Retailers ax non-core brands to play safe in slump

By Dhanya Skariachan - Analysis

BANGALORE (Reuters) - The recession is forcing many U.S. retailers to focus on their key brands and pull the plug on secondary lines -- a move that could have the added benefit of helping them return to their more successful roots.

In boom times, retailers flirted with hipper styles and unconventional fashions to differentiate themselves or woo shoppers across various age groups. However, things are changing now as they struggle to find new ways to cut costs in the slump.

"It is very smart for individual retailers to pull the plug at this point because the time-horizon for these (secondary) concepts to break even has grown substantially as consumer spending has slowed," Boenning & Scattergood analyst Holly Guthrie said.

Teen apparel seller Pacific Sunwear of California (PSUN.O) closed its underperforming d.e.m.o stores last year and larger rival Abercrombie & Fitch Co (ANF.N) is currently in the process of winding down its money-losing Ruehl chain.

Guthrie said Ruehl "didn't work" because the price point was too high, the product was not sufficiently unique and the market was saturated with similar merchandise.

Abercrombie, which runs its namesake stores and the Hollister and Gilly Hicks chains, saw sales at Ruehl stores open at least a year fall 34 percent in the first quarter.

Earlier on Thursday, women's apparel retailer Talbots Inc (TLB.N) said it completed the sale of its J.Jill brand as part of its efforts to focus solely on executing the turnaround of its core business.

"Retailers are finally realizing that they have to get their own personality back ... they can no longer look like everybody else," said Marshal Cohen, chief industry analyst with market research firm NPD Group.

"Rather than trying to appeal to everybody at all different price points, they are beginning to recognize 'you know what, we have to go back to who our core customer is and deliver on the promise,'" Cohen said.

Most recently, Finish Line Inc (FINL.O) -- which posted a quarterly loss due to the dismal performance of its Man Alive chain -- said it would exit the streetwear-inspired segment to focus on its namesake line.

"Every brand now is going to have to earn its stripes. If it doesn't, it's going to go away," said NPD's Cohen, who is also the author of "Why Customers Do What They Do."

In addition to cutting costs and renewing focus on core profitable businesses, retailers are also trying to address the recession-weary consumer's tendency to choose popular brands over experimental or less-known products, Cohen said.

"Brands that apply to the masses will outperform those that are specialized," Keith Springer, president of Sacramento, California-based Capital Financial Advisory Services, said in an email. "The new generation of Americans is not like the baby boomers."

WEEDING PROCESS

So will we see more brands biting the dust this year?