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Cranberry retailer rue21 grows despite tough economy
Tuesday, September 09, 2008

Teens are dishing out tough love to retailers. Sales results in August saw chain after chain -- names such as Abercrombie & Fitch, American Eagle Outfitters, Pacific Sunwear, Wet Seal -- reporting that the youngsters had not been buying their fashions at the same pace as last year.

Either the price wasn't right or the clothes didn't turn them on. A lot of retail executives are, even now, trying to figure out what to do next. "This is not a business for the faint of heart," noted Howard Davidowitz, chairman of Davidowitz & Associates, a national retail consulting and investment banking firm headquartered in New York.

Bob Fisch, president and chief executive officer of Cranberry teen retailer rue21, has been through the bankruptcy process and isn't interested in going there again. As he looked over a printout of the other chains' sales results last week, he offered the opinion that too many retailers are trying to predict fashion too far out.

When they get it wrong, it can take a long time to fix the merchandise, as orders sent months ago continue to show up at the warehouse.

Mr. Fisch is a fan of the fast-fashion strategy that has been behind the growth of chains such as H&M and Forever 21, and he thinks that's helped his discount teen chain continue growing when other chains are pulling back.

Rue21, which came out of bankruptcy several years ago, has gone from 250 stores in early 2006 to more than 400 now, generally placed in strip centers or malls in smaller markets as well as in outlet centers. It could grow to 1,000 in the next five years, Mr. Fisch estimates. The company has 175 employees at its headquarters in Thorn Hill Industrial Park.

The first step to avoiding traps that have taken down other retailers is trying to avoid getting a reputation beyond that of constantly having new styles at lower prices than the other guys. If online chat rooms find shoppers debating whether rue21 is preppy or emo or a bit like Charlotte Russe, that's great.

"Rue21 is what's happening for customers now," said Mr. Fisch. "I don't want to stereotype us so that when things change ... we can't change."

Chasing the latest tastes of the next graduating class means not getting too far ahead of yourself, in his opinion. Forget trying to plan nine months or a year out. Who can tell what's going to happen?

Don't be afraid to leave some sales on the table rather than getting stuck with clearance merchandise. If zebra stripes are big now -- the store even has zebra-striped boots -- change those to leopard prints or some other style next season.

Kim Reynolds, rue21's head merchant, was in a conference room last week with a denim vendor looking over jean styles draped along the walls. On the table were jean pockets embellished in rhinestones, which would influence styles to be sold in about three months. Compare that with many chains even now working on back-to-school styles for 2009.

Graphic T-shirts turn around even faster. A team led by active wear buyer Erin Landon was looking at election-related images that could be in the stores in weeks. One sketch showed John McCain in shutter shades with the words, "If there's a problem, Yo! I'll solve it."

The chain's T-shirt business, which includes an "impulse" table and prices ranging from $9.99 to $12.99, is very profitable, said Mr. Fisch, who has taken to watching the weekend countdown on music cable channel VH1 to get ideas for song lines that might make good shirts. One such music-inspired shirt, "I kissed a girl and I liked it" was a huge hit for the retailer.

He noted young shoppers rewarded some retailers last month, including The Buckle and Aeropostale. He claimed sales results at rue21 stores would have been up with those retailers last month, if the company actually released results.

The private company, owned by investment firm Apax Partners, doesn't reveal financial data, something it will need to do if it eventually goes public. "We're looking at an IPO, but we have not made a decision," said Mr. Fisch, who is building a team that could handle the demands such a move would bring.

That issue aside, he said, no matter what the economy is doing, product trumps price. If it's not interesting or compelling, the teens won't buy.

Irma Zandl, principal at trend and consumer insights firm The Zandl Group, agreed. "Given the current state of the economy and consumers' reluctance to spend on fashion, having the most up-to-the-minute styles in store is key to prying open teen wallets," she wrote in an e-mail response.

"In today's market it is critical to reduce the lead time for bringing fashion to retail. It's the only way that they will be on-trend more often than not."

And if it also allows the rue21 team to take very timely inspiration from brands such as Seven jeans or Ed Hardy T-shirts or Steve Madden shoes, well, that's all part of the strategy.

Two of the retailer's designers were busy looking over gladiator-style shoes that executives expect to be big in the spring. A test of pop art styles on sneakers also is in the works. "We're going to really go after boots this year," said Mr. Fisch.

The chain's growth has been assisted by the addition of etc! departments that greatly expanded its accessories offerings, including shoes, jewelry and handbags in the past couple of years. About 200 of the rue21 stores have etc! stores-within-stores.

In addition, the company is offering mores bras, underwear and pajama-style apparel under the private label name Tarea. That's in response to the success of such intimates lines as Victoria Secret's Pink and American Eagle's aerie.

If speed and price mean sacrifices in quality, that's just part of fast-fashion. The teens want hot styles at a price that allows them to buy the next hot style that comes along.

Such retailers also make the strategy work by not ordering too much, the reverse of what many large chains would do, said Mr. Davidowitz. "They don't have one sweater in six colors." That limits exposure to a mistake.

If rue21 can put together a string of consecutive sales increases and good earnings, going public is the logical way to help investors get their money out of the deal, said Mr. Davidowitz. And weakness in the capital markets and retail bankruptcies such as Boscov's and Steve & Barry's have made it more important than ever to produce solid numbers.

"It's harder now than it was before because investors are scrutinizing everything more closely, particularly in the apparel business," he said.

Mr. Fisch, who ran the long-gone chain Casual Corner years ago and took rue21 into and out of its bankruptcy process, said he had learned a lot about not building too much infrastructure and not letting ego get in the way of staying flexible and nimble. "I've done it and made the mistakes. And I'm also going to do this right."

Teresa F. Lindeman can be reached at tlindeman@post-gazette.com or at 412-263-2018.
First published on September 9, 2008 at 12:00 am
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