Abercrombie & Fitch ends year ‘in a tailspin’

Abercrombie & Fitch ended the year in a tailspin, with sales down by almost 7 per cent and operating profit falling 49 per cent.

The embryonic recovery seen at the start of this fiscal is now little more than a faded memory. Fortunately, the group has a fairly strong balance sheet and remains profitable, which provides some comfort that it has the time and financial firepower to try and turn things around.

That said, it is now clear that fairly decisive and radical action is required to reconnect the brands with consumers. Especially so for Abercrombie which has, like last quarter, seen same-store sales deteriorate at a rapid pace. While factors like reduced tourist spend at flagship stores and negative mall traffic have pushed down sales, the main reason for the decline is that Abercrombie simply doesn’t resonate with customers like it once did. In essence it has lost its reason for existing.

This is a serious issue and is one that needs an urgent remedy. Worryingly, A&F has already tried to shift perceptions and engineer a turnaround, but this is clearly not delivering. Part of this comes down to the fact that, to date, the company’s efforts have been rather patchy and piecemeal, and this has been insufficient to cut through with consumers.

The recent marketing campaign, with the strapline of “people have a lot to say about us, they think they’ve got us figured out”, exemplifies this approach. Not only is the message confusing and opaque, but the promise of change that it suggests is not entirely delivered on by stores which look and feel the same as they have always done. To be fair, some developments – including making products more mature and stylish – have been substantial. However, when the package they are delivered in has not evolved it is difficult to communicate such efforts effectively.

Fortunately, A&F is making an effort to change its stores – as the new format launch in Columbus, Ohio proves. This is a step forward and is more reflective of what the brand now wants to stand for. The integration of improved customer service elements – like better fitting rooms and the ability to place online orders from the store – are also helpful in making the environment more friendly, inclusive and welcoming.

As good as the new format looks and feels, A&F will only roll out seven of them this year, so it is unlikely they will have a material impact on sales growth. However the cautious pace is sensible given the new concept has yet to be proven. In any case, it is likely that there will be existing stores in some locations where poor performance and declining traffic does not justify significant capital expenditure on refurbishments.

A&F is clearly hoping that all of its changes will allow Abercrombie to shift into a higher gear – much as has been the case for Hollister, where positive same-store sales were achieved this quarter. But A&F still 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.

This noted, A&F 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 MD of GlobalData Retail.

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