Tilly’s Secret

Some retailers are doing just fine these days, thanks — recession or no. Tilly’s, a lifestyle apparel chain of 111 stores is among these, even if its owner is a bit coy about the reasons. “I’m smiling because if I told you why, everybody would do it,” said Hezy Shaked, founder and CEO of this Irvine, Calif.–based seller of casual wear with a skateboard, surf and snowboard vibe.

Tilly’s, named for Shaked’s ex-wife, was launched in 1982 in Los Alamitos, Calif. Today the private company operates in eight states and has never had an unprofitable quarter, says Shaked, though he declined to furnish details.

To be sure, the recession did slow Tilly’s expansion pace a bit, but the company nonetheless managed to open 12 stores last year, on top of 26 the year before. Further, Tilly’s displays no trepidation over plans to launch 12 to 18 more units this year. The company funds its growth with cash and has no debt, Shaked says.

One observer estimates that each Tilly’s store brings in about $2 million to $2.5 million a year in sales, but Shaked prefers to keep mum, saying only: “We’re doing much better than that.”

How does an apparel seller maintain that kind of a healthy balance sheet in the midst of a bruising economy that gets most merchants giddy if they manage to break even? “They seem not to have gone crazy with overexpansion, and they have some brands that are not as price-sensitive,” said Scott Testa, a professor of business administration at Cabrini College, in Philadelphia.

“When you’re doing it right, you’re doing a lot of things right,” said John Massing, senior vice president of Triple Five, which operates Boca Park Marketplace, a 1 million-square-foot hybrid center in Las Vegas where Tilly’s opened in 2004. Tilly’s is the top performer among four youth-oriented fashion stores there, Massing says. “The merchandise is right, the service is right.”

Dealing in trendy brands is part of Tilly’s success, and Shaked says the chain actually carries triple the 56 brands listed on its Web site in December. These include Billabong, Levi’s, Quiksilver, Ugg and Vans. Another aspect of the chain’s success is that it carries desirable names not sold everywhere and at a price consumers are willing to pay, says Jeff Green, a retail consultant who heads Mill Valley, Calif.–based Jeff Green Partners. Ugg women’s boots featured online cost $140 to $180 in December; men’s Vans sneakers ranged from $30 to $60.

“We’ve done multiple deals with Tilly’s over the years, and from the fashion side of the business, they’re one of the best,” said Chris Elliott, vice president of leasing and development at Donahue Schriber, which operates Countryside Marketplace, a year-old power center in Menifee, Calif. “They are phenomenal operators.”

Shaked describes his main customer base as being between 16 and 28 years old, and others say the teens are the core. “They are a very strong tenant, appealing to the tween-teen-20s market,” said Katy Dickey, a spokeswoman for Westfield America, which has eight Tilly’s shops in its 55-center portfolio. “They’re quite a magnet.”

The chain appeals to older adults too, though. Parents entering one of the shops with their children frequently end up buying a T-shirt or some such item for themselves. “Obviously, we are very parent-friendly, so parents can come to shop with their kids,” Shaked said. That might normally make a store completely toxic to teens, but it does not seem to be happening here. “It’s not that we’re inviting the parents to be our customer,” Shaked said. “But if we have videos in the store, we make sure they don’t offend anyone.” Ditto with the music.

Shaked says the company may open in two more mid-Atlantic states in the next year, but he would not name the sites. Tilly’s will continue opening in malls, power centers and street-front venues, and will also consider ‘B’ malls, he says, if the location within is desirable. “Wherever we go, we’ll only go for a location that’s prime,” he said.

Malls are not, however, the chain’s typical choice, says Green. “Their typical M.O. is to be really near their target customer,” he said. Sources say Tilly’s does particularly well in power centers. The concept is a strong draw across income and racial lines, says Green. “Understanding the number of supportable stores in a market is critical,” said Green. “The key is how well they’re accepted between the coasts. Are they just a coastal concept?” Neither Shaked nor observers believe that to be the case. Instead, they say, Tilly’s seems to serve a psychographic rather than a geographic market.

Testa notes that there is no room for complacency in the market for young customers. “They’re serving a pretty fickle audience,” he said. “You always have to look at the trends and the clothing.”

But Shaked points to Quiksilver and Billabong as examples of longevity even in this market. “They’ve maintained their coolness factor for years,” he said. “We’re constantly, constantly tweaking what we do. It’s a daily issue.”

Shaked appears committed to keep running Tilly’s for reasons besides the commercial ones, as he has for nearly three decades. “It’s a personal thing — I’m very focused on what I do,” Shaked said. “The idea was never for me to make a lot of money. It was to do it perfect, do it better than anyone else.”