Pacific Sunwear, Vans Team as a Giant in Skate Apparel
Driven by the boom in skateboarding, shoemaker Vans Inc. and teen apparel retailer Pacific Sunwear of California said Monday that they are teaming up to make and sell a line of Vans skate-inspired clothing.
The venture between the two Southland companies weds one of the biggest names in the fast-growing skateboard industry with one of the hottest and biggest retailers to teens. Both companies target hard-to-please but eager-to-spend customers who are as fickle as they are hip.
“Kids are driving business today,” said Steven A. Richter, an analyst with Tucker Anthony in Boston.
Indeed, the teenage population is growing at twice the rate of the general population, and their disposable income has doubled in the last five years thanks to increases in the number of dual-income families and in the minimum wage.
Teens “are a potent force in our consumer economy,” said Richard Jaffe, an analyst with PaineWebber. They “have a very sharply defined taste and a very sophisticated level of consumption.”
Vans, whose shoes are popular among skateboarders, and Pacific Sunwear are two of the most successful companies at reaching this growing market. Both companies also are attracting growing legions of girls in sports that once attracted only boys.
Initially, Vans clothes will be geared toward boys, but the companies probably will add a line for girls down the road, executives said.
Vans has boosted its profile in recent years by sponsoring major skateboarding, surfing and snowboarding competitions. The Santa Fe Springs company bought the trademark to the Triple Crown of surfing, one of that sport’s major events, and struck an agreement with ESPN to televise its competitions.
And last year, Vans opened a skate park at the Block at Orange shopping and entertainment center, which turned into such a youth magnet that the company plans to open six to 10 more skate centers worldwide.
Anaheim-based Pacific Sunwear, meanwhile, has nearly tripled its stores over the last four years and plans to have 450 nationwide by the end of 1999. Besides its namesake Pacific Sunwear stores, which account for 92% of the company’s 348 locations, Pacific Sunwear operates 10 outlet stores and 16 d.e.m.o. stores, which target urban and “multiethnic” youth.
The company’s profits leaped 43% last year and its stock price has nearly tripled since December.
As part of the new venture, Pacific Sunwear initially will be the only apparel retailer to sell the Vans clothing line. Vans also will sell the clothes in its 106 shoe stores.
Other manufacturers have granted exclusive rights to a specific retailer to enhance their brands, but industry experts said they were unaware of an arrangement quite like the one announced Monday.
“This goes beyond your typical vendor/retailer relationship,” said Joseph Teklits of Ferris Baker Watts, a Baltimore investment firm.
Vans has been unable to generate much enthusiasm for its sketchy apparel line, which it launched about 18 months ago. Currently, the line consists mostly of T-shirts, shorts, hats and backpacks and represents an “immaterial portion” of the business, said Vans Chief Executive Officer Gary H. Schoenfeld.
Analysts said the new venture could change all that.
The companies will form a new enterprise called Van Pac, which will be 51% owned by Vans, 49% by Pacific Sunwear. The companies will work together to design the clothing, and Pacific Sunwear will handle manufacturing and distribution as well as identify trends to help direct product development.
“What Pacific Sunwear brings to the table is pretty significant in terms of sourcing, design, marketing,” said Kindra Hix, an analyst with NationsBanc Montgomery Securities.
The retailer already designs and arranges for the production of eight of its own private labels, including Breakdown, Bullhead, Venus and Tilt, through an international network of manufacturers.
Pacific Sunwear President Tim Harmon said the company has been trying to hook up with a skate-industry brand to develop a new apparel line.
“There are a lot of dominant players in the surf [apparel] industry, whether Quiksilver or Billabong, but there are not any dominant [skate apparel] players,” he said. “We feel that was a deficiency in our assortment.”
Vans--already a leading shoe supplier for Pacific Sunwear--approached the company with an idea for “a pseudo-licensing arrangement,” Harmon said. The joint venture evolved from those discussions.
Vans will direct the marketing campaign that will accompany the clothes into stores by advertising in surfing, skateboarding and snowboarding magazines, Schoenfeld said. The line will include the usual offerings, including pants, shorts and long- and short-sleeved shirts.
The initial cash outlay, which officials declined to disclose, will be relatively small. Pacific Sunwear and Vans each will provide their own financing when they buy clothing from Van Pac for their stores.
While the initial distribution will be limited, Vans clothing may later be sold to other specialty and department stores.
Because most of the framework is in place to make Vans clothes, analysts said the venture could become profitable fairly quickly.
“We expect them to drive high margins from the Vans product, and we think they will be well accepted by their customers,” said Joe Grillo, an analyst with BT Alex. Brown. “It draws customers into their stores, and we expect it to drive their same-store sales starting when the product arrives in stores in early summer.”
Investors seemed pleased by the news. Pacific Sunwear shares climbed 50 cents Monday, to $32. Vans shares rose 50 cents, to $6.75. Both stocks trade on the Nasdaq market.
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Apparel Appeal
The new Van Pac LLC venture that pairs Vans Inc. and Pacific Sunwear of California will allow Vans to expand its apparel line and could eventually boost Pacific’s bottom line. A look at the deal, both companies and their financial status; sales and earnings amounts in millions:
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Deal At a Glance
What happened: Two companies formed a new venture, Van Pac LLC, to produce and distribute a new line of Vans apparel
Ownership: Vans will own 51% of the new company, Pacific Sunwear, 49%
Pacific Sunwear gets: Exclusive right to sell a line of clothing tied to one of the biggest names in the fast-growing skateboard business
Vans gets: Long-sought ability to launch a clothing line and have it sold in the biggest chain of teen-apparel stores in the U.S. (321 stores in 43 states)
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The Players
Vans
Location: Santa Fe Springs
Business: designs, markets and distributes active-casual footwear, clothing and accessories, snowboard boots, Switch step-in bindings and outerwear worldwide; skateboard park developer
Reach: 106 retail stores
Chairman: Walter Schoenfeld
Employees: 426
Exchange: Nasdaq
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Sales Earnings 1998 1st qtr $54.0 $4.0 2nd qtr $44.2 $2.9 3rd qtr $43.5 $2.3 4th qtr $32.8 -$11.8 1999 1st qtr $65.5 $4.7 2nd qtr $45.6 $2.5
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Pacific Sunwear
Location: Anaheim
Business: Retailer of casual apparel, accessories and footwear for teens and young adults
Reach: 322 Pacific Sunwear stores, 10 Pacific Sunwear outlet stores and 16 d.e.m.o. stores in 43 states
Chairman: Greg Weaver
Employees: 3,161
Exchange: Nasdaq
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Sales Earnings 1998 3rd qtr $65.3 $5.8 4th qtr $74.6 $6.6 1999 1st qtr $61.2 $2.9 2nd qtr $73.2 $5.0 3rd qtr $91.8 $8.1 4th qtr $95.0 $7.5
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Closing Stock Prices
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Vans Pacific Sunwear 1998 Nov. 27 $7.63 $16.44 Dec. 4 $7.00 $13.69 Dec. 11 $6.06 $15.06 Dec. 18 $5.63 $13.75 Dec. 25 $5.88 $12.69 1999 Jan. 1 $6.88 $16.38 Jan. 8 $6.63 $23.00 Jan. 15 $6.50 $22.56 Jan. 22 $6.00 $24.25 Jan. 29 $6.31 $25.31 Feb. 5 $6.19 $26.75 Feb. 12 $7.38 $26.75 Feb. 19 $7.31 $26.00 Feb. 26 $6.75 $28.50 March 5 $6.38 $30.31 March 12 $6.25 $31.50 Monday close $6.75 $32.00
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Source: Bloomberg News
