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Demo Trading Up for Back-To-School

Demo, the long-struggling streetwear division of Pacific Sunwear has overhauled its merchandising strategy for fall, adding a slew of contemporary brands

NEW YORK — For demo this fall, change is at a premium, especially when it comes to labels.

The long-struggling streetwear division of Pacific Sunwear of California has overhauled its merchandising strategy for fall, adding a slew of contemporary brands such as True Religion, Antik Denim and Ed Hardy, as well as new progressive young men’s labels such as aka Stash House, Miskeen, Rsrv and Marc Ecko Cut & Sew.

“The urban space has grown somewhat stagnant from a brand-mix perspective,” explained Steven Sare, demo’s GMM. “Some of the newer brands out there are bringing a lot of energy to the industry, and we’re layering them in with premium brands like True Religion.”

The move to address demo’s merchandising mix is part of a larger overhaul of the eight-year-old chain. Already demo has whittled down its store count to 154 doors to stave off an annual operating loss of $9 million at 74 underperforming stores. Demo is also in the midst of converting its remaining doors into a new lab concept, which offers cross-brand merchandising, upgraded audio and visual systems, lounge areas and sophisticated fixturing. Sixteen locations have been revamped so far, and over the next six to 24 months the chain will redo “as many stores as possible,” Sare said.

The GMM explained that the store upgrades coincide with the chain’s addition of higher-end brands. Many of its newest labels, along with upscale urban staple Coogi, demonstrate a commitment to stocking significantly higher price points than in the past. The new stable of brands—especially when found within the lab store concept—create “a more sophisticated and upscale fashion boutique environment,” said Sare.

So much so, in fact, that it could be argued that demo is no longer committed to serving its core hip-hop-oriented customer. The new brand mix more closely resembles the fast-growing Metropark chain, which bills itself as “part club, part street boutique,” and also carries a mix of streetwear and premium brands from Ed Hardy and True Religion to LRG and Artful Dodger.

Sare conceded that the new version of demo certainly intends to “broaden [the store’s] appeal. We’re bringing new customers in because they like what they see in our windows.”

But that doesn’t necessarily mean the chain is abandoning its former shoppers, said Sare. “Kids that have always shopped demo are becoming more sophisticated,” he continued. “They may have become even more sophisticated than demo in recent years. Now we’re now seeing them come back to us.”

Purveying premium brands to the hip-hop consumer is a well-proven tactic, as many contemporary labels—including True Religion and Antik—have long been resources for fashion-forward streetwear chains such as Up Against The Wall and Against All Odds.

And Sare insists that bringing in new names hardly means replacing true urban mainstays. “I still have some of my healthiest double-digit comp increases coming out of traditional urban brands like Rocawear and Ecko,” he said.

Sare hopes that the addition of fresh labels will help “stabilize the business” at demo. The last year has been a difficult one for the retailer; even as its sister surf chain PacSun upped its comparable-store sales results significantly, demo has not seen its own same-store sales tick positive since April 2006.

The men’s business has been even more bleak—for the first quarter ended May 5, 2007, young men’s sales declined in the mid-teens, while juniors’ downtrended in single digits.

Elizabeth Pierce, retail analyst for Roth Capital Partners, pointed out that demo has been slow to understand the evolving urban male consumer. In a research note released earlier this month, she noted that the demo guy “no longer desires a ‘gangster’ style look.” While female hip-hop icons have adopted current fashion trends in other women’s markets, said Pierce, “their male counterparts have not had as much success finding a fashion trend that works for the new urban male.” Demo, she continued, “needs to improve its merchandise assortment in the men’s category.”

Sare believes that the vendors are partly to blame, as “traditional urban brands got a little stagnant from a design perspective. The urban space was caught in a head-to-toe design hookup. But we think it is being corrected.”

However, Dorothy Lakner, executive director of equity research for specialty retailing and soft lines at CIBC Capital Markets, believes that “it’s not an urban problem, it’s a demo problem.” She pointed out that other streetwear specialty retailers have thrived in recent months, including The Finish Line’s Man Alive chain, as well as discount-oriented CitiTrends. “CitiTrends has a much wider assortment and they don’t make such big bets on brands,” she said. “That way they’re constantly bringing in new goods for the customer.”

Lakner feels that demo’s relatively small store size (demo’s non-lab stores average about 2,500 square feet) hinders the offering of a large quantity of brands at any given location. “The biggest issue is the assortment,” she said.

Part of the fix may come from more space, as the chain’s lab stores will average more than 3,200 square feet. In addition, Sare contends that a regional buying strategy will address past merchandising misses. “Some brands will be in just 15 doors, some will be in 30 or 50,” he said. For example, Young Jeezy’s Eight732 has found a home in many of demo’s Southeastern stores, close to the rapper’s hometown of Atlanta. Meanwhile, some of the chain’s newest additions, such as True Religion, will hit only about 15 stores when they drop next month, in locales where consumer demographics can sustain higher price tags.

Although analysts seem encouraged by demo’s efforts to right its ship, Lakner said it could take years to get the business back on track, particularly if the retailer intends to reach out to a more premium audience. “The customer base between urban and contemporary is significantly different,” she said. “The transition is not something that is going to happen overnight.