rue21 On The Move
Positioned as a cool fashion leader for middle markets, rue21 is growing at a phenomenal rate.
Randall Shearin

Many community strip centers in secondary markets are familiar with rue21, a fashion-forward specialty teen apparel chain for girls and guys. But many people don’t know the story behind rue21, or its incredible transformation over the last 5 years.

rue21 adds architecture elements to some of its stores to give them the appearance of being larger. The average rue21 store is 4,000 square feet.

Shopping Center Business recently met with Bob Fisch at rue21’s new headquarters in Warrendale, Pennsylvania, north of Pittsburgh. At this visit, SCB also met with Sandra Jennings, director of real estate; Perry Bugnar, senior vice president and director of store operations; and Kim Reynolds, senior vice president of merchandising.

Starting Out And Turning Around

rue21 started as a small chain of stores that sold merchandise for girls and guys at $9.99 price points. The chain grew to 285 stores when SKM invested in the chain in 1998. The company did make mistakes as it expanded, trying to be all things to all people, says Fisch. rue21 was operating under the umbrella of four different store names selling the same merchandise. One of the stores was called $9.99 Stockroom, but was selling merchandise for $29.99. The positive that the chain had going for it was that it was a good value player in a niche where there weren’t any other value players; it was a needed commodity.

rue21 has found a niche as a value player in the teen apparel market.

Fisch hired several senior executives who he had either worked with before or who had strong reputations in the industry. Kim Reynolds was hired as senior vice president of merchandising and Perry Bugnar was hired as senior vice president and director of store operations. Mike Holland, vice president of information technology, was hired from successful retailer Timberland to create state-of-the-art support technology for rue21. Their talents were combined with seasoned executives already at the company, including Senior Vice President of Real Estate Kim Wiesmann and Keith McDonough, senior vice president and CFO. All blended together to form a strong team.

Fisch and his team set about to turn rue21 around. The first thing they did was to enhance the company’s merchandise and to make it appeal more to its target audience. The company began taking direction from hot designers and

is influenced by fashion magazines, to see what the stars are wearing and is constantly attentive to how the merchandise can be produced quickly for the company’s stores. The prices at rue21 today average between $9.99 and $39.99. Within 3 months of joining the company, Bob Fisch had all the stores operating under the rue21 banner.

rue21 takes its fashion direction from hot designers and is influenced by fashion magazines.

“The moment we filed bankruptcy was the moment rue21 turned around,” says Fisch. “The way we filed bankruptcy was the way bankruptcy is supposed to work. Having the opportunity to start anew without any biases was paramount. Everything was about reinventing ourselves.”

The company also wanted to deal with developers fairly.

“We met with each of our developers and told them that we needed to protect ourselves for the future,” says Fisch. “We negotiated with them on rents so that we could become a stronger tenant. Every landlord worked with us to build our future. In most cases, we are back stronger with our developers today.”

rue21 was only in bankruptcy for 1 year, reemerging 3 years ago as a much stronger, more streamlined and savvier retailer. Post bankruptcy, rue21 had 168 stores. Today, the company has 250 stores. By the end of 2006, the company will have 285 stores.

Underlying Value

One of rue21’s secrets is that it is a value player. The word or idea of value is never suggested anywhere in the store, except on the company’s price tags. To its teen shoppers, this is everything. rue21 is a dominant specialty value store that has sharp prices, says Fisch.

“Our goal is to go out and find the best fashion, and then be the most competitive on the value of that merchandise,” says Fisch.

rue21 anticipates opening 400 stores over the next 5 years.

The rue21 customer is from 11 to 16 years old who aspires to be 21. That vibe also attracts another type of customer to the store: the customer who is over 30 who wants to be 21.

Five times per year, Fisch holds a conference call with all of the company’s store managers. He gives them a “State of the rueUnion” address, telling them exactly what is going on with the company.

“No matter how big we get, we don’t want to be so large that we cannot communicate what is happening with the company,” says Fisch. “To me, it is not how many people you have, but the quality of people that you have. We’re not looking to build a huge organization, we want to keep it simple and build for the customer.”

Fisch looks at rue21 as a place where he can build the retail chain that he always wanted to in past opportunities. “Working with a good team and with good merchandise, combined with good real estate; I have the foundation to make it happen. To me it’s going to be legendary.”

Small Market Focus

Currently, rue21 has locations in malls, community strip centers and outlets. Because the company’s focus is middle markets, it is mostly opening new units in value centers. Prattville, Alabama, is an example. It is a great market for rue21. The market has a high number of teenagers, but the household income there is such that the market won’t support an Abercrombie & Fitch or American Eagle; but it will support rue21. The teenagers in the market love it; rue21 does little advertising, as word of mouth among teens tends to create more trends.

“We find that the best advertising comes from the associates that work in our stores,” says Fisch. “The teens that work in our stores spread the word about the new fashions that arrive daily, bringing in many new customers.

 Teens demand fashion. We want to be able to give them that fashion at affordable pricing. Even though we have done well over the last 4 years, we are constantly embracing change. You have to keep changing the future when you are in the teen lifestyle business.”

rue21 is the dominant teen player in outlet centers, where they have some of their best performing stores.

The company is also located in some lifestyle centers in smaller markets, like Normal, Illinois. rue21 looks for markets that have between 25,000 and 200,000 people. The company recently opened a store in Covington, Louisiana, for example, that has been one of its top opening locations to date.

“As long as there are teens in the market and we supply them with great fashion and value, we seem to make a hit,” says Fisch.

rue21 will be looking for plenty of teenagers over the next 5 years: the company anticipates opening 400 stores. Continuing at that pace, rue21 would then be over 600 stores by 2010. In 2007, the company plans to open up to 75 stores in the United States.

“We will continue to be very selective when we expand, despite the number of stores we are opening,” says Fisch.

rue21 is a believer in partnering with developers and vendors. The company tries to work with the top management at every company.

“You have to be an active CEO and be hands on today,” says Fisch.

The company’s origin was stores concentrated in the Midwest. It has a large concentration of stores in Pennsylvania and Ohio, close to rue21’s home base. The company wants to dominate secondary and mid-tier markets in the Southeast and West in the coming years. Today, the company is in 40 states. Its expansion plans through 2007 will increase the company’s presence in the Sunbelt states, especially in the South. In late 2007, the company will open stores in the Northwest — the company has stores in most Western states, mostly in outlet centers, but plans to return to the malls and community strip centers.

 The rue21 store template is 4,000 square feet, which is the size that the company likes to open. In every store, it locates girls’ and guys’ fashions on either side of the store and it locates accessories from the cashwrap to the back half of the store.

rue21’s original real estate strategy — before it was owned by Apax — included taking over other retailers’ abandoned locations and keeping the same fixturing. As a result, there are some non-prototype stores still in existence. The company’s store design team is working to retrofit those stores into the company’s prototype, and expects to have all locations uniform over the next 2 years. Over the last 3 years, the company has remodeled over half its stores, in addition to opening nearly 100 stores in the new format.

When remodeling a location, rue21 most often chooses to relocate the store, with the real estate team finding a more desirable location. That equates to better sales in the same center. This same strategy also sometimes makes the consumer notice rue21 by thinking that it is a new retailer to the center. rue21 has relocated stores two spaces down in some malls and seen sales rise greater than 30 percent year-to-year. For its new locations, rue21 requires a minimum of 40 feet of frontage or greater, with strong positioning within the center.

In some cases, the company has added architectural elements to its in-line stores to give them a more prominent display. In Southaven, Mississippi, for instance, it added a raised parapet to its store so that the store looks larger than its 4,000 square feet, giving it a dominant position in an upscale community strip center.

rue21 also has a plan to close some underperforming stores. Over the past several years, its track record has been to close 5 to 10 stores per year.

New Attitude

rue21 has recently moved to a new corporate headquarters in the Pittsburgh suburb of Warrendale. The new building was a milestone for employees — it is three times larger and exponentially nicer than the company’s old headquarters. While new buildings don’t make companies successful, Fisch says that they inspire confidence and success in employees. rue21 has built its new headquarters for the future.

“This building is similar to what our stores feel like,” says Fisch. “It is a celebration for the people who have helped to build and develop this company.”

Included in the headquarters building is a simulated lab store, which is similar in size and layout of a typical rue21 store. Store merchandisers and buyers use the store for layout and merchandising to see what the product will look like in the actual stores. They also use it as a test store, trying out new graphics, fixturing and products.

All of the changes that rue21 has made have paid off. The company has had double-digit comp store sales increases over the last few years.

“It isn’t just an overnight success,” says Fisch. “It is a continued success. We are building a brand. Building a brand isn’t just putting merchandise in the store. Building a brand is how you market and operate a store, in addition to putting in merchandise. That is what you have to show the customer. We are on the path of having a very fluid brand.”

“We’re building rue21 as a dominant value brand,” says Fisch. “Building value in everything that we do is very important.”