California Apparel News

Pacific Sunwear announced on Feb. 6 that it will close 74 of its 225 urban-themed demo stores. Sally Frame Kasaks, the teen retailer’s interim chief executive, also noted plans to debut a new store format at more than 20 of the urban chain’s remaining locations during the 2007 fiscal year.

The Anaheim, Calif.–based Pacific Sunwear will pay heavily for shutting down the stores. In a company statement, it expects to pay penalties ranging from $10 million to $15 million for lease termination during 2007. For its 2006 fourth quarter, it will report a pre-tax, non-cash charge of $25 million to $27 million for items such as inventory write downs for its fourth quarter 2006.

While terminating 74 stores should be painful for the company, retail analyst Adrienne Tenant believed it was the right step to take. “Closing stores is the decision of last resort for retailers,” Tenant said. “But they over-stored that concept. You saw a lot of demos in wrong locations.” Tenant works for financial firm Friedman Billings Ramsey, based in Arlington, Va.

Tenant said that many of the stores were located in suburban areas where demos stock of hip-hop brands, such as Academiks, Enyce, G-Unit and Baby Phat, did not enjoy the level of popularity that they experience in more-urban neighborhoods.

Stephanie Ghanem, a 21-year-old fashion student at California State University, Northridge, said that demo was not popular in malls in her majority-Anglo hometown of Valencia, Calif.

“When I think of brands like Baby Phat, I think of the music of [rappers] Diddy and 50 Cent,” Ghanem said. “The store seemed to go in with that music, and then they went out with the music.”

The urban-themed store rode a wave of popularity for hip hop–style clothes when it debuted in 1998, according to Tenant. But it had stumbled in the past 18 months. In a Pacific Sunwear statement, the 74 stores marked for closure generated a pre-tax operating loss of $9 million in 2006.

On Feb. 6, Pacific Sunwear also announced declines for its comparative-store sales for the month of January. The company’s total same-store sales declined 7.7 percent compared with the same month in the previous year. Demo’s January same-store sales dropped 9.5 percent. The surf and skate–themed Pacific Sunwear’s comparative-store sales declined 7.3 percent in January.

Demo could revive its fortunes if it changed course, perhaps by offering more women’s fashions, said retail analyst Liz Pierce, who works for Roth Capital Partners in Newport Beach, Calif. Demos divides its floor space between men’s and women’s clothing.

Pacific Sunwear has not publicly discussed its plans to revamp demo. —Andrew Asch