By  on February 25, 2008

American Eagle Outfitters and Abercrombie & Fitch are learning that growing up is hard to do.

Despite contrary claims from management, the teen retailers could shutter their fledging contemporary apparel concepts Martin + Osa and Ruehl in the near future, according to analysts and consultants.

"Both of these concepts are rapidly entering the 'dead man walking' stage," said Craig Johnson, president at Customer Growth Partners, a consulting firm. "It's not a question of if they will shut down, but when."

In Abercrombie's fourth-quarter earnings call to Wall Street, Michael Kramer, chief financial officer, said sales at Ruehl fell in the second half of 2007 and he expects the chain to continue to struggle through the first half of this year. While management is working toward improving the quality of the merchandise, the retailer will slow the pace of new store openings until Ruehl is established as a proven concept.

"If you read between the lines, this sounds a lot like what Gap said six months before they shuttered Forth & Towne," Johnson said.

Ruehl, which launched in fall 2004, is not climbing the profitability curve as quickly as Hollister did during its first years in business. With similar merchandise at a higher price point than the core Abercrombie & Fitch brand, it has been hard for Ruehl to differentiate itself.

But Ruehl is closer to breaking even than American Eagle's Martin + Osa, said Kimberly Greenberger, retail analyst at Citigroup. She expects the 19-unit Martin + Osa chain to lose $55 million to $60 million in 2007, which is roughly a loss of $3 million a store.

"A lot of people on the Street would like to see Martin + Osa close," said Christine Chen, retail analyst at Needham & Co. Martin + Osa's main problem is merchandise, as women complain about the brand's lack of femininity, boxy cuts and high price points. As a result, the company has been forced into aggressive markdowns.

Meanwhile, it's been equally difficult for both concepts to gain traction with the 25- to 40-year-old demographic. "I am not convinced that casual apparel tops the list of spending priorities for recent college grads," Greenberger said. "They are looking for work clothes and furnishing their first apartments. The market for early-to-mid-20s casual apparel is much smaller than believed."Unlike the highly successful J. Crew and Anthropologie chains, Martin + Osa and Ruehl only offer casual classic weekend wear, which doesn't vary drastically season to season and needs less replenishment.

"J. Crew and Anthropologie are both doing an amazing job of evolving their own assortments, adding pattern and print, taking some measured fashion risk and inspiring their customer to buy," Greenberger said.

Martin + Osa and Ruehl have also struggled to define who their customer is and what need they are trying to serve that isn't already being achieved in the market. While Ruehl and Martin + Osa are more age-specific, J. Crew and Anthropologie target a certain psychographic profile and specific lifestyle.

"Maybe it is easier to be a genuine lifestyle retailer if one defines its customers based on life experiences rather than on age range," Greenberger said. "I don't think Ruehl or Martin + Osa have bothered to take more than a superficial stab at their target customer's lifestyle."

But every retailer is entitled to these missteps as they attempt to add newness to their portfolio, Johnson said.

American Eagle and Abercrombie will need to devote their resources to other new concepts, like 77kids and Gilly Hicks, which have more profit potential. And Johnson warns, "You can never take your eyes off the core concept."

To access this article, click here to subscribe or to log in.

To Read the Full Article

Tap into our Global Network

Of Industry Leaders and Designers

load comments
blog comments powered by Disqus