Abercrombie & Fitch (NYSE: ANF) is throwing new light onto its Hollister brand. It is removing the heavy shutters and eliminating the “nightclub” feel from its namesake stores, and will it remodel it’s California surf shop to let the sunshine in. Gone will be the beach shack porch entrance, replaced instead by a more traditional mall store appearance.
The retailer is coming to grips with the reality that teen shoppers have largely been passing its stores by. While the Hollister brand carried Abercrombie through the recession, in more recent periods it has faltered badly, performing even worse than the A&F stores themselves. Since Hollister accounts for more than half of total company revenues, it’s not surprising to see the entire enterprise collapse alongside it.
Following an assault on the ramparts by activist shareholder Engaged Capital to unseat CEO Michael Jeffries, Abercrombie & Fitch began a transformation of its brand that may very well leave it unrecognizable in the future. Amongst the more radical changes will be the adoption of the fast fashion ethic at Hollister.
Leading chains like H&M and Century 21 have successfully popularized the idea of disposable fashion. Taking styles right off the runway, they churn out reasonable facsimiles at low cost to fill their racks and within weeks are doing it all over again. It’s become all the rage amongst retailers to adopt this style, mistakenly believing it’s a panacea for their ills. In addition to A&F, Wet Seal (NASDAQ: WTSL), Aeropostale (NYSE: ARO), American Eagle Outfitters (NYSE: AEO), and even Sears Holdings (NASDAQ: SHLD) are moving to adopt the fashion forward style.
Yet it’s just not a cookie-cutter business model that you can slap on any retailer. It represents a completely new way of running an apparel business, one that relies both on flawless, super-efficient logistics, faster turnover, and attracting fickle teens to shop at your store.
In the past that hasn’t been a problem for Abercrombie, but that’s not necessarily the case these days. While opening up the storefront to let customers see what it is you’re selling will certainly help, Hollister, and by extension Abercrombie, risks looking like a bland repetition of all the other stores in the mall.
Abercrombie’s CFO says the test they’ve done with their model stores resulted in double-digit percentage increases in sales, and substantially increased in-store traffic compared to the control group of stores. As a result, they’ll be rolling it out to 75 to 100 more stores by the end of the year at a cost of $10 million to $20 million in additional capital expenditures.
I never quite understood the concept behind keeping secret what stores were selling. Maybe it added to the mystique of the brand, that Hollister or Abercrombie & Fitch was only for those in the know. Certainly the company’s CEO wanted his stores to be the exclusive playground of the beautiful people, but it also ensured potential sales were being purposely written off. It sure as heck didn’t work at Abercrombie’s Ruehl No. 925 stores that it eventually shut down. The concept was targeted to young adults and often didn’t even have a name on the storefront, let alone windows to see what they were selling.
The thought of grabbing kids when they were toddlers (abercrombie), selling to them through their teens (Abercrombie & Fitch, Hollister), and keeping them coming back on into early adulthood (Ruehl No. 925) was great in theory, but ultimately lousy in execution. Now the retailer is scrambling to bring back those who left, attract new customers who they snubbed before, and remake itself into a new kind of fashion leader — which looks suspiciously like every other retailer in the mall.
Shining a light onto Hollister’s fashions makes sense, but the market may have largely already passed it by and the remodel may leave it looking like a beach bum.
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