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PacSun is slimming down

The retailer will shut its 154 demo stores to cut losses and focus on its core lines for teens.

January 05, 2008|Victoria Kim | Times Staff Writer

Pacific Sunwear of California Inc. said Friday it was ending its foray into hip-hop urban wear, leaving the Anaheim retailer to focus on its sun-and-surf origins.

PacSun said it would close all 154 demo stores in an attempt to reverse its fortunes after reporting losses for three consecutive quarters.

The company also said it would close its Anaheim distribution center, which employs 161 people, and relocate its distribution operations to Kansas to reduce costs and streamline the nationwide supply chain.

The restructuring news failed to shield the company's stock, which lost 65 cents to $12.28 on Friday. Shares have plunged 57% from their peak in March 2005, including a one-third drop last year.

Friday's decision comes two months after the company announced that it was shutting down its shoe-store venture, leaving only surf and skate stores PacSun and PacSun Outlets standing.

The company has struggled in recent years to stay afloat in a competitive retail environment amid the waning of the surf and skating culture's appeal to teens.

The 9-year-old demo arm has been dragging down the company's performance even further. While PacSun posted a 7% November sales increase for stores open a year or more, demo's figures plummeted 30.6%.

After bringing in Sally Frame Kasaks as chief executive to try to turn the company around, PacSun put the ailing demo arm on the auction block in October but couldn't find a buyer.

"We have to move on. We think this decision is in the best interest to enhance value for our investors," said Michael Henry, the company's interim chief financial officer.

Kasaks said, "We strongly believe that the best course . . . is to focus our attention and resources on the PacSun business."

Industry analysts welcomed the announcement, saying PacSun was moving in the right direction in a tepid retail environment.

"The demo business has been a drag on their earnings," said Mitch Kummetz at Robert W. Baird & Co.

"The PacSun business is returning pretty well right now. That's more attractive as an investment than as a consolidated business."

Kummetz said the action sportswear business was slowly making a comeback with promising fashion trends. Rather than tap new markets or open more stores, he said, PacSun should concentrate on bringing more teenage girls into the stores.

The company said it would incur charges of $35 million to $50 million in the closures, which are expected to be completed by May. The company will be shedding 2,100 full- and part-time jobs in the process.


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