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ABERCROMBIE'S NEW IDEA: DOWN UNDERWEAR

By Molly Knight

When it opened as a tiny waterfront shop in New York City in 1892, Abercrombie & Fitch positioned itself as the clothier for the sporting, outdoors-loving, Teddy Roosevelt–style American. Today the New Albany, Ohio–based clothing company has gone in directions that might have made that testosterone-blessed rough rider blush, not just with the original brand but also with its Abercrombie, Hollister Co. and Ruehl No. 925 concepts.

Now the company is going Down Under with its fifth concept, called Gilly Hicks, an Australia-themed, underwear outfitter for young women. The first unit, launched in January at General Growth Property's Natick (Mass.) Collection, resembles a beach house fit for the Australian shoreline, and it features oak floors, mahogany tables and stuffed koala bears.

“It's very clever of them to go in this direction,” said Chris Boring, president of Boulevard Strategies, a Columbus, Ohio–based retail consulting firm that has no business relationship with the company. “Americans have always seemed fascinated by Australians. I think they admire the brash style.”

Several landlords have shown some fascination too. When General Growth began the process of expanding the Natick Collection, one of the first things it did was arrange to bring in Gilly Hicks, says Michael McNaughton, General Growth's vice president of asset management for the Northeast. The 10,200-square-foot Gilly Hicks store links the original mall and the expanded retail space. Center officials say the store's grand opening was so well attended that the line to get in was extending out the door late into the afternoon. “The opening certainly created a buzz that was huge on the Internet,” said McNaughton. “People from California all the way to Australia were talking about this concept and contemplating coming out to see it.”

Natick Collection did not hold a monopoly on Gilly Hicks for long. Units opened last month at Mall of America, in Bloomington, Minn., and at Smith Haven Mall, in Lake Grove, N.Y., with Westfield Fox Valley Center, Aurora, Ill., close on their heels at press time. By the end of the spring the company will have stores at Caruso Affiliated's Americana at Brand, in Glendale, Calif., at Turnberry Associates' and Simon Property Group's Aventura Mall, in Miami, and at Taubman Centers' Westfarms Mall, in Farmington, Conn. Officials say 15 to 18 more are in the pipeline and will be up by the end of this year.

The four Gilly Hicks stores in operation now measure roughly 10,000 square feet, though the company says it will begin rolling out a 7,000-square-foot design late this year. The 10,000-square-foot units are laid out with a dozen “rooms” — a 1,200-square-foot bra library and a 1,000-square-foot living room with lotions and potions, for instance. Gilly Hicks merchandise is affordable to nearly all Abercrombie & Fitch customers — prices range from $11.50 for cotton underwear to $44 for a lace bra —and comparable to Hollister stuff in price, according to research from Arlington, Va.–based FBR Capital Markets.

McNaughton says Gilly Hicks' physical look and unusual merchandising-area layout are unlike anything he has ever seen in retail. “They've created a store that inspires people to want to explore,” he said. “In my opinion, people shopping for intimate apparel probably enjoy a discreet, closed setting. The lack of windows affords customers privacy, and the fact that the store isn't laid out in one giant room probably goes a long way in making a shopper feel comfortable.”

Boring says Gilly Hicks is nonetheless trading on the racy image its parent company has cultivated over the years (most famously through a suggestive and controversial A&F catalogue that was discontinued in 2003 amid accusations of offensiveness). Gilly Hicks' age-restricted Web site at press time featured a video of topless models frolicking on a presumably Australian beach and presumably wearing Gilly Hicks underwear.

“Because our brands are not intended to appeal to everyone, an important characteristic of our business model is that we recognize its limits, how much we can grow each of our brands,” said Abercrombie & Fitch CFO Michael W. Kramer in a conference call with investors in November. Abercrombie & Fitch Chairman and CEO Michael Jeffries told Women's Wear Daily, “We think we can open in every place Hollister does.”

That is a respectable ambition. At present, Hollister, which sells beachwear for “dudes” and “Bettys” between 14 and 18, operates 444 stores. For the latest fiscal year available at press time, Hollister posted $1.4 billion in sales, nearly even with Abercombie & Fitch's haul of $1.5 billion. (The latter brand, whose customers are 18 to 22, operates 202 stores.)

“This [Gilly Hicks] is one of Mike's best new concepts,” said Joseph P. Tagliola, president of retail at Aventura, Fla.–based Turnberry Associates, the retail development and property management firm that owns a majority of and runs Aventura Mall, where Gilly Hicks will open later this spring. “They're building this brand on the image of a young, fit, surfer lifestyle, and we feel that image will resonate very well with our customers.”

International expansion for Gilly Hicks is an open question at this point, though some consider it a possibility, pointing to the overseas expansion plans for the Abercrombie & Fitch and Hollister chains. The company operates three Abercrombie & Fitch and three Hollister units in Canada, and one Abercrombie & Fitch flagship store in London.

Further, in August the company announced that it would open an Abercrombie & Fitch flagship in Tokyo's Ginza district late next year, marking its entry into Asia. And the company also plans to open Abercrombie & Fitch and Hollister stores in Calgary, Edmonton, Toronto, Vancouver and Winnipeg, and in Milan and Copenhagen, according to officials.

If Gilly Hicks succeeds, could an Abercrombie & Fitch flagship in Sydney be far behind?