Embracing the motto "If you can't beat 'em, join 'em!" Abercrombie & Fitch (NYSE:ANF) made the very public decision to convert its Hollister brand into a fast-fashion enclave, a place where even preppy surf kids can buy cheap, California-style beachwear. Yet because it's so late to the game, the disposable clothing trend is already speeding away from the center, threatening to leave the teen retailer in its dust and its stock in the pits.
The change in focus comes as teens increasingly eschew traditional retailers in favor of those outlets that take the latest runway trends and quickly repurpose them to appear on the racks at H&M Hennes & Mauritz (NASDAQOTH:HNNMY), Forever 21, rue21, and Zara. These fast-fashion leaders accelerate the timeline for how long trends stay around, meaning it's essential they manufacture the clothing as cheaply as possible.
Abercrombie knows as well as any of its teen retailing peers the pain being inflicted by the sea change under way in fashion. Comparable U.S. store sales fell 13% in its fiscal fourth quarter ending Feb. 1, and were down 15% for the year, while Hollister's comps alone plunged 14%. Hollister accounts for about half of the company's sales.
In comparison, H&M saw its comps rise 3% in the quarter (though they were flat for the year), and it plans on vastly expanding its presence by opening the equivalent of more than one store a day in 2014 by launching additional sports clothing stores, home furnishing outlets, and online clothing shops. The Swedish retailer is already the world's second-largest fashion retailer in terms of sales after Inditex, the owner of Zara.
Yet as Abercrombie rushes into fast-fashion, H&M is running out. It announced late last year it would be opening its first U.S. COS store -- or Collection of Style -- this month. The brand extension features more classic styling than its eponymous stores and better-quality materials. At the time of its announcement, it had 75 COS stores operating around the world and it planned on opening as many as 40 more this year.
At the other extreme is Forever 21, which will be opening this weekend its new F21 Red brand, which will feature even faster and cheaper fashions at ridiculously low prices. It's said women can get camisoles for as little as $1.80 and jeans for $7.80 a pair.
Abercrombie is not alone in trying to jump on the fast-fashion bandwagon. Both lululemon athletica and even Sears Holdings are going all trendy, with the former introducing a line of clothes you can wear right from the gym to a night on the town -- um, ew! Go shower first, please -- and the latter opening store-in-store boutiques catering to a quick-turnover clothing line.
It's not certain either H&M or Forever 21 will be successful with their new ventures, but as Abercrombie & Fitch and others run headlong into the space, it's notable that the niche's leaders are running out. And that could mean Abercrombie investors are left running in place.
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Rich Duprey owns shares of Abercrombie & Fitch. The Motley Fool recommends lululemon athletica. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.