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Early Bets on PacSun’s Chain: Older Crowd

Anaheim-based retailer Pacific Sunwear of California Inc. is super secretive about its plans for a new chain of stores set to be unveiled later this year.

But that’s not stopping analysts from speculating about what stands to be the company’s biggest move in years.

Pacific Sunwear declined to comment for this story. The new chain is a big focus of Chairman Greg Weaver, who built Pacific Sunwear into a powerhouse and turned over day-to-day operations to Chief Executive Seth Johnson earlier this year.

Analysts who follow the company admit they aren’t sure what the chain will look like. But they’ve got some idea. The consensus: stores targeting more mature shoppers.

“My sense is they’re going to look to do something that appeals to a slightly older customer,” said analyst Mitch Kummetz at D.A. Davidson & Co.

Pacific Sunwear is best known for its PacSun stores, which target 12- to 18-year-olds with surf clothes and other garb from a number of Orange County brands, such as Huntington Beach-based Quiksilver Inc. and Irvine’s Billabong USA.

The company’s d.e.m.o. chain, which started in 1998, also goes after a young crowd with hip-hop styles.

The new chain, which doesn’t have a name yet, likely will be geared to the 25- to 35-year-old set, according to Kummetz.

It could sell multiple brands of clothes, like PacSun and d.e.m.o., Kummetz said.






Johnson: planning bigger PacSuns

The new chain could have its own twist, Kummetz said. Possible fits: Diesel, Puma and Ben Sherman, a British brand offering expensive jeans and other mod-inspired garb.

“If I had to look to an example that (Pacific Sunwear) may want to try and replicate it would be an Urban Outfitters,” he said.

Philadelphia-based Urban Outfitters Inc. caters to a slightly older customer than PacSun and carries a mix of stuff, from clothes to furniture, Kummetz said.

The “urban” category is becoming “more appealing to the consumer,” he said.

“It’s an under-addressed business,” Kummetz said. “There aren’t a lot of retailers going after that.”

Andy Graves, an analyst at Pacific Growth Equities LLC in San Francisco, agrees the chain could target an older crowd.

But he said it could be an “accessories concept,” selling shoes and even skateboards and surfboards. The target would be 22- to 40-year-olds that still skate or surf.

Graves pointed to Everett, Wash.-based Zumiez Inc. for possible parallels.

“Who knows,” he said. “My guess is Greg and his team are trying out a bunch of things.”

Pacific Sunwear is planning the chain as its growth slows. After years of heady gains for the past few years, sales at stores open at least a year were flat in May from a year earlier.

The PacSun unit, which comprised the bulk of the company’s $1.23 billion in sales last year, is maturing. The unit has some 800 stores, and the company plans to max out at 1,000 in the U.S., including PacSun outlets.

The company doesn’t plan to go as big with its smaller d.e.m.o. chain, which has 176 stores and is expected to cap out around 400.

Pacific Sunwear plans to increase the size of its stores. It’s testing out a bigger PacSun, which opens in July in the Inland Empire. The shop is slated to be around 7,900 square feet instead of the typical 3,600 square feet, according to Chief Executive Johnson.

At a recent investor conference, Johnson said the added space gives the company a chance to test products, including perfume and new clothing brands. Weaver, who defied skeptics by launching and growing d.e.m.o., is working with a small senior management team on the new chain, Johnson said.

Weaver and Tim Harmon, president and chief merchandising offer who is set to retire July 1, launched d.e.m.o. nearly a decade ago on a shoestring budget.

At the time, analysts were skeptical that an OC-based retailer big in surf and skate clothes could pull off selling urban styles rooted in New York’s street culture.

D.e.m.o. has helped drive big gains at Pacific Sunwear. But growth of late has slowed.

In May, d.e.m.o.’s same-store sales dropped 0.6% from a year earlier.

The hip-hop look has fallen out of favor a bit in pop culture, according to one analyst who asked not to be named.

“They need this to work,” the analyst said of PacSun’s new chain. “It will be challenging.”

The chain, which analysts expect to debut in fall 2006, is highly anticipated. It will be the first under Johnson, a former Abercrombie & Fitch Co. executive who took over in April.

Johnson is part of the changing of the guard at Pacific Sunwear, where key players have left or taken lesser roles at the company in the past year. Harmon was the most recent to resign.

Pacific Sunwear has its work cut out with the chain, according to Lee Backus, analyst at Buckingham Research Group Inc. in New York.

“Everybody is launching a new concept,” he said.

If Pacific Sunwear goes after an older crowd, it’s set to go up against Abercrombie and Gap Inc.

Pennsylvania-based American Eagle Outfitters Inc. plans to unveil a chain in the fall of 2006, which some analysts speculate also will go after the same group.

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