Falling sales for the past several quarters have forced Abercrombie to rethink its former winning strategy, but is it too late? Wall Street analysts say they aren't sure if the brand will ever be 'cool' again.
Last Tuesday, Abercrombie & Fitch reported net sales for the third quarter declined 12% and forecast that its fourth quarter numbers would be lower than anticipated with another double digit drop.
According to a report by the Wall Street Journal, so far this year, shares have toppled 20% as Abercrombie continued to report falling sales. it also offered disappointing guidance for future slaes amid weaker traffic and a tough retail environment.
"Our results for the third quarter reflect continued top-line challenges, with overall spending among younger consumers remaining weak," said CEO Mike Jeffries. "Until we have seen a clear trend improvement, we are continuing to take a cautious approach into the fourth quarter and are working to end the year with appropriate levels of fall carry-over inventory."
Abercrombie is expected to provide an update of its recently completed long-term strategic review. As its fashions were starting to show signs of no longer resonating with young adults intense competition in the teen space led the retailer to increase promotions and discounts, a move that some analysts argue eroded Abercrombie's premium status.
"We recognize that our businesses have been and will continue to be disrupted by both fast fashion and pure play e-commerce competitors," said Leslee Herro, A&F's head of planning and allocation.
While Jeffries' comments last year about not stocking large size clothes to keep uncool kids from wearing A&F apparel played a part in triggering the brand's recent decline it was not the sole reason. Rising demand for trendier retailers has also been a major factor.
In an effort to win back the support of its customers the retailer will begin selling clothes that are beyond a U.S. women's size 10, as well as offer a variety of new styles and colors. It will also begin selling accessories and shoes. The changes will begin to appear in spring 2014. The new accessories and shoes are set to debut in the summer of 2014 in time for the back-to-school season.
So where did A&F go wrong? Here are three mistakes that have had a major impact on A&F's negative results:
- Starting two ineffective brands – Ruehl and Gilly Hicks. Ruehl closed in 2010 and Gilly Hicks will close its stand-alone locations.
- Aggressive expansion overseas. The brand has opened huge stores in Europe and demand has been disappointing.
- Over-promising to investors. The retailer hyped a turnaround in the spring only to report disappointing results. It has also warned that the outlook for the future is weak, which is weighing heavily on the retailer's stock price.
Abercrombie was the "it" retailer for more than a decade with teens and pre-teens, but it has not evolved with its customers. The retailer has been criticized for not updating its fashions and sticking to a preppy aesthetic that many feel is outdated. Jeffries' contract runs out next year and some analysts believe it might be time for A&F to find a new leader who can connect with millennial shoppers and restore its once booming business model.
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