Another one bites the dust -- another ancillary retail concept, that is. Abercrombie & Fitch
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
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.
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