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.”
So will we see more brands biting the dust this year?
“I see a lot of the peripheral products that a lot of the companies have got into on their last legs!” Cohen said.
Cohen — who refused to name the brands that might fade away, citing confidentiality agreements — said: “So what we are seeing is probably only half of the rest of the brands that are going to go away.”
Wall Street Strategies’ Brian Sozzi raised concerns about the future of women’s apparel retailer Bebe Stores Inc’s BEBE.O “bebe sport” line — which has been underperforming for the past two years. Bebe did not respond to telephone calls or email seeking comment.
However, Guthrie believes “we are already through with a good part of the weeding process in the specialty chain” considering J.Jill and outdoor apparel brand Eddie Bauer — brands which had been expected to go away — have already gone under or gone private.
She does not expect any other brand to wind down before the year ends.
It remains to be seen whether the “back to basics” movement by retailers will go down well with consumers who are always looking for more choice.
“I don’t think that is necessarily a winning formula ... They can pare back some lines and pare back some brands, but they better keep the newsness flowing if the want the customer in the store,” Guthrie said.
Both Cohen and Sozzi believe retailers should become more creative in experimenting within their existing core labels rather than try to manage more brands under one roof right now.
“There will be a time and place to incubate new concepts once the economy turns the corner, but right now it’s all about getting back to a solid footing within core brands,” Sozzi said.
While skeptics debate whether the recession will give birth to a breed of retailers that are scared to experiment or take chances, analysts believe the tendency to play safe with core lines will be short-lived and will change once the economy turns.
“Retailers are probably the most forgetful people I have ever met in my entire career ... Pressure to grow and as the economy returns, they will absolutely go right back to the same formula which is all about brand extensions and store expansions,” Cohen said.
He expects retailers to show some signs of a recovery within the next year and look at expansions within the next two years.
Reporting by Dhanya Skariachan in Bangalore, editing by Matthew Lewis