Jan 09 2017

The Trouble With America’s Most Beloved Mall Brands

US specialty apparel retailers are running out of time to adapt before they die in a landscape dominated by price-conscious shoppers and fast fashion’s smarter supply chains.

NEW YORK, United States — Even casual observers can see that declining mall traffic and the low prices offered by fast fashion competitors are crippling apparel retailers. On Friday, private equity firm Sun Capital Partners, owner of The Limited, announced it will close all 250 stores and cut thousands of jobs. The announcement comes after a difficult holiday season for those that remain, including Gap, J.Crew and Abercrombie & Fitch, which offered deep discounts and other promotions long before Boxing Day.

The trouble is nothing new. Gap Inc. (which owns Gap, Banana Republic, Old Navy and Athleta) has seen comparable sales decline in nine of the last 11 quarters during which a weak brand identity at Gap, the brand, has proven to be a problem. Old Navy, the company’s bright spot, has shown signs of recovery from declines in the first half of fiscal 2016 after the departure of chief executive Stefan Larsson, now at Ralph Lauren, in November 2015. Net sales at the company have barely increased over the past decade, clocking in at $16.2 billion in 2015, up from $15.9 billion in 2004.

Abercrombie & Fitch (which owns Abercrombie & Fitch, Abercrombie Kids and Hollister) has seen comparable sales decline in 14 of the last 15 quarters. Following the departure of chief executive Mike Jeffries at the end of 2014, who has yet to be replaced, the company has overhauled the Abercrombie brand image in order to cater to an older consumer, but its 1990s identity has proven hard to shake.

J.Crew (which owns J.Crew and Madewell) has seen comparable sales decline in 10 of the last 11 quarters. In addition, the company has about $2 billion in debt, including about $500 million in bonds maturing in 2019. Reports surfaced this autumn that J.Crew is seeking to buy back those bonds at the reduced market rate by transferring the rights to its brand name to a separate subsidiary and borrowing against those assets. Sources have also suggested that J.Crew might sell or spin off Madewell. The thriving sister brand left the parent company’s New York headquarters for its own offices in Long Island City in April.

Despite efforts to turn their businesses around, J.Crew, Gap and Abercrombie & Fitch have yet to dig out of quarter after quarter of negative sales slumps because too many factors — declining mall foot traffic, the threat of Amazon, lengthy supply chains and price-conscious shoppers — have converged, rendering the situation untenable. And time is running out.

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