Blog: PacSun and Talbots play to strengths

Joe Ayling | 7 January 2008

Two very different US apparel retail chains - The Talbots and Pacific Sunwear - found themselves in the same boat last week when both announced store cutbacks for struggling concepts.
 
Clothing chain Talbots is to shutter its 66 Talbots Kids and 12 Talbots Mens stores, while youth skate and snowboard operator PacSun is closing its remaining 154 Demo stores.
 
The CEOs of each company explained on Friday (4 January) how streamlining these operations would help them focus on core businesses. However, many traders were unconvinced it was simply a case of playing to your strengths, and shares fell as a result.
 
Talbots, which will now focus solely on the age 35-plus female market, says the closures will impact approximately 800 full- and part-time positions, or approximately 5% of its total workforce. Long-term operational benefit is expected to be approximately $13 to $15m per year, but only after company incurs pre-tax expenses of approximately $34 to $42m in fiscal 2008. The decision follows a strategic review that started in October.
 
Talbots Kids and Talbots Mens seems to have failed to captured their intended market, with Talbots saying that the concepts don't "demonstrate the potential to deliver acceptable long-term return on investment".
 
PacSun, meanwhile, which predominantly operates PacSun stores, is to close the rest of its Demo stores having announced the planned closure of 74 underperforming Demo stores last February. The decision follows a review of strategic alternatives for the Demo division started in October 2007, and PacSun is expecting to incur aggregate pre-tax charges in the range of approximately $35m to $50m as a result.
 
It is not the happiest of New Years for PacSun and Talbots by any stretch of the imagination, but the companies will now start 2008 with a focus on the core customer. Although share prices have been hit by the news, their decisions to 'stick to what you know' could have important long-term benefits in the current hostile retail environment.
 
Joe Ayling, news editor


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