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Ramping Up at Hollister

Hollister & Co., Abercrombie & Fitch’s surf-oriented division, is ramping up with a serious expansion.

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LOS ANGELES — Hollister Co. is on the verge of a point break.

This story first appeared in the April 24, 2003 issue of WWD.  Subscribe Today.

And, as the concept gears up to further saturate California, homegrown surf and skate competitors here could feel the heat.

By creating beach shacks in malls imbued with subdued lighting, hiring svelte young girls and muscle-bound boys to man the stores and delivering Abercrombie & Fitch-esque clothes at lower price points, the three-year-old “California lifestyle” concept has hit on an elusive rapport with teens.

Parent company A&F, somewhat of an expert on aspirational marketing and positioning to teenagers with its namesake units, is responding in kind by devoting itself almost entirely to the growth of the concept. The New Albany, Ohio-based company has said it will continue its rapid expansion of all three divisions (A&F, Hollister and Abercrombie stores for children) by opening about 110 stores this year, adding to the 602 stores it already operates. It has said it will use $70 million to $80 million for new store construction.

But while A&F sees the namesake stores — currently 342 — maxing out at about 400 units, A&F imagines Hollister to be a 600- to 800-unit chain.

“Hollister is driving our square-footage growth,” said a spokesman. Of this year’s store openings, the majority — about 70 — will be Hollister units on top of the 95 that already exist. The company also operates 165 child-oriented Abercrombie stores.

“Abercrombie & Fitch and Hollister are the two big things that are happening in retail right now,” noted Barbara Fields, a West Coast-based fashion consultant to 70 retailers, including Clothestime and J.C. Penney Co. “They are particularly trendy, right with overdyed, distressed vintage pieces. And the price point is very much in line with what customers want today. They have a creative operation. They go with their own color palette and product development. They are what Gap used to be.”

Officials at Hollister are fairly secretive on where most new stores will go, but concede there’s a sizeable opportunity in California. Ironically, the Golden State, which inspires the concept and is home to one of its design studios, has only three Hollister stores to date: Brea Mall in Brea, Topanga Plaza in Canoga Park and Valencia Town Center in Valencia.

But that is expected to change.

“We think we’ve got a great opportunity in California,” said the spokesman. “We’re going to be in most malls and centers where there are Abercrombie stores. Every kid in America wants a piece of California. California is just a cool place. It’s a state of mind, a way of life.”

A&F chairman and chief executive officer Mike Jeffries, who declined to comment on this story, hails from California.

The stores, meant to resemble lifeguard huts, are typically 6,500 square feet with interiors that bring a more authentic atmosphere to malls with front porches, gray wood floors and high, angled ceilings with fans. There’s even a “California Club” room where shoppers can linger and listen to a jukebox.

Hollister’s merchandise channels quirky, carefree flip-flop-wearing West Coast beach bunnies with price points roughly 30 percent lower than A&F. Jeans, cargos and cords are marked $34.50, denim or cord miniskirts are tagged $29.50 and vintage screen T-shirts, usually with Cali-centric themes, run $19.50.

Observers say Hollister has managed to capture the West Coast vibe fairly well.

“It’s fresh and it’s young and it’s got the same irreverent appeal that Abercrombie does, but in a different direction,” noted Michael Wood, vice president of Teenage Research Unlimited. “I think it’s a solid business strategy. It just makes sense.”

Teens seem to love it. On a recent Sunday, the Topanga Plaza store was buzzing with activity — with checkout lines 10 to 15 people deep. Female shoppers who wandered into stores were spotted already wearing Hollister merchandise.

Even with the lower price points, a Hollister store typically racks up 90 percent of what an A&F store pulls in in the same center, according to the company. On average, A&F pulls in $400 a square foot, annually. Assuming those numbers are consistent, the chain could eventually become between a $1.4 billion and $1.8 billion company, effectively doubling the size of A&F.

Hollister, according to analysts, currently has a volume of about $190 million.

“That number could prove to be conservative because they could probably make their stores more productive on a square-foot basis as they get larger,” noted Jennifer Black, an analyst with Wells Fargo Securities.

Hollister Co., which neither defines itself as a surf or skate brand, would also go head-to-head with some of the largest players in the country, including Anaheim, Calif.-based retailer Pacific Sunwear of California, which carries surf brands Op, Quiksilver and Hurley.

Greg Weaver, PacSun’s chairman and ceo, declined comment, as well.

“The industry is watching them and has been since the beginning,” said Dick Baker, Op’s ceo. “I’ve personally had the opinion that it’s going to be good for the market. It’s going to make PacSun stronger. PacSun’s going to have the one piece of the puzzle that Hollister doesn’t have: authentic brands. But anyone who is doing the category poorly will be weeded out, eventually.”

TRU’s Wood, however, believes the competition might be more contentious than that.

“Skate and surf companies see it as the enemy,” he said. “These smaller brands see it as a way of cannibalizing their coolness. I think that it’s going to be tougher in California because people in California know the difference between a manufactured California lifestyle and an actual California lifestyle.”

Marshal Cohen, co-president of NPDFashionworld, concurred. “Hollister feels artificial and when you can have the real thing, why not?” he said. “Authentic California clothing is not something you can go into a mall and buy. So if you want to live that surf scene, you have to go to surf shops at Venice Beach. If you really want to make money, you have to sell to the bigger part of the population. That’s a real issue for them. They may end up selling to a different client base in California than they would on the East Coast.”

A&F is no stranger to controversy. Despite — or perhaps, because of — naked college students hawking clothes in its catalog, selling thongs for young girls in children’s stores and racial missteps with some of its T-shirts, A&F has pulled off a solid quarter and year. Sales for the fourth quarter ended Feb. 1 rose 14.6 percent to $534.5 million, while net income for the quarter increased 17 percent to $92.8 million. For the year, net sales jumped 17 percent to $1.6 billion from $1.4 billion and net income increased 16 percent to $194.9 million. The only catch remains same-store sales, which have been off 4 percent for the quarter and 5 percent for the year.

Indeed, some analysts believe consumers, not competition, is where Hollister should put most of its focus.

There’s much brand-building to do nationwide, let alone in California. According to a national poll conducted on WWD’s behalf by Look-Look Inc., a Hollywood-based youth research and marketing firm, about 48 percent of females ages 14 to 18 had never heard of the chain. Of those who had heard of it, about 26 percent think it’s “cool,” 19 percent think it’s “OK” and 6 percent think the chain is “lame.”

In addition, the company has no plans for a catalog and does not advertise. However, there are plans for a Web site, hollisterco.com, to sell merchandise by fall.

Others contend basic elements of retail, such as customer service, should be more of a priority for the chain. Young people “who want to be part of the Hollister family,” according to the firm’s spokesman, line up to be sales associates and show up after school and on the weekends.

“It’s like a fraternity for high school kids,” he said.

But analysts claim sales associates don’t have much contact with shoppers, are less aware of messy stores and more disorganized at the checkout counter.

Few are selling A&F short, however, noting the retailer understands marketing far better than other retailers and most brands.

“Let’s face it — the [A&F] marketing far exceeds the product,” said NPD’s Cohen. “They may not hit California at the same pace, but this is a big country. They’re going to be able to give these companies a run for their money because the fact is, the kids are going to be talking about it.”

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