Pacific Sunwear has certainly turned the tide in the operations area and is now riding a wave of good fortune thanks to strong merchandising, operational efficiencies and aggressive growth. While many other mall retailers continue to suffer from weak comps and narrowing margins, PSUN seems to have found the formula that serves the needs of its core teen consumer.

The retailer, while still capitalizing on its surf-inspired PacSun nameplate, is aggressively exploiting its newer d.e.m.o. retail formula that targets the hip-hop consumer. The retailer can now boast of a broad consumer base from the beach to the street.

Pacific Sunwear Chairman and Chief Executive Greg Weaver said the company is gaining market share with the help of its multiple brands and a growing business targeted to girls. While other retailers aggressively pursue the private label business, PacSun focuses on brands that bring strong margins to the table. PSUN sees the private label business “flat” going forward.

Footwear has been a boost to PacSun and the retailer has been able to build a nice business with niche brands that bring in the independently minded teen consumer. As an example, the company pointed to the Adio brand as one of its best selling footwear brands.

The d.e.m.o. stores are charging ahead with the suburban kid that wants brands like Phat Farm, P. Diddy’s Sean John line, and Jay-Z’s Rocawear. PSUN will add 10 new d.e.m.o. stores in 2003, with the ultimate target of 200 over time.
The company said a basic d.e.m.o. store will do $900k – $1 million per year and cost about $180,000 to open.

Inventory adds another $55,000 to the formula. The stores generate about $375-$400 per square foot.

PSUN expects to see square footage growth of at least 12% in fiscal 2003 and at least 10% in fiscal 2004.