new pacific direct

Pacific Sunwear (PSUN) operates two mall based retail chains: PacSun and d.e.mo. PacSun is a nationwide surf and skate themed chain with about 900 locations comprising approximately 3.25 million square feet. d.e.m.o. is a hip hop themed chain with about 200 stores comprising approximately 500,000 square feet. Both chains target the "teen" market (specifically, guys and girls ages 12-24).

Locations

Nationwide, PacSun operates approximately 800 PacSun stores and 100 PacSun Outlets. Unlike PacSun stores, which are very evenly distributed on the basis of population, PacSun Outlets are skewed towards highly populous states with large areas of extraordinarily high population density ("suburban sprawl"). The only exceptions are Virginia, North Carolina, and Louisiana. While the number of stores in any one state is small enough that the disproportionate concentration of PacSun Outlets in these states may be purely coincidental, I doubt it.

More likely, PacSun Outlets in these states are meant to benefit from the expected population growth in their surrounding communities, and were developed because of the danger of saturation in states such as New York, New Jersey, Maryland, Michigan, Illinois, and California. I have not heard management discuss this matter. So, it is pure conjecture on my part. It will be interesting to see where the new PacSun and PacSun Outlets are located.

For the most part, PacSun stores are not unusually concentrated in any state or region. In fact, they are eerily evenly distributed relative to state populations. It is likely management has intentionally acted to ensure an even distribution of PacSun stores across the U.S. As a result, regional economic and demographic trends will have no material effect on PacSun's operations.

d.e.m.o. stores are not (yet) as evenly distributed. They are disproportionately located in Northeastern states, Southeastern states, and California. There are relatively few d.e.m.o. stores west of the Appalachians and east of the Sierra Nevadas. The number of stores in the d.e.m.o. chain is still growing at about 20-25% a year; so, a more even distribution may be achieved in the future. Among teens, hip hop clothing is not limited to the Northeast, Southeast, and California. Therefore, it is unlikely the d.e.m.o. chain will be permanently limited to these regions.

Pacific Sunwear's strategy is to operate two separate, non-cannibalizing chains. Management claims each chain is focused on a different teen "subculture". I would say subculture is too strong a term (and academics are as guilty as retail executives for stretching the term to the point where it loses its meaning). However, it is true that the two styles, and indeed, the two sets of customers are distinct. There is virtually no overlap between PacSun customers and d.e.m.o. customers.

In April, the company plans to introduce One Thousand Steps, a new mall-based footwear and accessories chain targeting 18-24 year olds. It is very unlikely this chain will prove to be cannibalizing.

Tactics

Pacific Sunwear locates stores in high-traffic malls. The company actively seeks to locate its stores in malls frequented by large numbers of teens, despite the fact that this puts the company in direct competition with rivals such as Abercrombie & Fitch (ANF), American Eagle (AEOS), Aeropostale (ARO), Hot Topic (HOTT), and Gap (GPS). There are malls in which one can find PacSun, Abercrombie & Fitch, Aeropostale, and Hot Topic stores all under the same roof.

PacSun's footwear offerings have been particularly effective in keeping young men coming back. Shoes, particularly the kind PacSun sells, are a good lure for young men, because men tend to frequent their favorite stores far less often than women do. Even where there are no fashion concerns, shoes must be regularly replaced. Furthermore, males between the ages of 12-24 must buy new shoes, even if there are no aesthetic considerations involved, because old shoes will simply stop fitting their feet.

There is anecdotal evidence for this; but, unfortunately I could not find a study describing the annual change in shoe size for different segments of this age group. There is plenty of data on changes in height for males within this age group. However, it is very unlikely changes in height are concurrent with changes in shoe size. Anecdotal evidence suggests changes in shoe size are more common and more pronounced among males than among females within this age group.

It also suggests changes in shoe size would be more common and more pronounced within the youngest segment of this group. This has important psychological implications, because, if true, selling footwear would tend to cause young men to frequent a particular store at a time when they are more likely to form a habit of shopping there regularly. For instance, one would expect that a male shopper has formed more attachments and stronger attachments to particular stores by the time he is 17 than he had by the time he was 13.

Pacific Sunwear's stores offer a broad selection of items within each brand. In fact, the company has been responsible for the expansion of some of the brands it carries into new products (particularly footwear and accessories). Pacific Sunwear has encouraged the owners of some of its best known brands to expand beyond their original product and leverage the prominence their brand enjoys within Pacific Sunwear's stores into nationwide sales of new products.