Money for Something

What's hot this summer? Casual apparel. Beachwear. Pacific Sunwear. PacSun may be the hottest of them all. Rumbling into June with a 3.1 percent same store increase, the company has been putting up spectacular numbers, even in the toughest of times. Industry insiders say PacSun runs lean and stays on the leading edge in its specialty category.

But it doesn't lead in IT spending. In fact, the company has hovered under one percent of revenues year after year in IT infrastructure spending. But, following years of hot growth, PacSun has readjusted its vision and decided to hike the investment as it prepares for a new growth spurt.

"In IS, our key challenge has always been to build an infrastructure that would support the profitable growth of our company," says Ron Ehlers, VP of IS for PacSun. He spoke at the recent Retail Systems conference in Chicago. Ehlers notes that the growth issue is not new. What is new is the buy-in from senior-level executives. The company has identified enterprise integration as key to its future expansion, and the top executives have signed on to fund what for PacSun is a huge project.

Sales and Growth

Before delving into that — as they say in sports — let's look at the numbers. To support this growth, the chain's IS spending has increased from $1.4 million in 1996 to $6.4 million last year. This year, IS spending will reach nearly $8 million. The relatively lean organization has also grown from nine IT employees in 1996, when it had a little over 200 stores, to 48 today with around 700 stores. Numbers like that help support numbers that make stakeholders happy. For instance, in the four weeks of May, total sales were $50 million, an 18 percent increase over the same month last year. The chain's sales were $155 million in 1996, and reached $685 million last year. This year, the chain expects to achieve sales above $800 million.

The company features multiple retail formats, including regular PacSun stores (oriented toward fashions associated with skateboarding, surfing and snowboarding) and outlet stores (in outlet centers). It also features 108 d.e.m.o. stores. That concept was started four years ago -- it is oriented towards older teens, with an emphasis on apparel associated with hip hop, rap, and sports figures. PacSun's Web site, at www.pacsun.com, was launched in 1999. It includes about the same merchandise mix as the stores, but enjoyed about ten times the sales of an average store during the last holiday season, up from twice the sales of an average store during the holiday season of 1999. According to Ehlers, the pacsun.com Web site is fully integrated to the store-based enterprise. With its policy of shipping the same day orders received by 2:30 p.m. PST on weekdays, the site has received a top service designation from Yahoo.

Formula for Spending

Lean spending and a highly flexible IS infrastructure is how the chain's IS department has supported all the growth, Ehlers said. The IS infrastructure consists of a portfolio of best-of-breed software applications, giving the chain the "best possible benefit with the lowest possible amount of investment." As a result, the IS staff has been able to concentrate its efforts on integrating packaged best-of-breed solutions, not on developing homegrown solutions, Ehlers said.

As the company grows, its tight planning activity tracks ROI and the general health of IT. "The typical IS plan is a five-year vision — with two years described in detail," Ehlers told session attendees at Retail Systems. Key components of PacSun's current IS infrastructure include IBM xSeries Windows 2000 servers and desktops, ActionManager from Park City Group, MMS Planning and Allocation from STS Systems, merchandising and financial systems from Island Pacific, the PkMS warehouse management system from Manhattan Associates, SPS Commerce WebEC for EDI, and a Cisco-powered network.

With the new integration and expenditures, analysts expect to see PacSun continue to acquire stores and grow in a market that includes Gadzooks, The Buckle and Wet Seal. Ehlers says the implementation of the best-of-breed solutions supports not only day-to-day operations growth, but also the opening of new stores (as many as 50 in a quarter), the expansion of assortments and concepts, and the expansion of computing capacities, including CPU power, disk space, memory, and bandwidth.

What Feeds Growth?

Ehlers notes that the youth market is poised for explosive growth into the foreseeable future. There are about 40 million young people in the United States, ages 12 to 22, most of them teenagers, he says, and they have about $150 billion in spending power. They visit PacSun stores at least two times per month. Most experts in the industry say these customers don't need markdowns and have an insatiable appetite for new things.

Originally aimed exclusively at young men, the company has lately been expanding its merchandise mix to include females. About 36 percent of its sales are in private label. Sourcing and merchandising must be highly integrated in such an environment, especially because PacSun simply doesn't believe in paper. "Except for paper paychecks, we have no paper in our environment at all," Ehlers says.

The integration efforts are strategic for PacSun. As an example, earlier this year PacSun offered in-store and online visitors the chance to win prizes in a cross-channel promotion. It began with the in-store distribution of nearly one million prize booklets and signage, which detailed the various prize packages. Consumers were then encouraged to enter the sweepstakes on the pacsun.com Web site.

Presidential Buy-in

"This promotion should generate plenty of fun and excitement for our customers leading into spring," said Tim Harmon, president and chief merchandising officer for PacSun, in launching the promotion. "We anticipate that Win Big 2 will also help boost online traffic, sales and e-mail registrations." The integration required to bring it off was accomplished even before the new initiative, but it gives a hint of what to expect from future pushes for integration.

In this respect, PacSun is way ahead of the rest of the pack. In a survey conducted by Gartner and RIS News earlier this year, only two percent of retailers indicated they were spending on integration of applications and 17 percent were focused on replacing infrastructure. The latter group probably didn't look at the connection between the two issues, but replacement of infrastructure usually raises the integration stakes. The biggest group of respondents — 18 percent — pointed to accommodating growth as the driving force in their IT spending, placing PacSun in the mainstream there.