PacSun to Close demo
Pacific Sunwear will shutter the remaining 154 stores in its hip-hop–themed division demo.
Sally Frame Kasaks, chief executive of Anaheim, Calif.–based Pacific Sunwear, said that the decision was made after spending more than four months of exploring alternative directions for demo.
In October, the retailer retained the Beverly Hills office of Financo Inc., a mergers-and-acquisitions company, to help it find the best resolution for its troubled hip-hop division. Steven H. Reiner, managing director of Financo’s Beverly Hills office, was not available to comment on the announcement at press time.
Kasaks said that the decision would allow her company to concentrate on its much larger surf- and skate-focused Pacific Sunwear division, which operates 841 Pacific Sunwear stores and 120 Pacific Sunwear Outlet stores.
The urban-themed demo chain had been reporting negative same-store sales since July 2006, when it reported a decline of 13.6 percent. Retail analyst Jeffrey Van Sinderen, a senior analyst for Los Angeles–based B. Riley & Co., applauded Kasaks’ decision to pull the plug on the long-suffering business.
“I have to praise Sally for not just letting this business sit,” he said. “She gave a time limit, and the business did not deliver.” Pacific Sunwear reportedly held meetings with various suitors for demo in the past few months, but none of them became serious.
Due to demo’s closing, Pacific Sunwear expects to incur aggregate pre-tax charges ranging from $35 million to $50 million for anticipated lease terminations, employee severance and other charges.
The company will work with Gordon Brothers Group LLP, a Boston-based appraisal and liquidation company, to help with the store closures. In the Los Angeles area, demo has locations in Fox Hills Mall in Culver City, South Bay Galleria in Redondo Beach and Lakewood Center in Lakewood.
The stores will close “when practical,” Kasaks said. Demo employees had been given no timeline when the stores will shutter, according to Alain Mazer, director of marketing for demo.
Demo started business in 1998, carrying clothing brands such as Sean John and Rocawear, founded by hip-hop stars Sean “Diddy” Combs and Shawn “Jay-Z” Carter, respectively. The retailer had its banner year in 2003 when its same-store sales skyrocketed with double-digit increases. February 2006 saw a 49 percent increase in same-store sales.
While hip-hop’s most popular stars continue to be avidly watched by the public, demo’s business soured as the public’s fashion tastes changed, according to West Moore, founder of the Urban Apparel Association, a Los Angeles–based trade group of buyers and salespeople focusing on brands favored by retailers such as demo.
“There still is an urban look that everyone wants to buy, but it has evolved,” Moore said.
Offerings from Sean John and Rocawear have developed into suits and eveningwear as their star chief executives got older. In other developments, the urban consumer was no longer interested in wearing the loose-fitting clothes that typically characterized urban fashions. Skate-influenced streetwear looks also become more popular. Some of demo’s prominent clothing lines did not make the graceful transition to new looks, Moore said.
Even the word “urban” has fallen from favor to describe hip-hop and youth fashions, Moore said. He is considering changing the name of his organization.
Pacific Sunwear also announced plans to close its distribution center in Anaheim and relocate all of its distribution activities to its facilities in Olathe, Kan. The relocation of its distribution operations is expected to result in pre-tax charges of $3 million. —Andrew Asch
