It isn’t just the mom jeans and Fear of God Essentials that are in vogue among teens and 20-somethings. Activism is the trend du jour for fashion retailers such as Anaheim-based Pacific Sunwear of California LLC, particularly if they want to remain relevant among a fickle consumer base.
PacSun and its 43-year-old President Alfred Chang seem to have cracked the code, becoming one of the country’s largest “cool kid” brands.
While 2020 sales have yet to be disclosed, the retailer’s 2019 revenue was up from the prior year and the recent holiday selling season drove double-digit growth for the company, officials said.
PacSun—one of OC’s largest fashion retailers with a workforce of about 7,400 and 2019 revenue of $696 million—has been on a tear since Chang took the top spot in 2018, with a focus on rebuilding the business.
The 375-store retailer’s real estate portfolio had occupied too large a footprint, with at one point more than three times the number of stores it has now. It was also slow to streamline that store base amid a change in consumer buying patterns.
A 2016 stint in bankruptcy highlighted the changes that needed to be made with the store fleet further condensed and a continued shift in getting the merchandise mix on trend with more fashion-forward labels, such as Brandy Melville and Kendall & Kylie, along with other popular labels. Chang and team have taken the strategy a step further.
PacSun now spotlights Black-owned and indie brands, while also leaning on popular collaborations, such as with the much sought after contemporary label Fear of God–the Essentials offshoot of which has garnered lines out the door of the PacSun booth during the highly popular ComplexCon in Long Beach when it was held in person.
Also helping the brand: marketing efforts to stay on top of conversations around health and wellness and social justice, Chang told the Business Journal.
Authenticity Test
In no other year but 2020 was that thesis put more to the test.
“The trend, as you look at what’s happening in the world and even Gen Z and the next generation, it just continues to highlight there’s a higher base of authenticity, what a brand means to a consumer and how important it is in terms of your positioning and what you represent,” Chang said in a late-2020 interview.
Authenticity has been one of the most often used terms within the fashion industry in more recent years, and it’s key in a market where consumers demand not only trend-right product, but the ability to purchase it from retailers whose values align with their own.
The strategy for PacSun has meant continuing with brand collaborations, introducing activewear last year and continuing with robust offerings in the lounge and unisex apparel categories.
At the same time, the retailer was particularly vocal last year about its stance on social justice initiatives and what it would do to continue that movement. In a similar manner, it also launched its PacCares program in October: it focused on mental health, diversity, equality and other topics being talked about.
That same month also saw the launch of the Instagram Live series PacTalks to focus conversations on those same issues.
“It’s not just from a product, brand, trend standpoint of showing up relevant [for consumers], but also in the digital space and how we communicate [through] PacCares, PacTalks and the different collaborations and brands that we work with,” Chang said.
“That total body of work says ‘Hey, we’re a brand for that generation, that teen and that all of that is what’s going to matter. It matters now and will matter even more so. And we believe that’s the trend.”
Trendlines
Consumers seem to have taken notice.
The privately held company, now owned by private equity firm Golden Gate Capital, doesn’t report its financials, but Chang said the retailer’s sales and margins outperformed the industry and peers during the holiday selling season. The company’s 2020 sales will likely be flat from 2019, despite pandemic-related store closures.
Digital helped lead the charge, with PacSun’s e-commerce business doubling during the holidays from the year-ago period, he said.
Similar results were seen by some of the competition.
Locally, Irvine-based Tilly’s Inc. (NYSE: TLYS), with a recent market cap of about $315 million, last week shared its holiday results for the nine weeks ended Jan. 2. It reported net sales up 3.3% from a year ago to $148.7 million. Tilly’s online sales jumped 65.2% during the holiday selling period.
The competitive landscape also includes Philadelphia-based Urban Outfitters Inc. (NYSE: URBN), the parent to the namesake retail chain of some 250 stores in addition to other retail brands, with a market cap of about $2.8 billion. The Urban Outfitters division capped the two months through Dec. 31 with retail sales off 8%. There’s also Pittsburgh-based American Eagle Outfitters Inc. (NYSE: AEO) with a market cap of $3.8 billion and a portfolio of more than 1,000 stores across AE and other brands.
Popularity Rising
From a brand perspective, PacSun moved up one spot to No. 4 in the fall, with a 4% market share in the U.S., on Piper Sandler’s ranking of favored apparel brands in its “Taking Stock With Teens Survey.”
That placed PacSun behind only Nike (27% share), American Eagle (8%) and Adidas (5%) in the top 10, and has it beating out competitors such as Urban Outfitters, Forever 21 and other local Vans Inc. of Costa Mesa.
Some 10,000 Gen Z consumers were surveyed in the Piper Sandler report.
PacSun’s also been able to maintain strong partnerships with key retail accounts, including locals in the action sports and streetwear space.
“As two brands founded in Southern California, focused on youth culture and centered around the intersection of action sports and street culture, it’s safe to say we look forward to continuing our long-standing relationship with PacSun,” said Vans Americas Vice President and General Manager David Tichiaz. “Due to this natural alignment between Vans and PacSun, we repeatedly see a willingness to evolve our collective business objectives to better meet the needs of our shared consumer and are excited to keep this partnership going throughout 2021 and beyond.”
2006 Start
For Chang, his finger has been on the pulse of what’s relevant for some time.
He’s a veteran of the retailer, having started in 2006 as a senior buyer for men’s merchandising.
At the time, PacSun was still publicly traded and at one point had ballooned to more than 1,300 stores, including a second and now defunct chain called d.e.m.o.
The company was taken private following its 2016 bankruptcy and is now part of Golden Gate Capital’s PSEB Group operating company, of which Eddie Bauer LLC is a part of.
Chang’s hopped around to various positions at Pacific Sunwear but was most recently executive vice president of men’s merchandising and design along with chief brand officer before being tapped for president in 2018, bringing with him a breadth of knowledge and expertise across men’s merchandising and design, e-commerce and marketing.
The Outlook
He’s steered the chain through one of the most challenging years on record.
Currently, most of the company’s corporate staff are working from home, while most of the stores are operational, adhering to local regulations.
Chang said the core of the business performed well last year, allowing it to not have to get overly promotional as “brands that really matter perform” and win over the consumer.
“If I take a look at just the momentum of the business and what we’ve been able to see, the trends of the business and what the PacSun team has been able to accomplish in the past 60 to 90 days, I’m feeling pretty good about it,” he said. “But, at the same time, we’re entering a period where there’s still so much uncertainty around what the pandemic will be.”
It’s unclear when the Southern California region could potentially see a rollback in restrictions with COVID-19 cases now on the rise as a fallout from the holidays.
‘Ready for It’
Pacific Sunwear remains upbeat.
“We’re ready for it,” Chang said of the year ahead.
“If there are macro impacts that will have to happen for the safety of everyone, we will get through that. We’re very optimistic and very pleased with how we continue to show up.”
When Chang looks back to 2018, the year he stepped in as president, clearly the country and world were in a far different place. Goals haven’t necessarily changed all that much, even if that initial checklist of strides were made.
When he thinks about it, coming into the top spot, the No. 1 goal was to restore “financial health back into the business, which we absolutely have done,” he said. The other goals were to solidify PacSun’s place as a lifestyle brand relevant to the consumer and strengthening the internal teams.
“Yes [to accomplishing] on all three fronts,” Chang said reflecting on the past couple years.
“But at the same time, with every goal set and reached, there’s still more to be done.”
