It's about time that Abercrombie & Fitch (NYSE:ANF) acted its age. Following release of its third-quarter earnings report that saw sales fall 12% year over year, and saying it didn't expect the fourth quarter to be much better, the teen retailer announced it was getting rid of its intimate apparel brand Gilly Hicks.
Well, more correctly, it's closing all the stores of the same name -- 20 here in the U.S., and eight internationally -- while continuing to sell the brand at its Hollister stores, and through its A&F website. Perhaps it's a realization that it can't be all things to all people -- but it should have come a lot sooner, like when it was forced to shutter its more adult-oriented Ruehl stores in 2009.
Of course, back then, Gilly Hicks, which styled itself as Abercrombie's "cheeky cousin from Sydney, Australia," was still new, fresh, and full of potential at a time when the retailer was trying to capture consumers from cradle to grave. Abercrombie was for the preteen crowd, while A&F and Hollister carried them through their teens years into early adulthood. Ruehl was for the matured Abercrombie shoppers who couldn't let go of their high school glory days.
It's a common problem retailers seem to have -- attempting to move beyond their core competency, and ending up battling one another for too few customers. Pacific Sunwear launched, and ultimately killed, two concept stores far removed from its surf-and-skate demographic: the hip-hop-oriented demo, and a woman's shoe store, One Thousand Steps, both of which suffered from no lack of competition. American Eagle Outfitters was also forced to drop its Martin + Osa, Jimmy'Z, and 77kids concepts, while bebe rebranded its bebe sport stores to the unintelligible PH8 before also taking it down to concentrate on its main brand.
Gilly Hicks, which could theoretically have served the needs of all its brands, was really more an outcast that didn't fit in with any particular clique. Sales in the current quarter were down almost 9%, and management saw the writing on the wall as spending among teen consumers was particularly weak.
With teen unemployment stuck around 16%, and credit reforms making it more difficult for kids to obtain credit cards, slack spending is not such a surprising outcome. Yet, as my colleague Natalie O'Reilly pointed out just yesterday, a bigger problem may be that its prep-school looks may be working against it, as fashion trends continue moving more toward urban wear. It's just a victim of fickle fashion tastes.
Abercrombie & Fitch is the first teen retailer to report financials this earnings season, and I wouldn't be surprised to see more of them come in with difficult numbers, as well. The move to shutter Gilly Hicks seems an appropriate response, and with Abercrombie sales down 3% over the first two quarters (we'll need to wait for the quarterly report to see how far down they were in the third), and down last year to levels the company last saw in 2010, it might not be long before we see the preteen concept store fall by the wayside, as well.
As a teen retailer, Abercrombie & Fitch should stick to what it knows and does best -- and that means its eponymous store and Hollister brand should be the core of what it offers. It's about time for A&F to grow up.
Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.