D.e.m.o. has helped drive strong gains at teen apparel retailer Pacific Sunwear of California Inc.
But lately the urban-style clothing unit is showing its age.
All eyes now are on Lou Ann Bett, a veteran of Limited Brands Inc., who joined the Anaheim-based company in May to head its d.e.m.o unit. She took the reins from former president Tim Harmon, who retired in July.
Bett is starting at a critical time.
D.e.m.o., which targets people ages 16 to 25 with music-inspired clothing, has struggled with some men’s fashion misses and now faces more competition.
D.e.m.o. carries a range of brands inspired by musicians, such as Sean “P. Diddy” Combs’ “Sean John” line and Russell Simmons’ “Phat Farm.”
The division has come under fire from some Wall Street analysts, who await a new retail chain Pacific Sunwear plans to announce later this year.
“They need (a new concept) to work,” said one analyst who asked not to be named. “The hip-hop look has changed and fallen a little bit out of favor in popular culture. The trends change quickly. They’re tough to keep up with.”
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D.e.m.o: same-store sales growth has slowed |
Sales at the 7-year-old d.em.o. unit have slowed and helped cool Pacific Sunwear’s overall growth story. Same-store sales for d.e.m.o. slipped 0.6% in April and May, then rose a modest 0.5% in June.
Not the heady gains of years past, with d.e.mo. posting a 21% jump in same-store sales in 2003 and growing at a 6% pace in 2004.
Bett is no stranger to the battle. She spent the past 18 years at Columbus, Ohio-based Limited Brands Inc., which runs Express, Limited and Victoria’s Secret stores.
“I feel pressure everyday,” Bett said. “When you hit a strong number there’s no better feeling. When you’ve got a major dog there’s no worse feeling. That’s what retail is all about.”
Her new task: keeping d.e.m.o. hip and fresh and growing the division.
Pacific Sunwear operates about 176 d.e.m.o. stores. The company plans to open 40 stores this year and cap out at around 400 stores during the next three to four years, Bett said.
Analyst Mitch Kummetz of D.A. Davidson & Co. believes “There’s still a lot of room to develop d.e.m.o.”
Pacific Sunwear’s PacSun surfwear chain has wider appeal than d.e.m.o. PacSun sells surf, skate and snow-inspired clothing from companies such as Huntington Beach-based Quiksilver Inc. and Irvine-based Billabong USA.
There are some 775 PacSun stores, which comprise the bulk of the company’s 2004 sales of $1.2 billion.
PacSun continues to grow, also at a slower pace than years past. The division’s same-store sales in June were up 4.9%.
D.e.m.o. has a more targeted audience, one that’s rooted in the hip-hop music scene, according to Bett.
The sector is losing its “track suit” and “thuggy image” and evolving into something a bit more “sophisticated,” she said.
“There are more crossover brands and more crossover customers that are multicultural and aren’t being served when you walk the malls,” she said. “The evolution of the market … is probably going to widen our customer base more than we might think.”
That will be a “huge opportunity” and challenge for d.e.m.o., according to Bett.
The division needs to find its “niche” and make sure the brands it carries are “constantly relevant,” she said.
D.e.m.o. already has been pinched by fast-changing fashion trends.
The division “struggled” this spring with its young men’s line, particularly shirts, Bett said. In the first quarter, men’s sales dropped 9.1% while girls’ jumped 19.9%.
The preppy look and pastel colors, such as pink, yellow and lilac, were hot in mainstream men’s fashion.
D.e.m.o. also tried it, ordering shirts from several brands in pastel colors.
But customers balked.
“It did not translate well with the hip-hop market,” Bett said. “We went after it with quite a few brands. It hurt us. We had to scramble.”
More Masculine Colors
D.e.m.o. made changes for fall, and plans to go with “more masculine colors,” such as white, gray and navy, Bett said.
The division also wants to increase its selection of men’s polo shirts, said Pacific Sunwear Chief Executive Seth Johnson at a recent Piper Jaffray analyst conference in New York.
“Within the guys’ business, the polo business has been very good and we haven’t been able to get as many polos as we liked to offset some of the weak areas of the business,” Johnson said. “We think we will be improving the trend in the guys’ business.”
D.e.m.o. stores sell Pacific Sunwear’s own clothing, including Reverb for men and Anisette for women. The company’s own labels make up 18% of its sales, but the company wants to grow it to 25% in 2006, Bett said.
To grow, d.e.m.o. plans to launch a brand for women this fall called Lady Akademiks, Bett said. The chain already has a men’s version of the brand.
Women’s has been a main driver of d.e.m.o.’s business, Bett said. Girls’ sales were up 19.9% for the three months ended April 30.
The girls’ business has been “incredibly strong and getting stronger,” Bett said.
“Traditionally it’s been a smaller piece but we’re planning it for fall to be equal to young men’s,” she said.
About 60% of d.e.m.o.’s sales are from men and 40% are for women.
D.e.m.o. also is looking to increase its shoe and accessories lines, including launching new perfume and lingerie by Baby Phat. Plus, it expanded its Sean John men’s line to all of its stores, Bett said.
“Not only are we looking for new brands but we’re also looking at product extensions from brands that are very strong,” Bett said.
D.e.m.o. is constantly analyzing its clothing mix, the bulk of which are based on hip-hop personalities.
If a musician falls out of favor, often their clothes follow, Bett said.
“That’s the beauty of carrying so many brands,” she said. “When one falls out of favor you can leverage another one that’s in favor. You can evolve and change brands.”
D.e.m.o. also faces more competition from mom-and-pop stores and regional players, such as Industry-based Hot Topic Inc.
D.e.m.o. has an edge on its competition, according to Pacific Sunwear’s Johnson.
“Most of the competition comes from department stores and some regional chains, which aren’t able to merchandise as effectively as we are,” he said.
As more players eye the urban sector it means “good news and bad news” for d.e.m.o., Bett said.
There’s more interest out there. And more pressure on d.e.m.o.
“It forces us to make sure we are constantly being relevant,” she said.
