An Easy Way to Shrink Abercrombie & Fitch: Let the Leases Go

Happier Times: Abercrombie & Fitch models at the 5th Avenue store opening in New York Photograph by David Pomponio/FilmMagic

Not a lot of things have gone right for Abercrombie & Fitch lately. Teens, its target market, are strapped for cash these days and no longer keen on the retailer’s logo-laden clothes and six-pack abs. Thanks to a prescient real-estate strategy, however, Abercrombie may be able quietly to lower its profile.

The leases on almost two-thirds of its 840 U.S. stores expire before 2017, which means the apparel giant can morph into a smaller, more nimble brand fairly quickly and relatively cheaply. And kids these days are pretty adept at online shopping.

Indeed, Abercrombie isn’t wasting any time in the transition. The company said Thursday it would close 60 to 70 stores in the U.S. by the end of the year—all locations where its leases will run out.

And if its financial reports are any measure, it has plenty of underperforming locations to shut. Sales at stores open more than a year declined 11 percent in the recent quarter, continuing a swoon longer than two years. “[Direct-to-consumer] growth, especially internationally, is a key priority for us,” Abercrombie’s chief operating officer, Jonathan Ramsden, said on a conference call with analysts this morning.

Abercrombie has only 157 non-U.S. stores, and far less in the way of sunk costs. That gives it the freedom to cherry-pick areas where it can plant a flagship. For intance, its Hollister store in Dubai, open only a few months, now sells more apparel than any other outlet.

Meanwhile, the less Abercrombie spends on leases, the more it can pour into marketing and pop-up events. This summer the company rented a beach house in Santa Monica, Calif., for its Hollister brand. For a few months, the site served as a concert venue, massive billboard, and social-media nerve center. The strategy is proven: If you need to curry favor with the kids, get them a pool that’s rad, or swag, or whatever they’re saying these days.

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