December 6, 2004

Kids Buy The Darndest Things

By Evan Schuman, eWEEK

Running the technology operations for a billion-dollar retail clothing chain is difficult enough during the holidays, let alone if most of your customers are too young to get their own credit cards, or even drive.

Just ask Ron Ehlers, vice president for Information Systems at Pacific Sunwear of California Inc., which runs 743 PacSun stores in 50 states and Puerto Rico. The company officially positions itself for customers who range in age from 12 to 22 and who prefer a casual clothing style, but it estimates that most of those customers—a little more than 60 percent—are in the 12- to 16-year-old neighborhood, which creates several atypical IT issues.

Historically, e-commerce has had to battle with its brick-and-mortar cousins and was forced to play to its strengths. Web sites often require days to deliver products and charge for shipping, and customers have to buy without being able to personally examine the merchandise. As a result, online retailers have had to be creative in order to prevent customers from simply getting in their car and driving to a store to buy the product they want immediately.

That doesn't really apply to PacSun, as most of its customers are not yet old enough to drive. "They may not drive, which means they may not have ready access to the mall," Ehlers said.

The hassle of having to ask for a lift changes the alternatives—and therefore the consumer's purchase-decision dynamics—involved in buying online, said Stacy Clark, PacSun's director of E-Commerce. PacSun still has to compete with every other clothing Web site out there, but not having to worry about one entire class of rivals is helpful.

Typical PacSun customers are also too young to get their own credit cards. One popular remedy is debit cards, which allow the customers to access a bank account through the cards. The catch: Dollar amounts are limited to what is in the account, as opposed to a credit card, which allows debt.

Ehlers said PacSun is seriously exploring eBay's PayPal program. Why? First, his customers are very fond of eBay itself and are therefore very comfortable with the idea of using PayPal. Secondly, it also has a debit-card-like cap feature to limit how much can be spent, but it needs to be tied into a full-fledged credit card. That means that a parent or guardian must—presumably—sign off on the card.

PayPal "is a prepaid account without supervision," Ehlers said.

"eBay is a top site for our customers so PayPal looks like a great option," Clark said. "It's something we're researching more and more. More teens are using it on eBay."

At PacSun, one out of four purchases is from a branded debit card from either Visa or MasterCard, Ehlers said.

Clothing retailers have always had stocking challenges. "Apparel is a stock nightmare," Debby Garbato, the editor-in-chief of the monthly retail magazine Retail Merchandiser, told in an earlier interview about the Sears/Kmart merger. "You have a million sizes and a million colors. You're talking SKU management that is unbelievable. And in three months, all of the styles will change."

At PacSun, though, they dodge some of those bullets. They have a significantly low e-commerce return rate—about five percent—and Clark attributes much of that to the way the chain's young consumers wear casual clothes.

Unlike the super-tight-fitting formal/party clothes popular with American youth, casual outfits today tend to be much baggier, which gives a lot more leeway on sizing. To get a size wrong with a roomy casual outfit is tough, Clark said.

"The way our customer dresses is not at all tight-fitting," she said. "We've looked at a lot of options to help customers with ways to fit things perfectly, including the virtual model." But she said she ultimately concluded that the basic measurements were quite adequate for purchasing casual youth-oriented clothes.

Another difference of a youthful customer base is a higher-than-typical comfort level with technology and the latest applications. "Our customers are very early adopters," Ehlers said.

For example, Ehlers said PacSun is exploring some interactive cell phone uses that are growing in popularity in Japan that would theoretically allow cell phones to be used for payment and store advertisements. "We're keeping an eye on that one closely," he said, "to see if our customers start demanding it."

Although not interested in self-checkout given the small size of most of the PacSun stores, Ehlers said he is interested in using wireless devices for inventory management, wireless POS terminals (to be brought out during peak times, such as the current holiday season) and possibly handheld wireless checkout devices. Such "line-buster" devices allow clerks to check out customers' merchandise while the customers are still standing in line.

In other tech areas, Ehlers agreed with most other clothing retailers who see little exciting benefit in the near term from RFID. "In our business, we don't see a big benefit from RFID for a number of years," he said. "Anybody that's really looked at RFID in depth sees only a 70 to 80 percent accuracy. That's a 20 to 30 percent failure rate on RFID chips right out of the box."

Given an absence of interest in tracking clothing at the item level and the fact that his people already collect data from every shipment, he said that he didn't see much of a return-on-investment argument. "We're already doing all of our own scanning via barcode. It doesn't really gain us a lot," Ehlers said.