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rue21 in Expansion Mode


rue21 has found its groove. The teen-apparel retailer is on the fast track, with 110 stores on tap for 2011. It will open its 700th store this summer and sees the potential to eventually expand to more than 1,000 locations nationwide.

Focusing on speed to market capabilities, rue21 offers the very latest trends in fashions for teens at value prices. Floor sets are updated regularly. Most of the merchandise, all of which is exclusive to rue21, is priced below $35.00. 

But trendy, inexpensive threads are only part of the story. The Warrendale, Pa.-based chain credits its flexible real estate strategy and sourcing model as crucial to its recent success. 

rue 21 has many stores in rural markets, in locales where it is often the only game in town for fashion. But it has an across-the-board appeal that works well in other types of communities, even urban settings. It also is not bound by location type — strip centers, outlet centers and malls all figure into its portfolio. 

On the sourcing side, the retailer purchases its goods from a network of third-party vendors, utilizing more than 450 domestic-based suppliers and importers (the majority of whom source overseas). 

The chain believes its lack of reliance on any one vendor and use of domestic importers enhances its flexibility, minimizes its product risk, and gives it the ability to maneuver around sourcing issues. Also, a small portion of its merchandise is manufactured domestically, which allows it to maximize its speed to market on key fashion items. 

But trendy threads for teens are not the chain’s only draw. Five years ago, it introduced a new and larger format, called rue21 etc!, to highlight its expanded selection of accessories. The mix encompasses five categories — footwear, fragrance/beauty, jewelry, intimate apparel/sleepwear, and accessories. The categories are merchandised together in an approximate 1,000-sq.-ft. shop-in-store layout. Stores average around 5,000 sq. ft.

The rue21 etc! layout has been incorporated into new locations and remodels, allowing the retailer to offer an increased proportion of these higher-margin accessories categories, while making its stores even more of a destination for its core demographic. The chain promotes itself as offering customers the ability to create an entire look, from head to toe, a key selling point in rural markets. 

To date, more than 70% of the store base has been converted to the etc! layout. 

“All the new locations we open will be etc! stores,” said a rue21 spokesperson, who added the company will continue to convert existing locations to the new format, space allowing. Thirty-five stores are scheduled for conversion this year. 

Playing up accessories proved an astute move. In 2010, rue21’s first full year as a public company, net sales rose 20.8% to $634.7 million, and net income increased 37.4% to $30.2 million. 

“In 2010, accessories were our fastest-growing category of business, and we continue to see significant opportunities across this category going forward,” said president and CEO Bob Fisch in March 2011 on a conference call with analysts.

Fisch added that the five different segments of the etc! accessories business have been “huge” in driving incremental sales. “This is a high-margin business with great potential for us at rue,” he emphasized.

The investment in the converted stores has also paid off. Historically, the conversions have increased store profitability and generate return on investment in excess of 30% over a 12-month period, according to the company.

As to ongoing economic concerns and the raw-material cost increases that have swept through the industry, Fisch believes rue21 is well positioned to withstand the impact of both. 

“Our business model gives us the flexibility to maneuver around cost inflation and will give us a competitive advantage when some of our peers may be forced to raise prices,” he told analysts. “Right now, approximately 25% of our business is from the etc! category, which is mainly a non-cotton business.” 

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