There are several reasons for launching a new division. The core A&F brand, retail sources said Monday, has been hampered by products that are high-priced, imagery that became overtly sexual and possibly frightened off too many prospective customers, and increased competition offering an overabundance of similarly styled casual sportswear.
Also, the A&F brand is almost maxed out on expansion, with 360 stores operating and a ceiling of 400 units envisioned by the company. But the firm isn’t giving up on the A&F division. It’s just trying to repair it by revamping the merchandising strategy and pushing into higher price points while eliminating promotions to differentiate from other brands.
Despite its difficulties with the core A&F brand, analysts have said that there is still sufficient equity in it to command higher prices and pull away from the mainstream, like Gap and American Eagle, and could have a hipper brand extension that’s not as expensive as some cool contemporary brands, like Juicy Couture.
Yet the road to more immediate growth seems to be via the five-year-old Hollister division. It has a long way to go before maxing out on expansion, and is performing better than the A&F chain. Hollister has 192 units and as many as 600 to 800 are contemplated.
According to Seth Johnson, executive vice president and chief operating officer, the company intends to open 85 Hollister stores this year.
“Our analysis has implied that Hollister would be of sufficient size to begin driving the total company comps in 2005,” said Goldman Sachs analyst Margaret Mager in a past review of the retailer’s earnings.
The third growth vehicle is abercrombie, targeting seven- to 14-year-olds, which has 171 units operating and a ceiling of 400 envisioned by the company, but that chain hasn’t created as much buzz as Hollister.