Up-and-coming retailers: Where are they now?

These 3 were going to be game changers. Did they live up to the promise?

By Minyanville Jul 12, 2012 9:31AM

In 2010, the Minyanville team picked out their best bets for the small retail Davids that would take on industry Goliaths. Which company might be more urban than Urban Outfitters (URBN)? Could a former Mouseketeer really take on Levi Strauss? And was there a new fashion icon that might target Target (TGT)? We made our predictions and came up with a diverse list of nine upstart companies with their work cut out for them. (See our original series, here.)


Two years later, we decided to take a look at three of the most popular publicly traded brands from our list. First up, Rue 21 (RUE).


Rue21 (RUE)

What We Said Then: When we last reported on Rue21, it was a phoenix among spring chickens. Rising from the ashes of bankruptcy in 2002, it re-emerged as tween-to-teen retailer specializing in prep and 1980s nostalgia. What most immediately impressed us was the "dazzling" IPO offering in November of 2009 when shares priced at $19 in the morning hit $24.30 by end of day.

And while we worried about the competition from market giant Old Navy (GPS), we liked that Rue21 store sales held up strong after the IPO, rising 13.5% in one quarter. We also approved of its steady growth which increased net sales 40.7% from $97.5 million in 2008 to $137.1 million in 2009. When last we reported, it had even bigger plans for 2010, including an agenda to add 100 stores. What we saw for the brand was clear skies.


What We Think Now: Rue21 continues to fly high. Reports from the company's annual shareholders meeting show both strong growth and big goals. In 2011 Rue21 opened 120 new stores, bringing the tally to 755 locations total, and by 2014 CEO Robert Fisch hopes that number will reach 1,000.

The steady growth in 2011 is documented quite clearly in the numbers; net income increased 28.8% to $39 million during the fiscal year, and in the first quarter of 2012 net income rose another 20.6%. Fisch also confirmed that the Rue21 will commence in an e-commerce initiative, strengthening its position further by offering Web sales for the first time.


True Religion (TRLG)

What We Said Then: First of all, we enjoyed the puns. Call it heavenly or a divine force -- when True Religion Brand Jeans hit the markets in 2002, it came with a mission. CEO and chairman Jeffrey Lubell founded the high-end denim brand to sell in top market department stores like Bloomingdale's (M), Saks Fifth Avenue (SKS), and Nordstrom (JWN). We also liked the star power on display; the company embraced super-model chic, casting Gisele as their spokesmodel and pricing its jeans high enough to raise eyebrows (one pair might cost as much as $650).  We also liked the timing.

As True Religion blossomed into a fashion phenom, competitors like Diesel SpA and Molvena struggled with leadership issues in the midst of enormous expansion plans in 2009. Meanwhile, True Religion opened 24 new stores and reported growth in every segment except for the U.S. wholesale. And while shares had highs and lows, in early January it had just begun to stabilize.  


What We Think Now: True Religion has settled nicely among the elites of retail and reports healthy growth that its leading competitors cannot. As of March 31, the company owned and operated 109 retail stores in the United States, five in the UK, four in Germany, four in Canada, four in Japan, and one in the Netherlands.

At the end of 2011, its cash balance, without debt, was $200 million. The company is "bursting at the seams with cash," according to Forbes reporter Abram Brown. What distinguishes the brand from the competition? Margins. According to Sean Williams at Daily Finance, True Religion doesn't have to discount its merchandise to sell it, unlike Abercrombie & Fitch (ANF) and Urban Outfitters. And despite recession wariness, its gross margin has actually increased. Either True Religion is benefiting from an excellent management team and the continued quality marketing of a high-demand product, or it is just truly blessed.


Lululemon (LULU)

What We Said Then: We called it the Nike (NKE) of the millennium, only with less running, jumping, and sweating -- and with more sun salutations and Ayn Rand quotations. Lululemon earned quick success by accurately identifying a lifestyle and then taking charge to shape it. The zen-meets-cool yoga trend exploded just as Lulu came out with its first 119 stores across North America.

Lululemon took the Apple path: It offered superior products and thoroughly prepared employees to be truly helpful and well-informed. The company also amped up its image by offering free yoga classes, which helped offset consumer skepticism about the high prices. What we liked about Lululemon was how successfully it branded itself for those who wanted both health and chic -- because frankly, who doesn't?


What We Think Now: As a company, Lululemon remains healthy and chic. Although the company has currently experienced some setbacks on the market (it reported a disappointing earnings estimate on June 6, and stocks promptly dropped 8.8%) market analysts encourage a rosier picture.

The dip in profits might portend an oncoming entry into the sporting good arena, reported analyst Brian Sozzi to the Wall Street Journal. A field dominated by Nike and Under Armour (UA) might soon have a newcomer with whom they must contend. And since the company's revenue has more than doubled over two years, with predictions coming in at $1.34 billion in revenue for 2012, you have to figure a company that can sell that many $112 yoga pants won't really struggle to get sneakers off the shelves. 


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