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REVAMPED RUE21 TO ADD 60 STORES IN 2006, WEIGHS IPO

By Fred W. Wright Jr.

Image marketing has always been a fundamental part of retailing. For Rue21, which specializes in teen apparel, the name says it all. “We cater to the 11-to-17-year-old customer who aspires to be 21,” said Bob Fisch, president and CEO. “We cater to the over-25-year-old customer who also aspires to be 21. Hence 21. That’s what we go after.”

This year, the chain moved into new headquarters in Warrendale, Pa. The 35,000-square-foot facility has state-of-the-art data analysis computers and a nearly full-size simulated lab of a typical Rue21 store.

The 2,500-square-foot test lab allows buyers and merchandisers to explore a wide variety of looks and displays. “That’s our lab,” Fisch said, “so we can be sure we make cohesive marketing concepts for our customers.

“Every style that comes into the company gets set up in that store in advance,” Fisch said. “We occasionally will have teen-agers come in, or customers with the lifestyle of the shopper we’re looking for. For example, if we want to explode denim for back to school, we’ll work on it early to see how to set it up.”

In addition, Fisch said, the company will open roughly 60 more stores this year, aiming for 400 over the next five years spread out to community centers, regional malls and outlet centers. To help fund this growth, Fisch said the company is considering an IPO, which it wants to complete by 2007.

Rue21 is avoiding major metropolitan areas in its expansion plans. It recently opened a store in a community center in Covington, La., for example. The nearest mall is about 20 miles away, Fisch says. Open-air community centers are a particular target. “What’s happening [is] we’re becoming the dominant teen specialty value retailer in the industry,” he said. “We’re looking at going into areas that we’re not just competing with the 50 strongest regional mall players but where we can dominate.”

As Rue21 adds more stores, the ideal location would be in areas with populations of 25,000 to 200,000. “We’re going where it’s a good bedroom community,” Fisch said, “where there are high schools, middle schools and colleges — obviously where there is a strong population of kids, preteens and teens.”

Geographically, the retailer is going to just about every corner of the U.S. “Not only do we go after the North and Midwest but we have tremendous success in the Sun Belt areas of the South and Southeast and we’re building into the West Coast.

But the company is sticking to secondary markets. “I think that’s our niche,” he said, “not the hubbub of metro areas.”

Though the chain is selling teen items, however, it isn’t relying exclusively on teen customers. It’s marketing what Fisch calls “lifestyle merchandising. We don’t have the edgiest of fashions, but a woman of 30 or 40 wants to be fashionable,” Fisch said.

The challenges of the teen apparel industry are many, according to Jeff Green, retail feasibility consultant and president of Jeff Green Partners in Mill Valley, Calif. “This is the most fickle industry because it always seems retailers either make it or don’t based on their merchandise. It’s an industry that if you miss the mark a little bit in terms of your merchandising, you miss the mark a lot,” he said.

One key to Rue21’s growth is that the chain turns merchandise over very quickly, Fisch said. “Often within two to three weeks of purchase, we have it on our floor. We’re constantly bringing in newness.”

That’s quite a change, Fisch noted, from when he joined the company five years ago. “Sometimes, companies start to grow but lack leaders and direction to find that niche. This was a company that was trying to be more like the industrial look, with khakis, fleece and cargo” pants.

“This is the story of somebody who was maybe floundering and maybe got it together and [now is] on the road to potentially going public,” Fisch said. “When I came here, this was a classic example of a company that started to open up stores very quickly with an equity infusion of cash and (tried) to become all things to all people rather than zeroing in and targeting their niche.”

Fisch came to the company with nearly 30 years in retailing. Prior to joining Rue21, Fisch was president of Casual Corner Group and was founder of the Casual Corner & Co. division.

Fisch has been president and CEO of T.H. Mandy for U.S. Shoe and senior vice president of Jordan Marsh.

Fisch said he brought in several key personnel — people he had worked with or people who could help with a company turnaround. “Doing that, we were able to have one wave length in the company with a strong team,” Fisch said.

Fisch and his management team jettisoned stores that were unprofitable, reducing the venues from 250 stores to 170 in the first year. Though he won’t give out annual sales figures, Fisch says the company has seen “double-digit comp-store increases” over the past few years.

“We had a metamorphosis,” he said. “We’re changing merchandise that was more basic for that fast-turning-pace fashion merchandise for the teen consumer,” he said. “Everything needs to be cohesive and consistent in building a brand, not just selling a merchandise.”

Fisch says Rue21’s metamorphosis involved consolidating four different store names: 9.99 Stock Room, Stock Room, Capers and, finally, Rue21 — so named for a French street (“rue”) where everyone wants to be a fashionable 21.

Determining what’s trendy in a fast-turning fashion industry often means staying tuned to the TV, Green suggested. “I think [Rue21] struggles like everybody else basically to find a niche,” he said. “They’re not midteen or midfashion. It’s not high style and not expensive.” But the company may be well positioned to go public, he said. “They’re certainly as competitive as some of these other public companies out there.”

Another factor that helped turn Rue21 around was a raise in price points. When Fisch took over, the company was selling 99-cent jewelry and accessories. “We no longer carry that price point,” Fisch said. “We’ve gone after better fashion looks but still at a value where they can get that assortment at price points from $3.99 to $19.99.”

Rue21 has discovered that teen-agers are “very addicted to shopping for their fashions and must shop frequently,” Fisch explained. “They shop at our stores one to two times a month in malls and centers. In strip centers, one to two times a week.”

Green expressed surprise that Rue21 has so many outlet stores because the outlet industry is so “flat.” Six of Rue21’s 10 stores in Michigan are in outlet centers, he says.

The typical unit measures 4,000 square feet. Young men’s fashions are on one side, juniors’ on the other. A street-like walkway runs down the middle of the store. Street lights and black-and-white wall graphics add to the look of a French street. Color schemes center on greens and blues. Metal benches dot the floor, and the PA system pipes in techno music to shop by.

The back of the store holds accessories, including custom-designed fragrances, which will be expanded to include additional customized beauty products and even accessories for the family pet. “That’s a new emerging trend the customer loves to buy,” Fisch said, referring to the pet items.

The fragrances, launched last year, offer Carbon for the men and Sparkle for the women.

The customer base is built with little advertising, relying on word of mouth, Fisch said. “We really build our business by our stores’ strong visual presentation and marketing presentation,” Fisch said. The company hires teen-age and college students to be part of the sales staff.