|Gilly Hicks storefront at Wesfield London, first international opening.|
A business child of the Great Recession of the early-21st century, Gilly Hicks began its first steps in a retail environment quite unlike its prior A&F Family siblings. The concept was launched in such circumstances with what could now be taken as an overtly confident outlook: the initial unfolding of an expansive footprint of high-volume stores following a 10,000 square foot prototype. Rightly commenting on how this would go on to affect the chances of profitability, FBR Researcher Adrienne Tennant stated in January 2008 that "Gilly Hicks is unlike any retailer in the mall, which should alone drive some traffic to the stores, but we believe store build-out costs may be fairly high." At the time, however, Tom Lennox, then of A&F communications, commented, "Gilly Hicks has been in development for over two years; it's very difficult to time in a very specific way when a brand launches. Whether it's a good time or a bad time is not factored in. We're here for the long haul." Behind-the-scenes, as shown in corporate literature of the time, the Company believed in a potential for 800 Gilly Hicks stores.
Furthermore, the Company launched Gilly Hicks in a "cookie-cutter" way; the concept was treated as how success in the early-2000s had been achieved with Hollister Co. There was no aggressive, sophisticated advertising upon the launch of Gilly Hicks, but relying overwhelmingly on the appeal of the stores. So was also the way with RUEHL No.925 (also launched with an expansive, high-volume retail footprint) which was eventually discontinued by 2010. The environment of the late-2000s was markedly different from the early-2000s: apart from the ongoing recession, Abercrombie & Fitch Co. no longer held the captivating, overwhelming appeal it had in American pop culture at the beginning of the decade and when Hollister was launched. Different time, different attitudes, and different grounds on which to play on by the end of the 2000s. Just not the same at all. What worked for success in the early-2000s was not to happen late-2000s and beyond, that should have been a given upon the launch of Gilly Hicks.
The original concept of Gilly Hicks as a "Down Undie"-inspired, provocative, bold, racy, and romantic sophisticated brand for young adult women ages 18 & up was perfect, captivating, and wholly unique. The key points of issue laid in massive store size, volume, and lack of aggressive marketing and advertising, in the starting years, amid the recession.
In the study of launching performance, take note of the following comparison of the fourth quarter of the RUEHL No.925 and Gilly Hicks brands during their first ever full fiscal year in operation:
- RUEHL for Q4 2005: $112.16 average sales per square feet with an average of 8,625 square feet per store
- Gilly Hicks for Q4 2008: $47.32 average sales per square feet with an average of 10,429 square feet per store
- By the fourth quarter of fiscal year 2009, Gilly Hicks made an average of US$56.13 sales per square foot with an average of 10,063 square feet per store.
- US$127.43 by Abercrombie & Fitch with an average of 8,988 square feet per store
- US$113.16 by abercrombie with an average of 4,684 square feet per store
- US$116.41 by Hollister with an average of 6,851 square feet per store
Abercrombie kids had the lowest average sales per square feet of the three well-established brands, yet the brand made double the average sales per square foot with less than even half the average square feet per store of Gilly Hicks. Sure, Kids had already been around for years, but nevertheless this speaks loads about profitability trends. For Gilly Hicks, there was an underwhelming increase in 2009 from the previous year.
The Gilly Hicks online store had been launched by late-January 2009, and that is when the development of Gilly Hicks business through direct-to-consumer began and would go on to be refined and become a significant contribution within the following years.
By 2010, operations during the recession readjusted in line with the rest of the A&F Family for the most optimal retail performance possible. That year, aggressive advertising and promotions began for Gilly Hicks for the first time. Store openings in the American market seized all-together: the Company opened the first Gilly Hicks overseas store in London on November 27, 2010, in light of promising Company performance internationally. Hype for the opening at the Westfield London shopping center was expected to spike international awareness of the brand and aid in increasing traffic instore and direct-to-consumer.
As 2011 rolled on through, a series of ostantacious "parties" were held at Gilly Hicks stores throughout the year with giveaways and "hot guys" luring crowds. This brought the stores attention and traffic which would later wane away again. This same year, the Company would admit that 10,000 sqft stores [as is the prototype of GH stores] were being treated/performing as 5,000 sqft stores; that this was an issue to be addressed; and that the Company would focus on improving profitability in the locations before anything else in the future of the brand's retail presence. Meanwhile, in contrast, direct-to-consumer would continue to gain ground in net sales for Gilly Hicks. Mike had assured in the third quarter FY2013 earnings report that Gilly Hicks was "doing very well" and "on track [...] on our roadmap track." By the end of the year, the GH openings in Cardiff, Wales, and Oberhausen, Germany, presented video frontages which strikingly established stronger connections between GH and HCo. and this was furthermore reflected in the kind of consumer GH now attracted, teen girls. This also lead the Company to surmise that the target consumer was being more understood. The original provocative and sophisticated nature of Gilly Hicks, when it launched, was now notably and unfortunately gone (having faded off throughout the year in contrast to even 2010).
In the following year, the Company's May 12, 2012, openings of multiple GH stores in Greater London, in combination with Hollister openings, were made a big spectacle in effort to further spike hype and interest in the brand. Nevertheless, the stores would, in subsequent months, show to perform mildly and leading The Guardian to write by November 2013, "[Its] Gilly Hicks lingerie chain, with four shops, has proved less popular [than Hollister]." It was in the latter-half of 2012 when the Company began experimenting by placing GH products in select Abercrombie & Fitch and Hollister Co. stores. Promotion of GH products were also placed at abercrombie.com and hollisterco.com under the women's division.
While net sales (revenue) continued to increase for the Gilly Hicks brand – US$17.856 million (2008), US$25.934 million (2009, +45%), US$40.283 million (2010, +55%), US$73.017 million (2011, +81%), and US$109.6 million (2012, +50%) – revenue figures have never been in line of satisfaction, with the size in retail footprint and average sqft per store, to break in substantial profit for the retail operations. All-the-while, direct-to-consumer has always continued to advance and make great strides throughout the years.
In July 2013, the Company widely expanded its trial of offering Gilly Hicks bras & undies to 225 Hollister Co. stores in American and international locations to very pleasing outcomes and "[believing] that sales were largely incremental." This was during Fiscal 2013's third quarter which ended on November 2 and witnessed a 14% decrease in total comparable sales for the entire Abercrombie & Fitch Company retail performance. A decision nevertheless long in consideration in line with the Company's recent behind-the-scenes profit-improvement initiative, Mike Jeffries (Chairman & CEO) came to state on November 5:
"In connection with our long-term strategic review, we have decided to focus the future development of the Gilly Hicks brand through Hollister stores and direct-to-consumer channels. This decision reflects the successful pilot of selling Gilly Hicks branded intimates in Hollister stores. As a result, we have made the determination to close our stand-alone Gilly Hicks stores. We believe it is critical to focus our efforts and resources where we have the greatest opportunities to drive profitable growth for our brands."
|ANF shares chart for one full year.|
Abercrombie & Fitch Co. remains positive that it will be able to sustain and continually grow the Gilly Hicks brand through online store business and instore Hollister Co. retail from 2014 and on in the foreseeable future. In the long run, the Company will incur pre-tax charges of approximately US$90 million, including approximately US$40 million of non-cash impairment charges and approximately US$50 million of lease-related, severance and other charge. For this 2013 fiscal year (FY) itself, about US$30 million in pre-tax loss is expected out of the Gilly Hicks business. Prior to any relevant tax benefits, net cash outflow associated with the Gilly Hicks store closures will come at around US$55 million. All charges will be recognized in Q3 & Q4 FY2013 and Q1 FY2014. After the closings of all the retail stand-alone stores, the Company anticipates FY2014 to see the Gilly Hicks business finally operate on a near break-even basis.
For an explanation of when the closings will occur, see Gilly Hicks Stores Closing – Part I: The Overview. You are more than welcome to leave any comments or questions below...