Fashion Face-Off: Cool Rules

In the world of fashion, taste shifts rapidly. But one thing remains the same: Some clothes are "cool," and others are not. And retailers live or die by their predictions of what's going to be hot. Perhaps no two companies know this better than competing highfliers Abercrombie & Fitch (NYSE: ANF  ) and Motley Fool Stock Advisor selection Gap (NYSE: GPS  ) .

Think back for a minute to the movie classic Grease. It pitted two 1950s looks against one another: Danny Zuko (John Travolta) and his black leather T-Birds gang, and Sandy Olsson (Olivia Newton-John) with her clean-cut style. In the film, Danny's rugged look was considered cool, whereas Sandy was deemed in need of a change that came at the hands of the not-so-prim-and-proper Pink Ladies.

Fast-forward 30 years, and you'll find that the battle to define what's hot and what's not today features styles as starkly contrasted as the 1950s greaser's leather jacket and the athlete's letterman jacket.

The word on the street -- or at the mall
Two of today's hottest retail competitors are Abercrombie and Gap. Comparisons between the two companies have been going on for a while now. Longtime Fool contributor Rick Aristotle Munarriz wrote about the two in a 2003 commentary. Dig back even further, and you'll find Motley Fool Co-Founder Tom Gardner commenting on them both in 1999.

In 2001, each of these high-profile retailers faced challenges that significantly depressed their respective stocks. But while The Gap has struggled just to get its stock back to 2001 levels (forget about its high-flying times of 1999), Abercrombie's shares have risen more than 600% since then. Why has one stock lagged behind, while the other is running laps?

Oftentimes, you don't need a calculator to find the answer. To see the differences between Gap and Abercrombie, hop in your car. A highly underrated form of analysis is your own street sense. Hit the streets -- not Wall Street, but the ones in your hometown -- and see what people are buying at these two stores. And while you're out there, stop in at Gap's Old Navy and Banana Republic stores. Then walk through Abercrombie & Fitch's Hollister and RUEHL stores. (There's a RUEHL in my neck of the woods, but since there are only five right now in the entire country, you'll probably have to leave this store off of your itinerary for the time being.)

Better yet, watch the movie Grease -- and then visit these stores. What you'll find is that even though seasons come and go, much remains the same. The Sandys of today shop at Gap and on up its product line to Banana Republic. On the other hand, Danny's leather jacket has been replaced by the worn-and-torn look of Abercrombie and its Hollister offerings. Even Abercrombie's high-end and adult-oriented brand RUEHL, which was developed to take on Gap's Banana Republic, has a darker, rougher appeal in comparison to its competition.

Cool still rules
Who's winning the battle? If you are around young people at all, I think you'll find that A&F, Hollister, and the new RUEHL have an edge that high school, college-age, and those in their mid-20s find appealing. Holey and shredded jeans? Yep, they're in. Tight tees with silly phrases? Also in. What? No youth in your life? No problem. We can take a look at the latest sales figures to see who's hot and who's not.

Fool contributor Stephen Simpson (still kicking himself as I write) highlighted the explosive growth in Abercrombie's latest round of sales. Its sales of $159 million were 43% higher compared with the same period a year ago. Many comparable same-store sales were out of sight, up 29% compared with last year's level.

While Abercrombie's sales were out of sight in a good way, Gap's were out of sight, as in "where did they go?" Gap's May sales of $1.2 billion decreased 3% compared with a year ago. Its comps decreased 8%, compared with the 6% increase it achieved in May 2004. Comps from its Gap stores declined 9%, and Old Navy's were down 8%. Not even Gwen Stefani and her "B-A-N-A-N-A-S" lyrics could inspire shoppers to venture into Banana Republic -- its comps dropped 7%.

Does bigger mean better?
In one way it may be a bit unfair to compare the two companies. Gap saw its glory days in the 1990s and now has amassed more than 3,000 stores. Abercrombie has only 794 stores, a handful of which are its new RUEHL concept. Because of the size differences between the two companies, it is simply much more difficult to grow $1.2 billion May sales at double-digit rates. Abercrombie, with its $159 million, has to grow exponentially from here even to reach the same revenue level as Gap.

So yes, Abercrombie has the advantage of being smaller with more room for growth, but let's not make the mistake in thinking that Gap's sales are declining because it's big. The company is failing to increase its comparable same-store sales because it is losing the battle of the cool. In the 1990s, Gap was the clear leader with its comfortable but clean-looking styles. But it's a new day, and tweens, teens, and twenties are sporting the rugged look of Abercrombie & Fitch and Hollister -- and you can throw in soon-to-be big-time RUEHL, which I think will rule.

Like any metaphors, they can be taken only so far. Greaser Danny and clean-cut Sandy have been replaced with A&F, Hollister, and RUEHL on one side of the line and with Gap, Old Navy, and Banana Republic on the other side. And while John and Olivia danced and sang together, in this corporate battle there will be no tango for two.

So who's my money on? Are do-overs allowed? I guess not. In that case, though I have yet to invest in either enterprise, like fellow Fools Stephen Simpson and Seth Jayson, you can put me in the "Kick Me" camp -- because, if I had the chance to do it over again, I would've had money down on A&F.

Gap is bigger, yes. Gap had $1.2 billion in sales in the month of May, yes. But big doesn't mean it's bad (as in bad cool), and right now Abercrombie & Fitch is hot, and Gap is not.

For more on clean-cut Sandy Olsson-esque Gap, check out these articles:

Or for bad boy Danny Zuko-like Abercrombie:

Fool contributorJeremy MacNealydoes not own clothes from any of the above mentioned retailers, so that probably makes him totally uncool. He also does not own shares in any of the companies mentioned.


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