Looks from South Moon Under's summer ad campaign.

As national retailers continue to contract, regional players are seizing the moment to open stores in an environment where mall and street vacancy rates are rising, making landlords more amenable to hammering out deals.

South Moon Under, an Annapolis, Md.-based specialty chain, is taking advantage of market conditions and accelerating its expansion after years of sporadic growth.

Michael Smith and his wife, Patricia Darrow Smith, who in 1985 founded White House|Black Market, came out of retirement last year to acquire South Moon Under with backing from private equity group JPB Capital Partners, which holds a majority stake in the company.

South Moon Under, with 25 units, does $50 million annually. Smith, who is the company’s chief executive officer, plans to open 20 stores in the next few years. He’s targeting 60 to 80 stores and $100 million in volume in five or six years.

Frank Gunion in 1968 launched South Moon Under in a surf shack in Ocean City, Maryland. The retailer maintains vestiges of its beach roots with swimwear for men and women. It also sells brands that appeal thirtysomething customers, such as Free People, Tracy Reese and Sanctuary; shoes by Superga, La Dolce Vita and Birkenstock; Blank, J Brand and Citizens of Humanity jeans priced from $68 to $275, as well as jewelry, accessories and beauty products.

The brand cultivates loyal customers. “Shoppers stay with the brand for a really long time and then bring their daughters and sons,” Smith said. “It’s a multigenerational customer. The service ethos was always friendship first, then sales. The store has a great merchandising formula with fast-turning products. It’s always fun and you feel like you’re discovering something new.”

“There’s an opportunity to grow some categories,” said Darrow Smith, chief merchandising officer. “Denim is a great performer. We have lines we love, like Hudson, Citizens of Humanity and 3X1, which is new. We’re growing swim and we’ve had growth in sweaters and lingerie. We also see opportunities in dresses. It’s a category that’s slowed a bit. Skirts are on the upswing.”

“We were used to building a national brand, but at a faster rate,” said Smith. “One of the things I laugh about, is that South Moon Under has 25 stores after 49 years. At White House|Black Market, we opened 24 stores in eight years.”

After Smith and his wife retired, they kept in touch with Grunion. “We were always admiring of the business,” he said. “We always saw it as a national brand. We thought it had that potential.”

Smith pointed out that South Moon Under’s 25 stores are profitable. “A couple have their challenges, but we’re managing a real estate portfolio as we’re growing the brand. We’re not here to close stores.”

Smith plans to unveil four units this year, then ramp up from there. “We’re not getting big just to get big,” he said. “It’s a process. South Moon Under has always been understored. This is also an interesting time to be in retail. There’s a lot of opportunity. With all the store closings, the fact that we aren’t overstored, enables us to go to new markets and be a new player. That’s attractive to landlords.”

The Smiths have experience with overstoring. When Chico’s acquired White House|Black Market in 2003, it was seen as a growth vehicle since the Chico’s brand was slowing. Chico’s quickly took White House|Black Market from 107 units to more than 300 stores. “That’s too much for a specialty retailer,” Smith said. “Sales started slowing.”

South Moon Under this month opened a store at Ponce City Market in Atlanta and one is expected at Avalon in Alpharetta, Ga. In the fall, a store will open at the Shops Around Lenox in Atlanta, and a unit is planned for King of Prussia in King of Prussia, Pa. “It’s a mall that’s performing very well,” Smith said, noting that stores are typically around 3,000 square feet. The ceo is also targeting Long Island, Washington, D.C., Southeastern Florida and Columbus, Ohio.

“E-commerce is performing well,” said Smith, whose goal is to increase sales from 10 percent of total volume to 20 percent in the next few years.

JPB Capital is giving Smith plenty of latitude to carry out his strategy. JPB has a five- to seven-year-plan for South Moon Under. “They’ll look at going through another capital fund-raising round to grow the business to the next level, then figure out who the next financial partners will be. An initial public offering is not the direction we want to take.”

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