Riding The Growth Wave

Back in the early '80s, surf shops dotted the shore areas of California like freckles on Howdy Doody's face. While many of those board shops were run by hobbyists who spent as much time surfing as they did running their businesses, one of those retailers had the vision to bring the trendy brands like Rusty, Gotcha and Quiksilver from the beach into the malls.

Riding the wave of surf-inspired fashion, Pacific Sunwear (www.pacsun.com) — or PacSun as it has come to be known — made the move from the shoreline to the mall in 1981 and has continued to ride the wave for two decades. The chain has had an extremely aggressive expansion plan, adding more than 100 stores per year in some years, to reach its current count of almost 800 stores. In addition to its 613 core PacSun stores, the company has expanded into multiple formats in recent years, including 109 d.e.m.o. stores (which feature more hip-hop, urban styles), 72 Pacific Sunwear outlet stores and a successful e-commerce business in pacsun.com.

Given the company's rapid ride of expansion and multiple formats, you might expect the company's IS closet would have its share of skeletons trying to keep up with that rate of growth. But what you actually find after a look inside is an extremely efficient IS operation that has helped drive several major initiatives at the company.

PacSun's annual IS expense is under one percent of its total sales (including depreciation, but not capital expenses) and its IS staff of 48 people is considerably smaller than many other national chains. Yet, despite being a lean operation, the company's IS team has smoothly supported the rapid pace of new store openings, helped manage the recent move into new headquarters and also played a key role in several growth initiatives on the merchandising front.

Collaborative Efficiencies Ron Ehlers, PacSun's VP of information services, says the key to managing the full plate of projects has been the company's collaborative management approach, a clearly stated five-year vision and a detailed two-year plan. "There is a very clear vision of where the company is going, and that is communicated effectively at a high level throughout the company," Ehlers says. "That communication of where the company is heading allows us to know where the key projects are and to begin planning and prioritizing for them two to three years in advance."

For example, PacSun needed to expand into a larger headquarters and distribution center last year. Since that shift had been planned out well in advance, Ehlers said the IS department was able to strategically implement a new warehouse management package from Manhattan Associates (www.manh.com) and convert to a complete EDI-based tracking system with its vendors.

Another key factor in the efficiency of its IS department, according to Ehlers, is that they get complete buy-in and support from the executive team as well as involvement and support from the different functional areas involved in a project.

"Every department within our company is lean, but that forces us to make sure we are all pulling in the same direction."

A few of the key projects the IS team has collaborated on with other functional areas include the company's expansion of private label goods (which has quickly grown to account for 36 percent of the company's sales), the addition of girl's merchandise and footwear to the product mix, and the re-launch of the pacsun.com Web site last year. "Every project we do, we have people from that team involved in all stages of the planning. We are always looking at shortcomings in our portfolio and working with the different functional areas to see if there are areas of our systems we need to improve to ensure a project's success."

PacSun's Tech Tools Beyond the emphasis on long-term planning and collaboration at PacSun, Ehlers says the technology tools the company has chosen over the years have also played an integral part in the company's success. The company has chosen a best-of-breed "building block" approach, as Ehlers calls it, selecting packaged solutions that can be integrated into the company's existing applications as the business needs require. "Because we keep a fairly tight ship in terms of staff, we prefer to go with packaged solutions over designing our own custom programs. The advantages are you generally can get the system up and running faster, and you get the same expertise of the software company as well as their other retail customers," Ehlers says.

At the core of PacSun's "tech toolbox" (see "Tech Toolbox" sidebar) is an Island Pacific (www.islandpacific.com) merchandise planning and financial system. The Island Pacific merchandising system was the first software piece the company implemented in 1986, when the company had only 23 stores. The company has upgraded to new Island Pacific versions several times over the past 15 years, and Ehlers says the system has grown up nicely with the chain. "The Island Pacific solution has served us well and it continues to evolve and grow with the company. As you change from a 100-store retailer to an 800-store retailer with multiple formats, your information needs change. Fortunately, the Island Pacific system is very scalable and has been fairly easy to build around and integrate other solutions with it," he says.

The Island Pacific merchandising system, as well as all of PacSun's other core applications run on an IBM (www.ibm.com) iSeries platform, which Ehlers says has also been a key part of the company's relatively painless expansion. "I like the AS400 platform because it is very scalable and supports Java J2EE format in addition to traditional RPG/ILE," he points out.

Re-Launched Web Site When the pacsun.com Web site was re-launched in time for the holiday season last year, the company chose to build the new version on the IBM WebSphere Commerce platform. "When we started to map out the list of things we wanted to do with the new Web site, we felt WebSphere really delivered the features and functionality we were looking for. It allowed us to have the site be fully integrated with our enterprise systems for internal reporting, but also allowed us to provide some great functionality for the customer," Ehlers says.

Since the redesign, traffic at pacsun.com has been 100 percent over the prior year, sales increased 50 percent during the same period, average sales are 50 percent higher than stores, and the site was given a 4-1/2 star rating by BizRate.

A key component of the redesigned site, according to Ehlers, is a more prominent look for the My Wish List online gift registry. Because PacSun's customer base is made up primarily of the powerful teen and tween demographics, the ability for parents to view the wish list for gift ideas has been huge for PacSun.

In addition to its efforts on the Web, PacSun has also implemented some creative payment options to help address the parent-funded shopping patterns of many of its customers. The company is working with Stored Value Systems (www.storedvalue .com) on a prepaid gift card program, which Ehlers says has been paying quick dividends. "We get a lot of value from the stored value cards, because most parents really don't know what their kids want, because the styles change so quickly," he says. Based on the historical sales of stored value cards PacSun sells around the holiday season, Ehlers says the retailer can predict the merchandise it will move in the months of January and February.

Looking Ahead Although PacSun already has an extremely loyal customer base, with most customers visiting their stores more than two times per month, the company has also been working with vendor Alliance Data Systems (www.alliancedatasystems.com) on private label credit cards that also serve as loyalty cards, providing customers with coupons based on the amount of shopping they do. "The program we have with Alliance Data allows us to do a lot of creative things between our Web site and the stores, moving customers back and forth with contests, etc. We also do some e-mail promotions with special offers. Alliance Data then handles all of the settlement and processing, and makes it very turnkey for us."

To support the growth of its Web and in-store efforts, as well as its new headquarters and distribution center, PacSun upgraded its overall network to a 100 percent Cisco-powered (www.cisco.com) network last year. "With the opening of our new headquarters we had the unique opportunity to design our network from scratch. We were able to tell our network architects, here are the things that are needed now, and here are some of things we might be using the network for five years from now," Ehlers says. "We felt like the Cisco system gave us the capabilities to add on down the road, to consider things like voice over IP when we are ready."

Looking ahead, the next set of technology initiatives for PacSun will likely be centered on supply chain efficiencies and business intelligence. Ehlers says the company is looking to continue to develop and improve its electronic transaction capabilities and improve collaboration with its vendors. Ehlers is also expecting to add "a few professionals" to his staff in 2003, but said the operation will remain lean. "I would rather have a few people that are very good than a lot of average people. Fortunately, we have very low turnover. It is a great environment and is fun to work for a company that is so successful," Ehlers says.

Considering PacSun's recent results — the company posted an 18.6 percent comp store sales jump in October and an 11.7 percent increase in November of last year — it looks like the company is going to be riding its growth wave for some time.

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