Sporty Retailer Kicks On With Agressive Expansion, Ads

Feeding on youth’s ongoing fascination with extreme sports, Pacific Sunwear of California Inc. is aggressively expanding nationwide, opening larger stores and pushing into territory as far afield as Puerto Rico.

The Anaheim-based retailer of casual clothes for teens and young adults will open 125 stores this year, matching last year’s expansion and bringing its total number of stores to 575 by the end of 2000. By the end of 2003, it expects to be operating about 1,000 stores.

The company, which caters to youth who surf, skate and snowboard--also will launch its first television ads on Friday. The launch is tied to the ESPN 2000 Winter X Games, which begin Thursday and cater to the same audience. About 1,000 television spots will run this year, mainly on sports, comedy and music stations.

“Pacific Sunwear really is about casual apparel for young teens and I think the images of the California lifestyle bode very well throughout the United States,” Chief Executive Greg Weaver said Tuesday.

The company sells popular surf wear made by a variety of local companies, including Huntington Beach-based Quiksilver Inc., Irvine-based Billabong USA and skate shoes made by the Lake Forest-based Sole Technology Inc.

In expanding from its Southern California base into 47 states--including its first store this year in frigid North Dakota--the mall-based retailer has capitalized on favorable demographics and fashion trends.

Over the last five years, the nation’s population of 15- to 19-year-olds--a core group of the company’s customers--has been growing at more than double the rate of the overall population. As the popularity of surfing and skateboard fashions has grown in recent years, Pacific Sunwear has also expanded its product line, adding more apparel for girls and young women, as well as accessories, shoes and outerwear.

The stores sell casual sportswear to youth from 12 through 22, with 15 as the median target age. Young men account for 57% of the sales, Weaver said.

The strategy of connecting with young buyers is paying dividends. In the last two fiscal years, the company’s net income has more than tripled to $23.5 million as revenue more than doubled to $321.1 million. And sales surged nearly 36% to $414.8 million in the first 11 months of the fiscal year that just ended.

Now polishing its national image, the company is co-sponsoring the daredevil Winter X Games. Pacific Sunwear also said in December that it was shortening the name on its store signs to the catchier PacSun, which is what many of the company’s customers called its stores. Now, all ads, posters and television spots will feature the initials “P.S.” enclosed in a circle.

The 30-second television spots, and a series of new magazine ads, will feature a “gritty visual style,” tattooed and pierced teens and edgy wording, such as “Never play it safe,” to promote the retailer’s “cool” image, according to a statement by advertising agency Bates USA West in Irvine.

The new commercials show a fast-paced video montage of youth interspersed with shots of surfers and skateboarders in action. Some of the print ads will use offbeat models, including tattooed and body pierced teens, while others will focus on sports themes, including surfing, skating and snowboarding.

“There are other retailers that carry many of the same labels as PacSun,” said Jeremy Skiver, director of marketing for Bates USA West said in a statement. “Our strategy is to make teens feel that PacSun is cooler because it is ‘core,’ meaning authentic, the real thing.”

But the ads are “not really about pushing the envelope” and should not offend mainstream teens, Weaver said.

“I think we are not so overly conservative or so far along edgy that we alienate any segment of the mainstream population of teens,” he said.

The company operates 450 Pacific Sunwear and d.e.m.o. stores nationwide. The d.e.m.o. stores, launched in 1998, target ethnic, urban customers. Both concepts have been doing well.

The company’s decision to nearly double its advertising budget to about $9.5 million could be wisely timed, because competitor Abercrombie & Fitch may launch a new retail concept this year that could vie with Pacific Sunwear, said Joseph Teklits, an analyst with Ferris, Baker Watts, Inc.

“They might be going after some of Pac Sun’s business, so anything that strengthens the brand helps them at this point,” Teklits said. “Whether it’s coincidence or not, it’s probably very good timing.”

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Growth Spurt

Anaheim-based Pacific Sunwear of California Inc. has seen its earnings and sales surge in recent years.

NET INCOME

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1999 3Q: $8.14 1999 4Q: 7.51 2000 1Q: 4.04 2000 2Q: 7.30 2000 3Q: 12.26 2000 4Q:$23.6 million* SALES 1999 3Q: $91.78 1999 4Q: 94.98 2000 1Q: 81.44 2000 2Q: 100.45 2000 3Q: 124.04 2000 3Q:$305.9 million*

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*for 9-months only

Source: Bloomberg News