Jerry Szczepanski had a tough proposition for the board of directors at Gadzooks, the teen clothing chain that he helped found two decades ago. He wanted approval for a plan that would cede a sizable chunk of the company’s business to competitors and result in an annual loss on the order of $15 million.
Szczepanski had decided that a radical change was the only way Gadzooks could respond to a new crop of rivals, get sales growth back on track and reverse two years of declining earnings.
Abercrombie & Fitch and American Eagle Outfitters had loosened the company’s grip on the young men’s clothing business. On the girls side were Wet Seal and Charlotte Russe. Even specific looks such as surf and Gothic styles had spawned specialized chains such as Pacific Sunwear and Hot Topic.
“We were a mini-department store, and that niche was torn apart by competitors,” said Szczepanski, whose company first took on venture partners in 1992 and went public in 1995. “It’s one of the most difficult things to say to yourself that your concept is 19 years old and running out of gas.”
On Jan. 7, the board voted to approve Szczepanski’s proposal, setting in motion a sweeping change at the Carrollton-based company.
Starting in July, the chain that was inspired by Szczepanski’s two sons will no longer cater to male customers. Instead, it will focus exclusively on girls and young women.
To prepare, the company is launching a major marketing campaign in malls and on the Internet. Boys merchandise will be liquidated, stores will be retooled and the chain will expand into four new girls merchandise areas, the details of which are still under wraps because of competitive concerns.
The company is also dumping its Volkswagen Beetles. The removal of the vintage cars and replicas, at least portions of which are featured in every Gadzooks store, will provide more room for merchandise and serve as a symbolic break from the retailer’s past.
The revamped chain “cant look like the same Gadzooks store that happens to have more girls stuff,” Szczepanski said.
The company hired FRCH Design Worldwide, which has worked with chains including Starbucks and Target, to update the stores. The Richards Group will oversee the marketing associated with the changeover.
Gadzooks was one of the first national mall chains focused on teen-age shoppers. At the original Gadzooks store in Town East Mall in Mesquite, Szczepanski used to play tapes of MTV that one of his sons would record on the family videocassette recorder.
The stock market rewarded the chain as it expanded in 41 states, bolstering the shares from an initial public offering price of $14 to a split-adjusted high of $41 in May 1996.
But the stock, and sales, began to suffer as a new breed of chains evolved. Revenue from stores open at least a year has declined for nine consecutive months, and the shares closed Thursday at $2.60.
Szczepanski said he weighed a number of options to boost sales. He considered turning Gadzooks into a snowboard and skating equipment chain, but the profit margins would be considerably narrower than the margins on apparel. He also considered focusing on Hispanic youths, but the demographics wouldnt work in many of the markets where Gadzooks already has stores.
In the end, he said, the company’s best shot at a revival would be to build on its girls apparel and accessories business, and particularly its strength in bathing suit sales. Two decades of experience in dealing with a notoriously fickle group of customers is expected to serve the chain well as it retools.
The shopping habits of teen-age boys and girls are similar. Teens are “very group-driven, very demanding and have absolutely no patience,” said consultant Martin Lindstrom, whose new book, Brand Child, examines the relationship between kids and brands. “The challenge with girls is that they are very media-driven. They absorb anything they can find in the fashion magazines, watch on TV or see their favorite musicians wear.”
Gadzooks is relying on a panel of 15 girls from the Metroplex, who were plucked from a series of focus groups, to help ensure that the new concept works. They previewed the company’s upcoming advertising campaign and, along with Gadzooks field managers, will get an early look at the redesigned stores.
Taking a risk Gadzooks, which has about 430 stores, is expected to be able to finance the overhaul with the cash it has on hand and may use a small portion of the money available under its bank agreement, Szczepanski said.
No layoffs will result from the transformation, he added. But the company is losing its boys T-shirt buyer, Szczepanski’s son Jake, who wants to start a new business. The other two buyers on the boys side of the business will move to different areas of the company.
The transition to an all-female store wont be easy, and it may even be more difficult than the company’s initial push into teen retail scene, analysts said.
“Youre doing it under considerable pressure against a lot more competition than you had the first time around,” said Neil Stern at McMillan/Doolittle, a retail industry consulting firm in Chicago.
“To make a stand by going to the women’s business will be a little bit of a challenge.”
Though many chains have taken concepts geared toward one gender and extended them to the other, Stern could not recall another retailer that has gotten out of one side of the business to focus only on males or females.
