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Hot Topic's Bet on Twilight's Vampires Comes Back to Bite It

Did Hot Topic (HOTT) forget that its target market -- the fickle teenager -- is always on the hunt for the next cool thing? Seems the Cailifornia-based retailer's bet on licensed gear from Stephenie Meyer's Twilight saga (complete with the seductive gaze of Edward Cullen, teen vampire) is failing to the lure swooning masses into buying more t-shirts, movie paraphernalia, even bandages (!) over the long haul.

Indeed, both comps and overall sales were down -- to the tune of 8.7 and 7.1 percent, respectively, and the company lowered guidance to a net loss of $0.03 to $0.04 per share, as compared to earnings per share of $0.03 last year. What's worse is that comps have been in steady decline since June 2009.

It's surprising for the company that made a name for itself back in the late '80s selling music merchandise (most notably band t-shirts) to mall shoppers. Exponential growth from 1996 on was squarely on the shoulders of savvy licensing deals on items from posters to action figures as well as of-the-moment belts, bags and shoes.

The problem with building a business model based on trends is that a runaway train of success can end in a screeching derailment based on the whims of 14-year-olds. And management needs to stay one step ahead in order to turn the merchandise mix fast if things aren't moving in the right direction. Though a third Twilight movie, will hit the big screen this summer, the retailer's analysts aren't counting on Eclipse to boost sales.

Perhaps team Hot Topic should have paid more attention to sales of Meyer's books. Lagardère (LGGDF), the parent company of the Hachette Book Group which publishes the Twilight series, knows book sales -- even those about vampires -- are not immortal. The publisher reported a decline due to "the expected erosion in Stephenie Meyer sales," which were a quarter of 2009's first-quarter figures. Sales for the most recent quarter were $551 million, a 6.5% drop from the previous year.

To make up for the negative hit, Hot Topic would do well to figure out an expansion strategy for its Torrid division. The retailer's 156 plus-size stores rang in with a 6.6 percent increase in net sales and comps up nearly 5 percent. Torrid's been a solid performer since its establishment in 2001for a variety of reasons. Not only do sizes go up to 28 (where not many other plus-size offerings go) and while styles are on trend, they don't lean towards the licensed goods that can make Hot Topic look outré -- or in the case of a $7 tin of "Edward" bandages -- downright ridiculous.

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