New CEO faces major challenge of freshening up urban line.

D.e.m.o. has helped drive strong gains at teen apparel retailer Pacific Sunwear of California Inc. But lately the urban-style clothing unit is showing its age.

All eyes now are on Lou Ann Bett, a veteran of Limited Brands Inc., who joined the Anaheim-based company to head its d.e.m.o unit. She took the reins from former president Tim Harmon, who retired in July.

Bett is starting at a critical time. D.e.m.o., which targets people ages 16 to 25 with music-inspired clothing, has struggled with men's fashion misses and now faces more competition.

The division also has come under fire from some Wall Street analysts, who await the new retail concept Pacific Sunwear plans to announce later this year.

Sales at the 7-year-old d.em.o, unit have slowed and helped cool Pacific Sunwear's overall growth story. Same-store sales for d.e.m.o, fell 0.6 percent in April and May, then rose a modest 0.5 percent in June. Not the heady gains of years past, with d.e.mo. posting a 21 percent jump in same-store sales in 2003 and growing at a 6 percent pace in 2004.

Bett is no stranger to battle. She spent the past 18 years at Columbus, Ohio-based Limited, which runs Express, Limited and Victoria's Secret stores. "I feel pressure every day," Bett said. "When you hit a strong number there's no better feeling. When you've got a major dog there's no worse feeling. That's what retail is all about."

Her new task: keeping d.e.m.o. hip and fresh and growing the division.

Pacific Sunwear operates about 176 d.e.m.o. stores. The company plans to open 40 stores this year and cap out at around 400 during the next three to four years.

That's less ambitious than PacSun's surfwear chain, which has wider appeal selling surf, skate and snow-inspired clothing from companies such as Huntington Beach-based Quiksilver Inc. and Irvine-based Billabong USA. There are 775 PacSun stores, which comprise the bulk of the company's 2004 sales of $1.2 billion.

D.e.m.o. has a more targeted audience, one that's rooted in the hip-hop music scene. Bett said the sector is losing its "track suit" and "thuggy image" and evolving into something a bit more "sophisticated." "There are more crossover brands and more crossover customers that are multicultural and aren't being served when you walk the malls," she said. "The evolution of the market ... is probably going to widen our customer base more than we might think."

D.e.m.o. carries a range of brands inspired by musicians, such as Sean "P. Diddy" Combs' "Sean John" line and Russell Simmons' "Phat Farm." About 60 percent of d.e.m.o.'s sales are to men and 40 percent are to women.

D.e.m.o. is always analyzing its clothing mix and tracking the popularity of hip-hop personalities. If a musician's popularity declines, often their clothes follow. "That's the beauty of carrying so many brands," Bett said. "When one falls out of favor you can leverage another one that's in favor. You can evolve and change brands."

D.e.m.o. also faces off against morn-and-pop stores and regional players, such as City of Industry-based Hot Topic Inc.

"Most of the competition comes from department stores and some regional chains which aren't able to merchandise as effectively as we are," said Pacific Sunwear Chief Executive Seth Johnson.

As more players eye the urban sector, there's more interest out there--and more pressure on d.e.m.o. "It forces us to make sure we are constantly being relevant," she said.

That means providing "exceptional customer service," carrying the "most hip and cool" brands, being "first with fashion" and "a real destination" for customers, Bett said.