By any measure, the latest quarter for Abercrombie & Fitch sales has been disastrous.
Not only are total sales sequentially worse than last quarter, but revenues at Abercrombie have slumped and net income is down by over 80 per cent. Hollister performed somewhat better, although ending the quarter with flat comparable sales is far from a stellar result. All in all, it is safe to say that Abercrombie & Fitch’s recovery program, which showed some signs of promise at the start of this year, is now firmly off track.
The declines come down to a basket of factors, including: some negative results from flagship stores in tourist locations; weaker traffic across malls; warmer weather; and, a lack of traction with the brands. The latter is, in our view, by far the most serious issue and is one that Abercrombie & Fitch has been grappling with in order to stimulate consumer interest.
The latest reinvention has taken the form of a marketing campaign designed to show that Abercrombie & Fitch is changing; moving away from its traditional brash, image-obsessed focus, towards a more inclusive and gentler approach with an emphasis on stylish, quality clothing. The campaign underpins genuine shifts in the range, which has become more mature and less frivolous in terms of its design, with a greater emphasis on key staples. Taken together the changes are welcome and directionally correct. That said, two concerns remain…
The first of these is around the marketing effort itself. This has taken the form of a rather mysterious campaign with the opaque strapline of “people have a lot to say about us, they think they’ve got us figured out”. While the aim of the campaign – to stimulate interest and get consumers to take a fresh look – is understandable, it is too confusing and overly complex. In short, it simply does not communicate what is happening at Abercrombie & Fitch. As such, it likely falls some way short in terms of stimulating customer engagement. This is a shame, because other changes to the proposition are genuine and worthy of consideration.
The second concern is that the changes will take time to deliver. Abercrombie & Fitch has much more work to do in building a new base of customers and this is a long term effort that may not have a tangible impact on sales for many quarters. A focus on more staple products with less emphasis on branding – even though correct in terms of what the customer is demanding – could necessitate lower price points, which could ultimately erode margin and profit.
Those things noted, Abercrombie & Fitch is going in the right direction. As it has shown with Hollister, which is more advanced in its redevelopment program, the reinvention work will ultimately pay dividends. However, the company cannot turn on a dime and there will likely be a number of bumpy quarters ahead before recovery comes.
- Neil Saunders is CEO of retail analyst Conlumino.