"There's an ego thing about running a higher-end business," says Peter Schaeffer, retail and consumer products partner at Carl Marks Advisory Group, an investment banking consulting firm. "It sounds more glamorous to add an upper tier."

But the risks are big. A company can alienate loyal customers—as Banana Republic did with Hunter and Regan—while failing to attract new ones. Shoppers seeking more expensive items made from better-quality materials already have plenty of choices at department stores, designer and contemporary boutiques, and online.

What's more, while designers from Isaac Mizrahi to Karl Lagerfeld have traded far down the fashion ladder successfully with collections at Target or H&M, it's tough to find a winner who traveled up from the middle. An upscale launch at Coldwater Creek, a women's apparel chain geared toward baby boomers, recently sputtered; Ann Taylor's new line featuring Italian cashmere and 40 percent higher prices has also been lackluster since its September debut, as C.E.O. Kay Krill admitted to analysts during the company's fourth-quarter conference call.

"It's a very hard transition to make," says Michelle Tan, a specialty-apparel analyst at UBS Securities. "At premium price points, most of that business is dominated by department stores, [and for] retailers that tried to do that on the specialty side, it hasn't worked well."

Worse, the three chains are trying to trade up just as an economic slowdown hits consumers across the board. Monthly same-store sales results, a key measure of retail health, for March are the worst in 13 years. Some experts fear that the economic downturn will crimp shopping until late next year.

"The retail business is challenged like it hasn't been in a decade, and the only light on the horizon is perhaps 18 months away," Schaeffer says.

Ann Taylor and Gap are also struggling to turn around their main businesses. Ann Taylor recently announced plans to close 117 stores, delay its new concept store until 2009, and cut jobs in a massive restructuring to improve earnings. Banana Republic has been healthier than Gap or Old Navy, but it, too, stumbled in March, with same-store sales plummeting 8 percent.

Even J. Crew, which has racked up some success with its Collection, may find more shoppers reacting like Katie Regan. When asked if she would return to BR Monogram, slated to be open through the end of the year, Regan turns rueful.

"No," she says. "We're on a budget."