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Fashion variety the ticket
October 13, 2000: 5:04 p.m. ET

Specialty apparel retailers mix it up in hopes of boosting holiday sales
By Staff Writer John Chartier
graphic graphic
NEW YORK (CNNfn) - Bright cotton khakis and button-down blue shirts.

Pashmina scarves and cargo pants wide.

Short Capri pants and tech vests in orange.

These are a few of my favorite things.

Well, maybe your kids' favorite things.

With the holiday season fast approaching, specialty retailers that cashed in on these popular teen and young fashion trends last year are quickly realizing that they alienated adult customers and that younger tastes have moved on.

So specialty apparel retailers such as Gap Inc., (GPS: Research, Estimates) Abercrombie & Fitch (ANF: Research, Estimates) and The Limited (LTD: Research, Estimates), which have posted strong sales in contrast to other retailers in the wake of slower consumer spending and higher oil prices, are offering more of a fashion variety in hopes of maintaining those sales. Doing so in the all-important fourth-quarter holiday season, they hope, will help keep them at the top of the retail sector.


The specialty retailers took significant market share away from big department stores last year as they consistently highlighted strong fashion items such as cargo pants, fleece tops and pashmina scarves, but throughout 2000, those retailers learned the hard way that fashion tastes had changed.

Although faring better than department stores and other retailers, specialty apparel merchants saw sales growth, but at a slower rate throughout the year. The slowing economy and rising fuel prices have done their share to slow sales. But a general fashion malaise has also had an effect.

"For the past six months now, we've seen a significant change in the fashion cycle in the year 2000, influenced by the influx of high technology and the influx of Generation X's desire for individual fashion," Janet Kloppenburg, a specialty retailing analyst for Robertson Stephens, said. "Consumers don't want to wear a uniform. They don't want to wear cargo pants and a fleece vest. They want to mix a satin skirt with a denim jacket. They want to mix a vintage dress with a pashmina scarf. They want to look different."

Kloppenburg, a managing director for the financial firm's research department, made her comments during a presentation on the holiday retail outlook at the Robertson Stephens Consumer Conference at the Pierre Hotel in New York Wednesday. The three-day conference wraps up Thursday.

Gap Inc. exemplified the problem with fashion when it warned over the last two quarters that sales and profits would likely be hurt mainly because of a lack of fashion variety at its Old Navy division, Kloppenburg said.

The stock has been on a steady slide since February.

Successful specialty retailers whose stocks are likely to do well are going to be the ones who offer a strong mix of newly popular items such as chunky sweaters, denim jackets and leather skirts.

But wait. Remember the 80s, the decade of big hair, "The Breakfast Club," and new wave music? Well Kloppenburg sees a resurging interest in such 80s fashion-accessory staples as belts, tights, gold accents as well as renewed interest in 80s punk.

Retailers in general have seen sales at stores open at least a year, a closely watched figure known as same-store or comparable-store sales, fall or slow as higher interest rates and rising oil and gas prices cause consumers to hold on tighter to their wallets.

Up to this point, specialty apparel retailers have bucked the trend, consistently posting strong same-store sales growth each month and ringing up sales.

But as fashion tastes changed after last December and the economy continued to slow, there's no doubt in Kloppenburg's mind that specialty apparel is beginning to feel the effects.

"The U.S. economy can't keep growing at the rates it did. I am pretty sure the specialty apparel group...will not be able to match the level of growth they achieved in 1997 to 1999," Kloppenburg said.

Shares of many popular specialty retailers have taken hits in the last few weeks as many high-profile retailers such as Gap, J.C. Penney (JCP: Research, Estimates) and Home Depot (HD: Research, Estimates) have reported earnings warnings.

Back-to-school sales were disappointing for most because of decreased consumer spending coupled with the "fashion malaise" that hit many of them.

graphic"What happened in the spring of the year 2000 in attempting to make this [fashion] change, many specialty retailers went too young," Kloppenburg said. "They got a little too techno and they abandoned their older customer who very much wants these individual styles and wants some of these fashion influences, but can't fit into some of the styles, or it doesn't look appropriate."

As investors look forward to the holiday season, they will be monitoring several factors, including tough comparisons to last year's incredible sales, the pricing on apparel as the shift continues to trendier wear-one-time items and non-apparel gifts amid high fuel prices.

Kloppenburg's stock picks for the coming holiday season include specialty retailers she believes have successfully addressed fashion issues. These include:

Abercrombie & Fitch

The Reynoldsburg, Ohio-based company with $1.2 billion in sales last year, like others in the specialty category, had suffered with fashion sameness, but has made a significant change in that area, returning to preppy looks, but in a more modern, fashionable way.

Kloppenburg, who has a "buy" rating on the company, labels Abercrombie a brand leader and expects continued 20 percent annual store growth and better-than-expected comparable-store sales growth to drive its five-year-earnings growth rate beyond 30 percent.

AnnTaylor Stores Corp.

The New York-based women's specialty apparel chain hurt itself last holiday with a weak marketing and advertising campaign, Kloppenburg said, but has quickly turned that around with planned catalog mailings and other marketing efforts this year.

AnnTaylor (ANN: Research, Estimates), which posted just over $1 billion in sales last year, is rated a "buy" because of its significant focus on gift-giving this year and its apparel focus on classic looks, Kloppenburg said. She believes the company is poised to grow at a solid 25 percent rate for the next few years.

Charlotte Russe Holding Inc.

The San Diego-based operator of Charlotte Russe and Rampage stores targets women 15-to-35-years old. Kloppenburg likes how it targets moderate-price teen and Generation X customers with sportswear, trendy clothing and new store expansion and product development.

Charlotte Russe (CHIC: Research, Estimates), which had $177 million in sales last year, is also big on 80s fashion, and for the first time this holiday season, will roll out a national advertising campaign.

Kloppenburg, who has a "buy" rating on the company, said it is at the beginning stages of its growth cycle and expects several years of at least 30 percent annual earnings growth.

Hot Topic

Based in City of Industry, Calif., Hot Topic (HOTT: Research, Estimates) is expected to have a strong focus on gift-giving this year, themed around the popular Tim Burton movie "Nightmare Before Christmas."

The company, which specializes in music-licensed and music-influenced apparel, will also emphasize gift certificates and its gift registry both online and in the stores.

A lot of the company's business is done the week after Christmas, Kloppenburg said, reflecting its focus on gift certificates. Online marketing is also important to the company. Last year it had about $169 million in sales.

She expects annual square-footage growth of at least 25-30 percent, operating margin expansion, continued private-label expansion and international growth opportunities. She forecasts a 30 percent growth rate for the next several years.

The Limited Inc.

Based in Columbus, Ohio, The Limited (LTD: Research, Estimates) posted $9.5 billion in sales last year and owns 84 percent of Intimate Brands Inc., operator of Victoria's Secret and Bath & Body Works.

Kloppenburg maintains a "buy" rating on the company, which continues to correctly pick out and market fashion trends at its Express, The Limited, Lerner New York, Lane Bryant and Structure stores, she said.

The company is expected to launch a new intimates collection for the holiday season.

Kenneth Cole Productions Inc.

The New York-based designer and marketer of men's and women's shoes and handbags for distribution through department stores targets Generation X customers aged 22-32. Kloppenburg, who rates the company a "buy," said leather and business casual has been a growing area for the company.

Kenneth Cole (KCP: Research, Estimates) had 1999 sales of $295 million.

The Talbots Inc.

Kloppenburg likes Talbots (TLB: Research, Estimates) because it is a value-focused brand-name specialty retailer that markets classically styled apparel accessories under its own label.

She expects the company to sell a lot of wraps and sweaters this holiday season, something it has put a focus on, she said.

Kloppenburg, who has a "buy" rating on Talbots, believes that as the company's target customer, baby boomers 35-55, continues to be the largest, fastest-growing segment of the population it will leverage its growing strength through expansion into offshoot concepts such as Petites, Kids and Woman.

Tiffany & Co.

The venerable high-end luxury retailer is expected to meet earnings forecasts for the year, but several new jewelry designs position the New York-based company to have a strong showing for the holidays and into 2001, Kloppenburg said.

The company continues to expand not only through new stores, but through distribution channels and product lines, Kloppenburg said.

She rates Tiffany (TIF: Research, Estimates) a "buy."

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The battle for holiday 2000 - May 26, 2000

Penney warns about 3Q - Oct. 5, 2000


Abercrombie & Fitch

Charlotte Russe

Hot Topic

The Limited

Kenneth Cole


Tiffany & Co.

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