PacSun looks to catch a new wave
It wasn’t a wipeout, but the last few years haven’t been kind to troubled Pacific Sunwear of California Inc.
The Anaheim retailer, once the first stop at the mall for teens looking for surf and skate apparel, strayed from its roots by moving away from core action sports brands in favor of private-label merchandise that was less expensive but unfamiliar.
It got rid of its shoe business and over-discounted its merchandise, giving the chain a clearance-like feel. Along the way, PacSun lost customers to trendier teen stores such as Hollister, Aeropostale and American Eagle Outfitters and cheap-chic sellers Forever 21 and H&M.
“Those were the destinations that had buzz,” Chief Executive Gary Schoenfeld acknowledged in a recent interview. “And PacSun just fell out of the equation.”
As shopper Sindy Soriano, 20, browsed her favorite teen shops at the Glendale Galleria this week, she walked right by the PacSun store despite several signs touting discounted merchandise and buy-one-get-one-50%-off deals.
“PacSun is not even in my conversation,” said Soriano, a Glendale Community College student. “Not my style.”
Named head of PacSun a year ago, Schoenfeld is leading an aggressive plan to turn around the company that includes reversing many of the changes made over the last several years. Shoes are being brought back, and the chain is upping its inventory of classic surf and skate brands such as Hurley, Volcom and Billabong — moves Schoenfeld said will help the chain “get back to some of our old roots.”
Starting Saturday, the retailer will host a free two-day beach party in Santa Monica that will feature major brands, action sports demonstrations by Tony Hawk and other athletes, and more than a dozen live bands.
Dubbed the PacSun Summer Solstice Beach Ballyhoo, the event is expected to draw more than 30,000 people and will serve as a 30th anniversary celebration as well as a reintroduction of sorts for the company.
“There are a lot of 15-to-22-year-olds who haven’t really shopped PacSun with any great affinity in the past,” Schoenfeld said, “and we see a great opportunity now to reestablish that connection.”
PacSun is also focusing on bringing more fashions to the struggling girls side of its business and is freshening up the look of its nearly 900 stores, which are based mainly in shopping centers. And, following in the footsteps of other retailers including Macy’s Inc., the company will localize merchandising to specific stores to better match customer preferences by location.
Action sports vendors, who were put on the back burner during PacSun’s private-label foray, say they’re eager to see the chain get back on track.
“Gary’s coming direct to the suppliers and saying: ‘You guys are the authentic brands. Let’s celebrate that,’ ” said Steve Tully, president of sales for Quiksilver Inc.’s Americas division. “If you’re a manufacturer, that’s music to your ears and we’re very excited about this approach.”
As PacSun looks to reestablish itself in the minds of teens, analysts said a turnaround would not happen overnight given the chain’s breadth of problems and prolonged consumer frugality.
“It’s the right direction, but I think it takes time,” said Christine Chen, a retail analyst at Needham & Co. “I’d say they’re probably in the second inning.”
One major roadblock, she said, is the waning interest in California surf culture.
In the early 2000s, teens were watching movies such as “Blue Crush” and TV dramas “The O.C.” and “Laguna Beach: The Real Orange County,” which helped popularize surf styles among young viewers — particularly girls — around the country.
“You had this very West Coast, surfy beach culture that the kids emulated,” Chen said. But “there hasn’t been anything pop culture-wise lately to fuel that.”
That helped contribute to the company’s seven straight quarters of losses and sales declines. Its stock, which hit $28.90 in early 2005, closed at $3.58 on Friday.
For the quarter that ended May 1, the retailer reported a loss of $31 million, or 47 cents a share, and said sales at stores open at least a year — considered an important measure of a retailer’s health because it excludes the effect of store openings and closings — fell 15%.
But a bright spot was its boys business, which saw sales remain relatively flat compared with a year earlier thanks to an increase in core surf brands that many male shoppers said were integral to their wardrobes.
“It’s hard to get away without wearing a brand,” said Chris Ferenci, 19, a student from Visalia. “You can’t go to Target and get something that looks like it came from PacSun. It just doesn’t have that same image.”
Analysts said that crucial to any rebound will be a pickup in PacSun’s girls business, which was disproportionately affected during the recession and erred in featuring merchandise that Schoenfeld said was “too young and too basic.”
Unlike boys, who are more brand-loyal, girls traded down to cheaper alternatives and haven’t looked back, said Mitch Kummetz, senior research analyst at Robert W. Baird & Co. “That’s a pretty big head wind,” he said.
To engage female shoppers, especially those in their late teens and early 20s, PacSun is keeping a closer eye on current fashions and recently hired a former Urban Outfitters executive to direct its girls merchandising strategy.
Already, shoppers say they’ve seen some improvement in the assortment of apparel.
At the Glendale Galleria store, the girls section was dominated by lightweight dresses in floral patterns, tank tops and frayed denim bottoms — a look that is a significant shift from the traditional T-shirt-and-shorts surfer vibe, but one that Schoenfeld said still stays true to casual California style.
“A year ago, I was not into it at all,” shopper Lauren Hochhalter, 18, said as she browsed the racks of summer clothing. “Now I like it. I’ve bought a couple shirts and I’m more willing to come in here.”
