Abercrombie Becomes a Ruehl-Breaker

Another one bites the dust -- another ancillary retail concept, that is. Abercrombie & Fitch (NYSE: ANF  ) is the latest retailer to shut down one of its nascent concepts in the midst of the ugly economic climate.

Abercrombie will shutter Ruehl, its retail concept for people a little older than the teens and college crowd that its core Abercrombie & Fitch business targets; it has 29 Ruehl stores. The company also amended its credit pacts and agreed to lower its credit line by $100 million, to $350 million.

This closure didn't come from out of the blue, since last month Abercrombie said it was doing a strategic review of the unit. Ruehl generated an operating loss of $58 million for the year ended January 2009, and its same-store sales plunged 34% last quarter -- a clear drag on the larger company. In addition to $51 million in non-cash charges related to the strategic review, this year Abercrombie will take additional charges of $65 million related to the closure.

Abercrombie's certainly not the only retailer to cut out a nascent concept. Costco (Nasdaq: COST  ) has decided to get rid of its Costco Home concept. Tiffany (NYSE: TIF  ) is ditching its pearl concept, Iridesse. Aeropostale (NYSE: ARO  ) shuttered its Jimmy'Z stores. Talbots (NYSE: TLB  ) finally sold most of its beleaguered J. Jill unit. And I know some people wish American Eagle Outfitters (Nasdaq: AEO  ) would kick Martin + Osa to the curb.

As I've said about these other retailers in the past, a good run is better than a bad stand, and the ability to focus on core concepts is important. And given the consumer climate, companies shouldn't waste time and money on a concept that's just not working and continues to drain resources.

Investors cheered Abercrombie's decision, and the stock jumped yesterday. The troubles are by no means over for Abercrombie, though. Its sales have been flagging, and its comps were particularly abysmal, as teens flock to cheaper rivals such as Aeropostale.

I've often wondered why so many teens seemed to be crazy about Abercrombie's snooty and often disturbing culture. Now, it looks like Abercrombie has lost its cool, and if it doesn't get it back, investors may get burned.

For further Foolishness:

Costco is a Motley Fool Stock Advisor and a Motley Fool Inside Value recommendation, and the Fool owns shares of it. Try any of our Foolish newsletters today, free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 924195, ~/Articles/ArticleHandler.aspx, 9/21/2014 6:31:00 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement