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Looking for pockets of growth in a tumultuous retail industry, Abercrombie & Fitch is betting it can find one in selling underwear and bras to teens and tweens.
The retailer has struggled to meet analysts' sales expectations in recent quarters, with momentum slowing at its Hollister brand, in particular. It continues to shut stores, including some flagships, as it remodels others and focuses on smaller-format versions. But Abercrombie says its recently reinvigorated lingerie brand, Gilly Hicks, has been outperforming other categories and could present one of the company's biggest growth opportunities.
Abercrombie announced Monday that it opened four new pop-up shops last week, at Tysons Corner Center in Virginia, Dolphin Mall in Miami, Los Cerritos Center in California and at Baybrook Mall in Friendswood, Texas. All are expected to be open for about 12 months, according to the company. And these stores join two already existing Gilly Hicks shops at Ala Moana Center in Honolulu and Roosevelt Field mall in East Garden City, New York.
The brand's resurgence comes at a time when Victoria's Secret is struggling with the perception of being overly sexy, Abercrombie-rival American Eagle is finding new success with its body-positive Aerie division, and internet lingerie start-ups like ThirdLove, Adore Me and Lively are growing through bricks and mortar. Gilly Hicks wants in on all the action.
The Gilly Hicks brand, which launched in 2008, was once a bigger name on the teen fashion scene.
At one point it had more than two dozen U.S. stores selling hot-pink bras, polka-dot pajama sets and floral-patterned underwear — everything with a beach-like feel. The company said the brand's look had been inspired by the laid-back lifestyle in Sydney, Australia. (Hollister is a nod to Southern California, while Abercrombie is going for "authentic American.")
But all 28 Gilly Hicks stores went dark in 2013, with the company warning at the time that spending among younger shoppers was "weak," forcing it to rethink its business strategy. Abercrombie reverted to selling Gilly Hicks merchandise online and in some Hollister shops. Inventory wasn't always restocked in stores, however, and so the brand eventually faded away almost entirely.
Then, Gilly Hicks was resurrected in 2017 "due to customer demand," the company said. The brand's bras, underwear, swim and lounge wear for teens and tweens was put back into Hollister stores and online. It had a similar look, but the company said it planned to design more pieces for young women's "on-the-go, busy" lifestyles and add more casual wear.
"We recognized an opportunity to redefine the Gilly Hicks brand and we know our Hollister customer will enjoy another destination for fun and cozy bras, undies and sleepwear," Kristin Scott, president of Abercrombie's global brands division, said in announcing the relaunch.
The revival came at a pivotal moment for Abercrombie, which had been shutting dozens of stores annually and was facing the threat of a new wave of fast-fashion rivals at the mall like Zara, H&M and Forever 21, stealing teens' dollars.
In the fiscal third quarter of 2017, Abercrombie finally returned to same-store sales growth, following more than a year of declines. It had shifted investments toward Hollister, which was finding new momentum. The namesake Abercrombie brand was stuck in its own slump, reporting falling quarterly sales since 2014.
Still, it's been rocky for Abercrombie even after the Gilly Hicks relaunch. Analysts aren't convinced it can keep sales growing at the more than 800 locations it operates globally. To do so, it needs to attract young-adult shoppers who are presented with endless options for clothing on the internet. Abercrombie shares, which have a market value of $1.2 billion, are down about 29% over the past 12 months.
The namesake brand has been showing signs of improvement, however, with the company steering away from merchandise with flashy logos and lightening up Abercrombie's notoriously dark stores. In the latest quarter, same-store sales for the Abercrombie brand were up 1%. The Hollister brand reported its 10th consecutive quarter of same-store sales growth.
In recent earnings calls, executives have spoken to the strength of the Gilly Hicks brand, but they don't break out sales figures. CEO Fran Horowitz told analysts in May that the brand had record first-quarter sales.
Additional Gilly Hicks shops are expected to open this year, but Abercrombie didn't say how many.
"These Gilly Hicks pop-ups introduce new, engaging experiences for our customers, and create greater brand awareness," Scott said. She called this a "test and learn" approach, so the company can gauge its next moves after seeing how customers react.
The best example is the pop-up shop opening inside mall owner Macerich's BrandBox at Tysons Corner Center. BrandBox is an area featuring an ever-rotating lineup of brands. Within the space, Gilly Hicks joins Nectar mattresses, teeth-straightening service Candid and shorts and swim-trunks maker Chubbies.
In working with Macerich, Abercrombie will have access to analytics that measure foot traffic, sales patterns and customer engagement. The data should help Abercrombie make more informed decisions about its real estate.
Concepts like Texas-based Neighborhood Goods, Showfields in New York, Fourpost and b8ta are becoming a popular way for young brands to test the waters before growing.
A slow-and-steady approach to Gilly Hicks' rollout may be wise, given the lingerie market for younger women is increasingly crowded.
Abercrombie and others are clearly trying to steal share as Victoria's Secret loses clout. Owned by L Brands, Victoria's Secret is still a dominant player in the space. It's been estimated L Brands accounted for more than 60% of sales in the lingerie industry in the U.S. in 2018, according to a study by IBISWorld. But new rivals promoting exclusivity through their extended size offerings are emerging.
Online bra maker ThirdLove last week announced it will be opening its first bricks-and-mortar store, a pop-up shop in New York's SoHo. Underwear and swimwear brand Lively also has a store there. Adore Me plans to open hundreds of stores over the next few years. And Target earlier this year launched three new lingerie and sleepwear lines in house, while Walmart acquired online bra marketplace Bare Necessities last fall.
According to IBISWorld's 2018 report, no other companies were on track to account for more than 5% of revenue, while American Eagle's Aerie brand had about 3.5% of the market, and Chico's Soma brand had about 3%. These brands, including Gilly Hicks, still have their work cut out for them.
"We're looking forward to seeing how customers respond to Gilly," Scott said about the first wave of pop-up shops.