Substance over style: product holds the key to A&F's future

OPINION_“In fashion, one day you’re in and the next you’re out” declared leggy supermodel Heidi Klum in hit US television show Project Runway. She may well have been talking about Abercrombie & Fitch. The preppy retailer rose to the heights

of "in" during the 1990s and early 2000s thanks to its provocative brand-building initiatives and distribution strategy. It was one of the first conceptualisers of a ‘destination store’ – a retail emporium where consumers are able to fully experience the brand through a formula of scantily-clad sales assistants, loud nightclub music and a heavily fragranced atmosphere.

As of late, it has been teetering between “in” and “out”. In mid-2012, it was “out”, with share prices faltering and rumours of a buy-out in the air. Eight months on, the company is back “in”, sparking optimism with its net sales in Q4 2012 rising by 11 percent and resounding plans for overseas expansion. This wavering performance begs the following question: can the retailer rely on the age-old adage of ‘sex sells’ to shift its pricey multi-coloured wares forever, or is it time for the product to do the talking?

Losing hometown glory
A major contributor to Abercrombie’s faltering sales has been its overreliance on its home US market. As of Q4 2012, it operated 912 stores in the US, with that market generating over 68 percent of 2012 full-year sales according to company reports. Euromonitor data shows that the apparel specialist retailer channel contracted by 1,033 million dollars over 2007-2012 in the US.

While the weak macroeconomic conditions certainly hit sales as its eponymous brand’s 80 pound jeans did not make the cut with teenagers reining in their spending, most of the damage was self-inflicted. As a brand which relies perilously on its ‘cool’ credentials, its ubiquity proved to be fatal. From children longing to grow up before their time to middle-aged consumers searching for that slice of eternal youth, everyone was wearing the brand, tarnishing its elitist ‘Ivy League’ stance.

As a result of this, the company has made the decision to tighten control over its distribution and streamline its store presence. It plans on closing 40-50 US stores in 2013. While this has led to an improvement in company performance, the real growth is coming from overseas expansion.

Taking the varsity party global
The international proliferation of the company’s sex appeal has long outstripped its retail expansion, meaning there are huge chunks of the teenage populace longing to be clothed in its collegiate apparel. It counts 139 international stores across all of its brands, and entered South Korea, the Netherlands and Poland in 2012. For 2013, store openings in Dubai, Australia and China are on the cards. It is evident that the company’s waning cool factor in its domestic US market has not yet been exported overseas. The brand’s Hong Kong flagship, which opened in mid-2012, generated sales of over 1 million dollars (US) in its first five days according to industry sources.
But if the US market serves as a template for growth, what is not to say that eventually the brand’s waning cool will catch up with it overseas too. For sustained long-term growth which moves beyond the growth rush associated with entering new territories, the retailer must consider its product offering.

Jumping on the fast fashion bandwagon
A common theme runs through all of Abercrombie’s ranges – a focus on classic polo tees, button-down shirts and jeans, season after season. Once upon a time this was a fool-proof formula, but with the onset of the ‘fast fashion’ era, the company is losing market share to more agile rivals like Forever 21.

The emphasis on ‘fashion alignment’ and lightning-pace speed to market is on the agenda of every apparel retailer. Fellow American teen-clothing brands American Eagle and Aéropostale have also aimed to gain share in this space by shifting the balance of product assortment away from basics and towards trend-led items. Indeed, Abercrombie has also made clear its desire to pick up on popular style trends and shorten lead times. Aside from salvaging lost sales, this direction has the potential to reduce inventory risk. Poor inventory management has taken a toll on company performance in the past, and led to equity-eroding discounting. And yet, two challenges emerge from this steady re-alignment.

Firstly, the brand will have to double its efforts on the design front, given its elevated prices compared to its contemporaries. A key facet of the fast fashion trend is affordability, and this certainly does not fit with Abercrombie’s current price positioning. Secondly, the product mix still needs to interact with the brand’s existing heritage. Too sudden a change could alienate brand loyalists who still know and love the brand for its simple jeans and T-shirts.

It is evident that Abercrombie is well-positioned to recoup its position in the apparel market, with strong brand equity and global recognition. While there is currently plenty of potential left for retail expansion, the brand needs to be prepared for the day when the Abercrombie fantasy faces the same fate in international markets as it has in the US. To stave off the day the brand is deemed to be “out” for good, there will need to be substance in the product beneath the marketing tactics.

Ashma Kunde, Apparel Analyst at Euromonitor International

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