightly older customers influenced by the hip-hop lifestyle. There are 112 D.e.m.o. stores today.
In some areas both PacSun and D.e.m.o. thrive inside the same malls; D.e.m.o. carries completely different brands than PacSun’s so there is no cannibalizing of sales. By contrast, that has been a problem for rival Gap Inc., whose Gap, Banana Republic and Old Navy concepts are often located close together and tend to eat into one another’s sales.
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The performance of PacSun’s Web site was even more dramatic during the holidays. December’s Web sales of $3.1 million represented a gain of 103 percent over the previous December. Web sales for the whole of 2003 grew by 80 percent over the previous year. Web shoppers spend a lot, too; while the average PacSun store purchase is $43, the average Web purchase is $65.
PacSun’s comp sale increases have, for the past 2 years, left all competitors in the dust. They averaged just over 10 percent, compared with a 1 percent average for their competitors.
If the Web is everywhere, PacSun wants its stores to be too, at least in the United States. The company seeks sites of 4,000 square feet for new PacSun stores (slightly more for the outlets) and 2,400 square feet for the D.e.m.o. units. It expects to complete 35 expansions of existing stores or relocations to larger sites by year-end. Witness what happened last April at Taubman Centers’ Lakeforest, in Gaithersburg, Md., where the PacSun store moved up from a 1,803-square-foot space to a 3,500-square-foot one.
“We like to be in three-anchor malls,” says Weaver. “Our first preference is to co-tenant with youth-oriented teen retailers. After that, we like music stores or food courts.”
PacSun is “hot,” says Marion Julier, general manager of Lakeforest. “Our mall has a lot of young customers, and Pacific Sun is very well liked. They’ve done very well here at this mall.”
Among PacSun’s many brands are Billabong, Dickies, Element, Fox, Hurley, Independent, O’Neill, Quicksilver and Roxy. These brands, beyond surfing, are often associated with such alternative board sports as those seen on ESPN’s X-Games: skateboarding, snowboarding and the like.
For such products as jeans, where branded products tend to be high-priced, PacSun offers the lower-cost alternative of their private-label, Weaver says. In a recent interview with Investor’s Business Daily, Carl Womack, PacSun’s CFO, cited its brand- and private-label mix as a competitive advantage. “Sixty-six percent of our business is branded merchandise, where most of our competitors are zero percent branded merchandise. At Abercrombie, American Eagle or Aeropostale, the only thing you can buy is their brand.”
PacSun is also shifting away from its historical concentration on male customers by offering more merchandise for women; this year it expects to achieve an equal male-female balance in sales.
In a recent report, Bear Stearns analyst Dana Telsey notes that female shoppers in this demographic tend to be “wardrobe shoppers,” who buy accessories and footwear in addition to apparel. Telsey predicts that this expected increase in female shoppers may contribute to a rise in average transaction value at the stores. After all, women are less concerned about prices than men are, Dawn Stoner, an analyst at San Francisco-based investment bank Pacific Growth Equities, told Investor’s Business Daily in July.
Weaver speaks of his customer as wanting to “get credit for a brand” and, indeed, most of the clothing has the brand name and logo boldly emblazoned on it, usually more than once per garment. Clearly, the manufacturers of these brands seek to imbue them with an identity, the basis of which often comes from the board sports.
“Alternative sports, which include skateboarding, surfing, snowboarding [and] motocross … continue to grow in popularity as they receive more widespread TV coverage,” said Irma Zandl, president of trend research firm Zandl Group, in a recent Associated Press story. “So there is a solid foundation for fashion influenced by these sports — it’s not faddish.”
Maybe not, but it certainly is changeable enough to keep PacSun on its toes as it continues to grow. This year the company will add 450,000 square feet of retail to the 2003 total of 3 million square feet for its three concepts — an increase of 15 percent. The PacSun concepts have also shown versatility, succeeding as much in affluent markets as in those where average household income is below $40,000 a year.
To support its expansion, the company moved its headquarters in February 2002 into a new building in Anaheim that is three times larger than the previous facility; the new facility includes a 350-seat auditorium, used for training, shareholder meetings and fashion shows.
Speaking of the PacSun concept, analyst Jeffery Van Sinderen of Southern California-based B. Riley & Co. said: “They are on the verge of maxing out the ‘A’ malls that they can go into. They’ll go into ‘B’ malls, but the growth that has been in that chain for the last few years I don’t think is going to be the same going forward.”
A saturation point, perhaps? Well, saturation has never bothered surfers.
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