Reinventing a company is a time-honored tradition. When Ford
There's a difference, though, between reinvention and desperation. Companies today are all too willing to try something -- anything! -- to pull a growth lever. Procter & Gamble's
Peter Lynch had a good name for such endeavors: "diworsification," a reference to companies that go outside their core competencies to field-test new ideas.
Teen retailer Pacific Sunwear
Sure, a lot of fashion companies have a tradition of operating separate-but-equal chains. Abercrombie & Fitch
You see, bebe is changing the lights in the marquee of its 62 bebe sport locations to read "PH8" instead. Rebranding your store with a nearly unpronounceable amalgam of "fate" and the streetwise "phat" is hardly a better way of connecting with your customers. Management says the new concept will flog "active street wear and performance products." And that's new and different because ... ? Investors would be better served if management took the hard medicine that PacSun swallowed and do away with the cash-draining chain altogether.
Yet bebe also seems to be afflicted with the Starbucks curse of trying out every idea that was put up on the whiteboard at a brainstorming session. The formerly high-end retailer has opened a low-cost concept store called 2b (what ever happened to using real words?) to cater to a younger and less moneyed clientele. That chain will also act as an outlet for clearance merchandise from the flagship brand. And bebe is launching a line of non-casual shoes. Uh-oh! Where'd we hear that before?
When Starbucks and bebe reposition themselves as discount chains and Procter & Gamble ventures off into businesses in which it has no demonstrated expertise, they're not playing to their strengths. They're playing into the hands of their competitors. Since these new businesses are not likely to generate significant streams of revenue, they risk distracting management and damaging the companies' brands. Investors would be better off if management simply repaired the core franchise, rather than devise some cool new business line or trendy store name to prop up flagging results.
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Fool contributor Rich Duprey owns shares of PacSun and Procter & Gamble but has no financial position in any of the other stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.