Abercrombie & Fitch Loses Its Cool
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After the Fad: The next act for popular stocks and trends.
Abercrombie & Fitch Loses Its Cool
The retailer stubbornly clings to luxury while everyone else cuts prices.
By Caitlin McDevitt
Posted Friday, April 10, 2009 - 12:26pm
To the dismay of the Abercrombie & Fitch empire, teenagers whose parents have cut back on their allowances may be coming to a recessionary revelation: Paying $90 for torn jeans isn't that cool anymore.
While other retailers are responding to the downturn with red-lined price tags and tempting promotions, upscale Abercrombie & Fitch (ANF) isn't budging on its price points. This scarf, for example, will still cost you $58. The company is fiercely protecting its image as a "premium" brand, and, as a result, it's getting snubbed big time by its once cultlike, ever-loyal fan base. Abercrombie & Fitch just posted a 34 percent drop in same-store sales from last year—the worst among retailers in March.
Teens who haven't abandoned the shopping mall altogether are buying their clothes at stores like American Eagle (AEO) and Aeropostale (ARO), which are increasingly positioning themselves as budget-friendly. Both stores are currently pushing promotions online, like buy-one, get-one free deals. Check out Abercrombie's Web site, though, and while you won't find any such online promotions on the latest season's items, you will find (warning!) a model with his hand down his pants.
There was a time when Abercrombie's sexy ad campaigns and half-dressed salespeople were irresistible to teens. A time when an endless line outside the flagship Fifth Avenue store curled around the block each morning. A time when the store effortlessly convinced young people that wearing two expensive polo shirts was infinitely more stylish than wearing just one. And the teens followed like lambs. There were days when A&F stock topped $80 per share, but those days have passed. Now, shares have sunk to less than one-third of that, and it seems that the embroidered Moose logo may be losing its cachet.
The company thinks not. A&F is still moving forward with international expansion plans and, unlike other retailers, didn't significantly reduce inventory for the year. CEO Michael Jeffries is daringly optimistic and perhaps emboldened by the way he handled the 2001 recession. Bucking conventional wisdom at the time, he raised prices instead of succumbing to pressure to slash them. "The important thing is that I didn't overreact," he told the New York Times in 2004. "When things start to go down, many retailers kill themselves; they throw out the baby with the bath water."
Now he's applying the same formula to the current meltdown. "We hear your concerns," Jeffries said in an earnings call with analysts in November, but "promotions are a short-term solution with dreadful long-term effects."
Comments
We're Doing Fine
I have worked at Hollister Co. For almost 2 years and I don't have a feeling that we're going anywhere. Our brand is a lifestyle brand which has/is/ and always will be targeted at customers who can afford the lifestyle our clothing promotes. We do not and will not lower our original pricing. We do have celarance sales which we use as a means of getting rid of our inventory faster and to make more room for new inventory. For example, our Dude's Graphic Tees ALWAYS start at $19.50 and will eventually be marked down to $13.90 and then possibly $9.90 where it will be capped off and then transferred back to Home Office or to a designated store that works more like an outlet store. I have to agree with Mike. Promotions always go away and then when companies want to jack prices back up, they lose a giant chunk of their market. Our Company decided to take the suprises out of the solution and let outr customers know that there are no tricks up our sleeves when the economy takes an upturn. Our Ruehl store isn't doing very well and we have received news of its closing. But our other brands will do fine. Mike has brilliantly thought of an inventory rotation system that hasn't failed yet and we still continue to be the brand that American Eagle and Aeropostale wish they could be.
lay off AnF
Ouch! So much to take all at once! So let me just remind everyone that we are going through a recession. Everyone is suffering in these times. EVERY retailer is feeling some sort of loss right now. But to pick on AnF and compare them to other stores and to offer biased insight to the company's CEO and merchandise prices are ridiculous! As someone who has worked for the company for two years I know quiet a lot when it comes to running one of their stores. Facts: The original price for merchandise has not fallen nor will it fall anytime soon; instead the company puts these merchandise on sale within a month and roughly every other week after that, the same price keeps falling The company offers a VERY VERY wide selection of sale merchandise; when im talking huge sale I mean having literally 5 full rooms as all sale merchandise only and also sharing the two front rooms with both sale and full price merchandise. hmmmmm....sounds like sale to me. The company has found great ways to save money; such as switching to cost efficient supplies for the store (toilet tissue, paper, etc.), using less paper, having less projects that requires overspending on materials such as lights, tissue paper, electricity etc. The company offers "part-time" work. So if anyone had a problem with working 8 hours (as mentioned in the blog below); first they were told during the interview about working 1 to 2 shifts a week; secondly, they can find another job if they needed more hours. And to be honest with you, these kids work for a great discount and not the paycheck! Ive seen kids who have worked for the company all through college and High School. So we do have a good chunk of devoted staff. The company does not fire people who are getting old. Most people who decide to leave the "in- store" location do so based on promotions and awesome opportunities within the field. Home Office in Ohio has awesome opportunities for employees who choose to take promotions and transfers or who simply is tired of working on their feet all day. The company's image is not for all ( the half naked gals and guys, the fragrance, the expensive price tags, the huge black and white photos) So why should the company change anything about what they represent because of a recession? I dont see Nordstorm dropping prices left to right. I dont see BCBG dropping original price tags..hmmm what about Coach? Nieman Marcus? Burberry? My point is quit hating on Abercrombie and Fitch..they will forever have hot models..fragrance in the stores...offer part time work..and they will offer "casual LUXURY" merchandise!!! not American Eagle QUALITY. This is a recession so everyone needs to deal with it--everyone is suffering! This too shall pass.
abercrombie is cutting back
Things you don't know about abercrombie... They hire at least 50 people to a store to keep costs of labor down, making it harder to get paid more than $60 a paycheck with the competition of shifts -The regular size stores (ie. other than new york, LA, and SF) press to give people only 8 hours a week to cut down on their checks and thus pay people less when the new kid does not know that he actually got a paycheck and thus do not issue it to him (I missed out on about 4 paychecks this way) -they are closing down Rhuel because they make less money and spend more -they spend ridiculous amounts of money on the most inane things like tissue paper to stuff tote bags, pockets and boxes. -they run an air conditioner year round and it is not controlled by the actual store but by the home office 10 states away -Perfume sprays through the air every hour to 45 minutes making it saturated with perfume and a cost waste. -They do not give pay raises anymore (i worked there for 2 years and never made more than 8 dollars an hour--the minimum wage) -there have been more than a handful of times where myself or others have not legally been give a work break during our shifts -when they are loosing money, the managers will purposefully buy things to beat LY and then return them later at a day where we have already beaten LY -it is a well known fact and joke among the employees that the "ONE NUMBER" for all of their employees concerns will not contact you back unless you are raped or have information on someone stealing, any other job related problems, dont even try to call and leave a message. -there has only been ONE person to ever actually retire from Abercrombie and Fitch EVER!!! and this was only last month. They fire people who get too old and not young or fresh looking, even though it is discriminatory, they will find a way to legally fire them. which is why it is amazing for someone to actually have lasted that long in any abercrombie store.
I love A&F
I love this company (non-affiliated). I can't speak to the work environment, though I imagine it's good since the turnover sources give is low. I like AEO a lot, and KSS (Kohl's) a lot. Both are the best in the business. Management and a corporate that get it, and good value with good store visuals aimed at the target customers. Abercrombie and fitch clothing Sales are used well at both, and change often building store loyalty. I exited KSS at 44.8 and AEO @ 15.4. This wasn't a bad forcast for the companies on my part. I still like them. I just sold on the news since the recovery for them was good since I entered in March. I'll happily reenter either of them if AEO goes into the 12's or KSS goes into the 30's again. Retail stocks should be depressed for a while with the big gain they've made and a bear pullback seemingly likely soon. The companies though, they own their respective niches. AEO is good through any retail downturn IMO. Anything around 15% or so off what I think are these highs, and I'll renter. EDIT: I just noticed this was /r/frugal. My bad everyone. I doubt most people care about this. For some reason I thought I was still in /r/business when I came back from getting a drink.
He's right
Mike Jefferies is right. Abercrombie wont take a hit. Abercrombie and Fitch owns 5 brands; Abercrombie and Fitch, Hollister Co., abercrombie (a kids store), Ruehl, and it's newest Gilly Hicks (a lingerie store). Hollister Co. is the cheapest brand, it is also the most popular. Hollister's prices are still low enough that it is still somewhat affordable (and kids always use the excuse "well it's cheaper than Abercrombie!"). However, the revenue from all of the Hollister's in the country (and the UK) are enough to cover the costs of all 5 brands! Everything the other 4 brands (the most expensive brands in the company) make is purely profit. And those brands are doing well enough that they will barely even feel the recession.
A&F won't even feel the recession!?
Stardust, what are you smokin'? Hollister has been amongst one of the hardest hit of the AnF family. Their April sales were down 26%! Ruel, AnF have all been near 30% declines for almost half a year. AnF is leading ALL retail stores in annual decline.
I live in New Albany, OH a mile away from the offices and have 8 friends that have lost their jobs in the multiple massive job cuts the company has been forced to execute. Everybody I talk to has said the company is falling apart at the seams. Almost all of Abercrombies non cash marketable securites are level three assets. Even if they are worth something somewhere down the road, there's currently no market for them. This is $530 million. Though they SEEM to have a big cash position, That position is vaporizing before their eyes.
First, it's being forced to close stores left and right due to over-expansion. It has $225 million in leasehold incentives that would have to be repaid if newer stores were closed. With Abercrombie's expansion, it's newer stores are it's least profitable.
Abercrombie has HUGE problems right now. And there's been major internal wars occurring due to Jefferies refusing to mark down prices (a number of big-wigs have resigned and axed). I'm not sure how many of their key people are going to want to hang around to solve the problems. Their ISO's (the good ones) are $27 underwater. Anybody that thinks ANF stock is going over $41 between now and 2010 needs to have a couple screws tightened.
Jefferies is approaching this "recession", which is technically a "soft-depression" like the recession in 2001. His views and the implosion of the company illustrate how little grasp of economics he has outside of marketing. This recession is NOTHING like that of 2001. And it's going to last a LOT longer than he thinks it is. The ship is sinking fast and the company is essentially refusing to get off the path that is leading them closer and closer to bankruptcy.
PRICES
I noticed at my local supermarket (Publix) prices haven'tcome down at all if anything up! Seems like in these troubled times we should get some deals!!!!!