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Clothier rue21 to go public with stock offering

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By Rick Stouffer
Saturday, Sept. 12, 2009
 

Specialty clothing retailer rue21 — named for the French word for "street," and the age everyone looks forward to — is hoping to take investors along as it expands into new markets.

The Cranberry-based store chain incorporated 33 years ago, and was known until 2003 as Pennsylvania Fashion Inc. while selling its wares under names such as Capers and $9.99 Stockroom. This week, it filed documents with the Securities and Exchange Commission to go public, with an initial public offering of stock.

The retailer filed for bankruptcy in February 2002, a victim of overly aggressive expansion during an economic downturn. But it exited bankruptcy protection 15 months later and has never looked back.

Experiencing near-phenomenal growth, with profit over the last five fiscal years jumping 223.3 percent, sales increasing 166.4 percent and its store count doubling to more than 500 in 43 states, rue21 has remained on the cutting edge with its fashion offerings while keeping prices lower than many competitors.

The company has nine stores in Western Pennsylvania: in Oakland, along with Pittsburgh Mills in Frazer and malls in Monroeville, Butler, Uniontown, Indiana, and Hempfield, Westmoreland County, and outlet centers in Washington and in Grove City, Mercer County.

It's unclear how the stock offering would impact the company's two primary shareholders, private equity fund Apax Partners, with 63.4 percent of rue21, and the North American subsidiary of France's BNP Paribas Bank, which controls 23.6 percent of the retailer.

Industry experts said they like rue21's plan.

"This is an absolutely great move for them. They solidify their financial position, this gives them additional capital and less debt, it's just terrific," said Howard Davidowitz, chairman of national retail consulting/investment banking firm Davidowitz & Associates Inc. of New York.

Spokesman Dawn O'Brien said company executives weren't available Friday to comment on the initial public offering. No price per share of stock, or number of shares to be sold, has been finalized, the company said.

Catering to the 11 to 17 age group, rue21 has physically positioned itself away from a number of competitors, opting to set up shop in smaller malls, strip shopping centers and in outlet centers, primarily in what it calls small- and middle-market communities where there is little competition.

"We especially hear about rue21 for accessories and fragrances in interviewing teen girls, and teen boys have responded positively to their fragrances, as well," said Irma Zandl, president of consumer trends and insights firm The Zandl Group of Brooklyn, N.Y.

Yesterday, shoppers at the rue21 store on Forbes Avenue in Oakland near the University of Pittsburgh campus, didn't care about stock offerings. They liked the store's prices.

"I don't usually shop rue21, maybe once before, but my roommate said they were having a sale on T-shirts for $5, so I bought three," said Hawley Pruitt, 20, a Pitt junior from West Chester, Chester County.

"You get more for your dollar at rue21 than some other stores," said Marissa Accamando, 18, a freshman at nearby Carlow University. "This store also is convenient to campus."

Despite the recession, rue21 has done well financially. Profit for the six months ended Aug. 1 was 61.4 percent higher than for the same period a year ago, and the chain's sales are 33.3 percent higher.

Retail consultant Don Delzell gives the chain credit, but said its style-for-less philosophy isn't unique.

"They have done well, but specialty apparel as a niche has done well," said Delzell, managing director of Future Merchants Inc. in Sherman Oaks, Calif. "Their pricing is aggressive, which gives them an advantage, at least as perceived by their clientele."

Delzell said there has been significant shrinkage in the number of specialty apparel retailers and stores, with such brands as Steve and Barry's going out of business and even heavyweights such as Abercrombie & Fitch and Pacific Sunwear reducing their store counts.

"The contraction leaves an opening for an aggressive expansion," Delzell said. But, he added, chains like rue21 have to be on top of their retail game constantly because such stores get few chances to miss the next big apparel thing.

"They must anticipate a trend, then adapt it so that they differentiate themselves," Delzell said. "If they are wrong one season, OK, but if you're wrong two seasons in a row — you're gone — the clientele leaves and doesn't come back."

Additional Information:

About rue21

Incorporated: 1976

Original name: Pennsylvania Fashion Inc., and had other names including Capers and $9.99 Stock Room. Name changed to rue21 in 2003.

CEO: Robert Fisch, former president of the Casual Corner Group, since 2001

Headquarters: Thorn Hill Industrial Park, Cranberry

Stores: 505 in 43 states, projecting more than 1,000 within five years

Profit: $8.3 million for the six months ended Aug. 1

Sales: $233.1 million for the same period

 

 
 


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