Zumiez Plans IPO To Grow

Zumiez officials decline to be interviewed regarding the company's plans because it is in a quiet period following its filing with the Securities and Exchange Commission. Its SEC filing, however, explains the chain's general plans for expansion and outlines itsoutlook on the action sports industry's potential.

The chain, which operates primarily in shopping malls, has already expanded significantly as a private company, increasing its store count to the current 140 from a total of 53 at of the end of fiscal 1999. Its plans call for 35 new stores in 2005, with most of its approximately $13.5 million capital expenditure budget this year earmarked for the expansion. That will make 2005 one of the biggest expansion years ever for the chain, which opened 27 stores in 2004 and 15 stores in 2003. Zumiez operates in 18 states and would expand into new areas as well as in its existing markets, which include most regions of the United States. The 18 states where it already has stores range as far north as Alaska and as far south as Texas, on both coasts and in the Midwest.

Zumiez targets men and women between the ages of 12 and 24 with merchandise centered on skateboarding, surfing, snowboarding, bicycle motocross and other action sports. The company strives to "bring the look and feel of an independent specialty shop to the mall," according to its IPO filing, which says that part of its strategy is to staff its stores with sales people who are involved in action sports themselves. Most of the locations average approximately 2,600 sf, although new stores are going to average more like 3,000 sf to allow a greater selection of merchandise. Zumiez stores feature action sports-oriented video game stations, and are generally located near busy areas of the mall such as food courts, movie theaters, music or game stores and other popular teen retailers. Among the brands it carries are Billabong, Burton, DC Shoe, Element, Hurley, Quiksilver, Roxy, RVCA and Volcom.

Zumiez was established in 1978 and funded its latest growth spurt, which began in 2002, through an infusion of capital in 2002 from Brentwood Private Equity III, a private equity firm that acquired an indirect minority interest in the firm through Zumiez Holdings LLC. Since then, the company has expanded its management team, which includes co-founder Thomas D. Campion, who remains chairman, and has enlarged its infrastructure. In February, for example, it expanded from a 49,000-sf combined home office and distribution facility that it occupied since 1994 to a new, 87,000-sf facility.

Zumiez believes that action sports holds potential for significant growth because action sports "are a permanent and growing aspect of youth culture," it says in its IPO filing. The company cites statistics from Board-Trac, a market research firm, showing that retail sales of skateboard, snowboard and surf/bodyboard apparel, equipment and accessories in the US grew to approximately $12.1 billion in 2003. "We believe that events such as the ESPN X Games, the inclusion of snowboarding as a medal event in the Winter Olympics and the national recognition of leading board sport athletes have broadened general awareness of the action sports lifestyle," the company says.

Despite the large potential Zumiez sees in the action clothing and hard goods, it acknowledges that the teenage and young adult clothing, hard goods and accessories industry is highly competitive. Among the companies it lists as competitors are Abercrombie & Fitch, Aeropostale, American Eagle Outfitters, Anchor Blue Clothing, Charlotte Russe, Claire's Stores, Forever 21, Hollister Co., Hot Topic, Old Navy, Pacific Sunwear and Urban Outfitters. It also faces competition from independent specialty shops, department stores, and direct marketers going after the same market as it is pursuing. In the hard goods markets, the chain competes with other specialty retailers, local snowboard and skate shops, large sporting goods stores and chains such as Big 5, Dick's Sporting Goods, Sport Chalet, The Sports Authority and Sportmart.

Among the competitive differences that set its stores apart, however, the chain says that its distinctive store environment, its management and factors like its grassroots marketing events will provide the edge it needs. Its grassroots marketing includes efforts like the Zumiez Couch Tour, a series of entertainment events that include skateboarding demonstrations from top professionals, autograph sessions, competitions and live music. The Couch Tour stopped at the Mall of America in Bloomington, MN recently, where it attracted over 20,000 attendees.

Zumiez earned a profit of nearly $4.5 million for the fiscal year ended Jan. 31, 2004, the latest full year for which figures are available. For that same year, it reported comparable store sales grew by 4.3%.