Summary
The potential of Martin+Osa and Ruehl closings would have a positive effect on the AEO and ANF share prices although much of the impact has already been priced in. Both businesses are unimportant given the bigger stakes in turning around the core business concepts in an environment where the customer has moved towards unbranded looks. ANF impaired 1/3 of its Ruehl stores with its 4Q08 results and is giving the concept more time to find an audience with the latest floor sets which are somewhat more differentiated from A&F than in the past. These stores could be easily transformed into Gilly Hicks which offer lingerie and at home wear for teens and young adults, an underserved market. M+O has never found an audience although it received high marks for the store's aesthetics. AEO is focusing its efforts on a turnaround of the core business led by the return of former CEO Roger Markfield. In addition, it is launching a kids concept on line this year and in stores in 2010.
Analysis
The potential of Martin+Osa and Ruehl closings are largely expected by the end of this year. The key question is what does it mean for retailers looking to target the A&F graduate or 23+ customers. While ANF and AEO are low risk jeans and t-shirt businesses, customers have broader clothing needs as they grow older. J. Crew has done an outstanding job in the past few years reaching a young adult with affordable, quality clothes "with a look." Anthropologie does a good job but other women's specialty retailers have not yet found the right formula and product mix. Department stores also built strong contemporary apparel businesses in both men's and women's. Buckle and Metro Park target 20 somethings with edgy weekend wear and a hybrid private label-branded product mix. Gap continues to struggle to refine its 28 year old "edit point." It may be that this segment is saturated and there is less "white space" than originally imagined.
