Apparel analyst shops for answers at malls


WHEN APPAREL analyst Anita W. Gallitano wants to get the skinny on one of the companies she follows, she heads to the shopping mall.

"The more time I spend in stores the better," said the 35-year-old Alex. Brown Inc. analyst. "Whenever I travel, I go to a mall. I even went into a mall when I was on vacation this summer."

Gallitano follows Gap Inc., American Eagle Outfitters, Pacific Sunwear of California Inc., Urban Outfitters Inc. and other retailers. Her job is to know their businesses so well that she can make razor sharp recommendations about whether Alex. Brown's customers should buy, sell or hold these stocks.

And the best way to know the businesses is to hit the malls. She's been to dozens of malls this year from Minneapolis to Miami, and from San Francisco to Boston.

Gallitano and a handful of Alex. Brown analysts rendezvoused last week in malls in Chicago and Dallas to see how their companies were faring during the Christmas rush. They spent a mind-numbing two days counting people walking in and out of about a dozen stores such as Williams-Sonoma, Limited Express, Pottery Barn and Abercrombie & Fitch.

They also tallied the number of people who bought something in the stores. This allows Gallitano to calculate a "conversion ratio." For instance, if one of every 10 shoppers makes a purchase in the store, the ratio is 10 percent. The average ratio for apparel stores is 22 percent.

"It is admittedly unscientific, but it gives us a perspective," Gallitano said.

"You actually see what's drawing customers in. It's all about getting into the mind of the consumer and understanding pop culture."

Gallitano is a student of pop culture. She watches MTV, reads Seventeen, Details -- a magazine for men -- Vogue and Mademoiselle because many of the companies she follows target teen-agers and are fashion-oriented.

Teens are a huge force in the retailer's world because, like their baby boomer parents, they spend rather than save. The number of teen-agers is expected to peak in the year 2009 at more than 30 million, breaking 1976's record 29.5 million teens.

Teens spent about $75 billion in 1995 with girls 16 to 19 spending $125 a month on average for clothes, while boys spent $52 a month.

The minimum-wage increase will put more money in teens' pockets. Gallitano estimates that teens' earnings will jump 14 percent in 1997 and 8 percent in 1998. The 14 percent increase will add $5.8 billion in spendable cash, she said.

What's more, fewer retailers are competing for the business, Gallitano said.

Since 1993, an estimated 2,700 teen-oriented retail stores closed, and in the past three years closures have outpaced store openings 3-to-1, an Alex. Brown research report says.

Gallitano calculates that there are 4,200 teens for each store, compared with 2,900 teens per store three years ago.

Pacific Sunwear of California Inc. is exploiting the teen niche. It used to target surfers, but now the Anaheim-based company caters to teens, selling them jeans, shorts, T-shirts and shoes.

Gallitano rates Pacific Sunwear a "strong buy." The stock trades in the $26-a-share range, but she sees it climbing to $39 in the next 12 to 18 months.

Gadzooks Inc. is another stock Gallitano likes. The company is growing fast by selling teens footwear and other accessories. She sees Gadzooks expanding to 180 stores by the end of the year and eventually running a total of 800 stores.

The stock trades in the $27 range, and Gallitano expects it to reach $39 in the next 12 to 18 months.

But her favorite company is Gap.

She says the stock is one to buy and hang on to, unlike other apparel stocks, which are typically bought and sold because their earnings are volatile. Gap has smoothed out cyclical bumps by operating several types of stores, ranging from Banana Republic to GapKids.

It also has one of the strongest global franchises in apparel retailing, Gallitano said. It trades around $31 a share, but she sees it rising to $38 in the next 12 to 18 months.

She likes Gap's latest offering, Old Navy, a trendy store that offers "hip" clothing and accessories at reasonable prices to people in all age groups.

A couple of weeks before Gallitano met colleagues to count shoppers, she took four 15-year-old girls in her red Isuzu Trooper to Old Navy in Rockville for a mini-focus group. Gallitano wanted to see their reaction to Old Navy's clothes, prices and the store in general.

"They walked in the store and they loved it instantly," Gallitano said. "They tried on armloads of clothes. I even tried some on, too."

The only catch was that the girls had to spend their own money.

They bought corduroy pants, jeans, T-shirts, shirts with buttons, and bottles of blue nail polish. The spree cost $170.

"They said this store is made for us," Gallitano said. "They barely noticed that there was a whole section of baby clothes."

The trip with the teen-agers confirmed for Gallitano what she had thought all along about Gap: It's one of the premiere retailers in the country.

"The malls are where the answers are," Gallitano said.

Pub Date: 12/16/96

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