Citing a growing teen apparel market and expected annual growth in the U.S. teen population twice that of any other demographic through 2010, Brentwood Associates has become the largest investor and shareholder in Zumiez Inc., a self-described youth lifestyle retailer. The chain store focuses on action sports, including skateboarding, snowboarding and surfing.
Financial terms of the deal were not disclosed. Brentwood invested in the Everett, Wash.-based retailer through its Brentwood Associates Private Equity Fund III, a $530 million fund. Since the fund first closed in February 2000, Brentwood has invested 70% of the capital raised.
The deal with Zumiez was born through a mutual friend of Brentwood and the retailer. “It took a long time, over a year, to complete this deal,” said Charles Yoon, a principal at Brentwood. “They hadn’t worked with a banker, so we had to educate the owners. As we moved the deal down the line, Zumiez did have conversations with other firms, but we had an inside track by virtue of our relationship with the management team.”
Zumiez has 102 stores located in malls in 12 states and retails the Billabong, Burton, Quiksilver, Roxy and Volcom brands, among others. If these names don’t sound familiar, just mention one of them to the next teenager you come across. American teens spent $60 billion in teen apparel in 2001, and, according to Bill Barnum, a co-founder of Los Angeles-based Brentwood, “Demographics are shifting away from traditional ball sports and more toward board sports.” Overall, American teenagers spent $172 billion in 2001, according to a study conducted by Teenage Research Unlimited, a marketing research firm focused on teenagers, and by 2010, over 30 million teens will be living in the U.S.
“Brentwood has historically made investments in situations where demographics work in our favor,” continued Barnum. “Teens spend a lot of money on apparel and board sports accessories. Skateboards, snowboards and related equipment was a $10 billion business in 2001, and the Zumiez management team has a unique approach to getting Zumiez products in the hands of teens.” Barnum also alluded to the large number of manufacturers and suppliers aligned with Zumiez, which will allow the retailer to “transition its merchandise mix to suit shoppers.”
Founded in 1978, Zumiez experienced moderate growth through its first two decades, and by 1996, the retailer had 33 stores in operation. Today, Zumiez plans to open an additional 300 stores, which would put them in one of every five malls throughout the U.S.
“The average retailer earns $300 to $350 per square foot in retail sales,” said Thomas E. Davin, an operating partner at Brentwood, “and Zumiez beat that mark by 25% in 2001.”