Abercrombie & Fitch Co. (ANF:US)’s soft-porn ads and nightclub vibe once delighted American teenagers and infuriated parents. Today, many aren’t even paying attention.
The once-edgy brand has lost a third of its market value in the past year and is grappling with falling store sales in Europe and the U.S. While the retailer blames the economy for its woes, brand consultants say Abercrombie has failed to change with the times. Today’s teens are underwhelmed by the half-naked models and blaring, dimly lit stores. And they’re less inclined to wear Abercrombie’s uniform of denim and graphic Ts.
Abercrombie must recapture its cool at home or risk undermining a six-year-old global expansion, said Allen Adamson, a managing director at brand consultancy Landor Associates.
“The trick for fashion brands is how to keep the core edgy and hot,” said Adamson, who has worked with clients including PepsiCo Inc. and Procter & Gamble Co.
Abercrombie’s U.S. revenue has slipped 2.5 percent this year and the retailer is bracing for same-store sales declines in the second half. The slide comes as rival American Eagle Outfitters Inc. (AEO:US), which carries lower-priced, more-wholesome styles, is boosting same-store performance. Falling sales prompted Abercrombie to shutter 71 U.S. stores in its most recent fiscal year.
Abercrombie is counting on growth overseas, where it opened 47 locations in its most recent fiscal year, and its styles remain fresh and popular with many teens. Still, international same-store sales plunged 26 percent in the second quarter. While Europe’s economic woes played a part, some new stores stole sales from existing locations, according to the New Albany, Ohio-based company.
Abercrombie is trading at a 5.3 percent discount (ANF:US) to the Standard & Poor’s 500 Retailing Index on a price-to-earnings basis, down from more than double the index’s valuation in April 2010. American Eagle trades at a 10 percent premium to the index, while teen action-sports retailer Zumiez Inc. trades at a 35 percent premium.
“There’s no personality anymore,” said Martin Lindstrom, author of “Buyology: Truth and Lies About Why We Buy.” “The pipeline of coolness is disappearing and once it dries up, then they will dry up.”
It’s up to 68-year-old Chief Executive Officer Mike Jeffries, who made Abercrombie cool, to connect with the new generation, Lindstrom said.
Abercrombie declined to comment for this story through spokeswoman Mackenzie Bruce and wouldn’t confirm Jeffries’s age, which was listed in public records.
After taking the helm in 1992, Jeffries turned a chain that originally made safari and camping gear for the likes of Theodore Roosevelt and Ernest Hemingway into a teen emporium where sex met Ivy League. He used Abercrombie’s reputation for quality to charge more for youthful styles, recruiting all- American teens and college-aged kids to model and work as salespeople. Risqué quarterly catalogs enraged religious groups. In 1999, the boy band LFO paid homage with its top-10 song “Summer Girls,” which included the lyrics: “I like girls that wear Abercrombie & Fitch / I’d take her if I had one wish.”
The Jeffries formula worked from 1995 into 2008, when the company boosted sales more than 20-fold and net income (ANF:US) more than 56-fold. Then the world changed. The downturn made it hard for Abercrombie, long an aspirational brand, to keep selling $70 jeans when similar styles could be purchased elsewhere for $40, and Abercrombie’s customers began moving on.
Today’s teens are “radically different” from other generations, including Millennials now in their 20s, because they are rejecting uniforms, according to Marcie Merriman, founder of retail and brand strategy consultancy PrimalGrowth in Columbus, Ohio.
Dubbed Generation C -- for creative and connected -- they have a bevy of clothing options thanks to the boom in fast- fashion from Forever 21 Inc. and Hennes & Mauritz AB’s H&M, said Merriman, who has consulted for Jack Daniels and Nike Inc. and is a former director of brand planning and strategy for Limited Brands Inc.’s (LTD:US) Victoria’s Secret. Gen C also has developed a more individual style from the Web and social media, she said.
Abercrombie must “look at ways to tie in with this creative class in a way that their brand will continue to resonate,” Merriman said. “They’re positioned well to take advantage of this group’s desire to be rebellious and indie and different, because that’s what the brand is about, but right now the product mix doesn’t communicate that or facilitate it.”
American Eagle, which generated comparable-store and online sales growth of 9 percent in its second quarter and 17 percent in the first, is scoring with such fashionable items as camisoles with Peter Pan collars, pleated chiffon blouses and college-team Ts. By contrast, Abercrombie continues to sell a uniform, such as a $30 graphic T proclaiming: “She wears flip flops seven days a week, she loves late nights & early mornings, she’s an A&F girl.”
Jeffries told analysts and investors earlier this month that the company is working to improve its supply chain so that it can chase fashion trends more quickly.
Merriman says the brand also needs to move beyond hot models to resonate with a cohort looking for a deeper message, such as the altruism conveyed by Toms shoes, which donates a pair to the needy for every one purchased.
“Abercrombie is still running an offense which is a huge banner of a bare-chested guy with a cute girl who’s not wearing enough clothing,” said David Maddocks, a former chief marketing officer for Nike’s Converse sneakers label, who now runs a lifestyle brand consulting firm based in Portland, Oregon. “It’s vacuous, there’s no core idea there anymore and people want the richness that comes with real authenticity.”
Abercrombie needs to create a new and exciting store experience because teens text and share about stores and products they like, Lindstrom said.
They spend “at least 45 percent of the time on the cell phone and interacting with people around them on what they should buy and what they shouldn’t buy,” he said. “It’s a generation that wants to share opinions and likes opinionated brands, and neither are present in this store.”
Not that Abercrombie is standing still. Even as it shutters namesake stores, the retailer is expanding a new concept called Gilly Hicks. Described in filings as the “cheeky cousin” of Abercrombie & Fitch, the chain was developed to sell underwear and pajamas to women ages 14 to 35 with an “All-American” style inspired by “the free spirit of Sydney, Australia.” With 18 stores in the U.S. and seven internationally, it’s faring better than the shuttered Ruehl concept, introduced in 2004 to capture 22- to 35-year-olds.
So far, Abercrombie’s brand woes at home haven’t infected the popularity of its model-filled new store events in untapped markets. The Hong Kong flagship store, which opened this month, generated more than $1 million in sales in its first five days, the company said on Aug. 15. Abercrombie is considering additional locations in China and the Middle East.
Still, in a hyper-connected world, it won’t take long for Abercrombie’s fading cool to become apparent to shoppers in Dubai and Shanghai, said Lindstrom.
The company shows no signs of changing its brand message. A page laying out Abercrombie’s capital-allocation philosophy in an Aug. 15 investor presentation features a photo of two barely clothed teens making out.
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