Can Struggling Abercrombie & Fitch Cash In on Cool Again?

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At Abercrombie and Fitch's (ANF) flagship store in New York City, time seems to be standing still.

Outside, there is a black velvet rope and, often as not, a line stretching down the sidewalk. One-by-one, customers (many of them foreign tourists) pass through a doorway that is flanked by topless male models, their tastefully-tousled hair and rippling abs suggesting a teeny-bopper's vision of Chippendale's or Studio 54. Inside, low light and throbbing music fight for airspace with the fruity-floral scent of cologne and the tang of teenage pheromones.

It may not be the ideal environment for picking out clothes, but Abercrombie is about more than henleys and polos, khakis and t-shirts. It's about a philosophy, a lifestyle, and, perhaps, a little bit of eugenics.

But the buzz surrounding the company's flagship store in New York is not indicative of what can be found at the Abercrombie & Fitch stores in malls across America. While the A&F ethos ruled the American retail landscape for much of the past decade, its idealized version of perpetual youth has worn thin among cash-strapped consumers, threatening the company's sales, stock price, and future prospects.

Cool Kids in the Crosshairs

Abercrombie president Michael S. Jeffries is unapologetic about his ideal consumer. In an interview with Salon.com, he described his audience: "Candidly, we go after the cool kids ... A lot of people don't belong [in our clothes], and they can't belong. Are we exclusionary? Absolutely. Those companies that are in trouble are trying to target everybody: young, old, fat, skinny. But then you become totally vanilla. You don't alienate anybody, but you don't excite anybody, either."

But being cool comes with a price, and Abercrombie's clothes cost about twice as much as those of competitor American Eagle (AEO). Over the past two years, this has become a big problem for A&F, which has refused to follow in the footsteps of its competitors and adjust its business model and product line to accommodate more conservative consumer spending. Since 2008, even high-end companies like Nordstrom (JWN), Coach (COH) and Barney's have started to offer steep discounts, developing cheaper product lines, and opening outlet stores. But while other luxury retailers have desperately moved to become more profitable, Abercrombie took the road less traveled: Refusing to lower prices or accommodate strapped consumers. Abercrombie, it seemed, became the store that wouldn't bend.

Slowing the Slowdown


Fast forward a year, and Abercrombie is in trouble. Between 2008 and 2009, same-store sales dropped by 30% as inventory built up and customers to cheaper competitors like Aeropostale (ARO), Gap (GPS) and American Eagle. Finally, facing plunging profits and tumbling share price, Abercrombie blinked and began seriously discounting its clothes. In June 2009, the company shuttered Ruehl, its post-collegiate clothing brand. This year, Abercrombie took the next step, announcing plans to close 110 U.S. stores by the end of 2011.

Such moves have stopped the bleeding: same-store sales are up 5% over last year, and some analysts have placed Abercrombie stock on their buy lists. However, deep discounts have cut into the retailer's profit margin. Plus, the company's inventory is still up 47% over last year -- a worrisome development that caused the company's share price to drop 14% over the past three months.

Bad Press and Bloodsuckers

Although Abercrombie's bottom line is still hurting, the throbbing beat of the Abercrombie look continues to soldier on. Yet even style -- the store's stock in trade -- comes with its own set of worries. In September 2009, a Muslim teen in Tulsa, Oklahoma sued the chain for refusing to hire her because of her hijab, a ritual headscarf that she wore; she was later joined by another Muslim woman, California's Hani Khan, who was fired for wearing a hijab. In 2007, LaKettra Bennett, a Pentecostal woman in St. Louis, sued the company for firing her over her refusal to wear short skirts, while Britain's Riam Dean claimed that she was "banished to the back room" because her prosthetic arm didn't fit the company's strict dress code.

And if these public relations nightmares aren't enough to keep Abercrombie's executives up at night, the company's bedbug problem seems custom-made to create more than a few terrors. In July, the company closed its flagship Hollister store in New York City after employees repeatedly complained about a bedbug infestation. Later that month, the chain also shuttered one of its Abercrombie stores in the city for the same reason. Bedbugs only breed and feed after dark, but the company's low light apparently convinced the bloodsuckers that it is always party time at Abercrombie and Fitch.

Now, let's see if customers agree.


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192 Comments

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reallin

I have to cross the street to walk past the store. It reeks of some hideous perfume! I would shop there, but that fragrance makes my eyes water ;(

September 03 2010 at 4:46 PM Report abuse rate up rate down Reply
rbsp51

Even though they are a bit pricier its worth it because the quality of the clothes are alot longer lasting than competitors like american eagle, or hollister. Plus there are always sales going on, i don't see a problem with buying expensive clothews if it's worth the buy. Especially if you find a bargain.

September 02 2010 at 3:10 PM Report abuse rate up rate down Reply
Azhot1

I love AEO brand names. May they forge ahead!

September 02 2010 at 1:19 PM Report abuse -2 rate up rate down Reply
prairie fire

Bottom Line the company is over priced the clothes are cool but I rather pay half price @ like american eagle or old navy and the people who work there are worthless

September 02 2010 at 12:12 PM Report abuse +2 rate up rate down Reply
its4yourparty

Today's stock price vs. the 52 week high reflects a 45% drop in share value. What a way to go "dude". With a corporate CEO attitude that "a lot of people don't belong...in their clothes"...the "coporate dude" is "correct". I'm going to go out of my way in ensure that I buy A&F label clothing at the Salvation Army or 2nd hand store and make sure that every homeless person in NYC wears the A&F label in front of his flagship A&F store...too bad they can't wear in front of their flagship Hollister store...sorry...they had to close they store because it was infested with bedbugs, according to your above story... I hope I stayed on topic...it's truly difficult to be respectful of Mr. Dude, Michael Jeffries, himself, the self annointed, Mr. Cool Dude of the world. Get a life. I hope your empire goes the way of other dictators, and self destructs!. As Mr. "T" would say, "Got it Fool?"

September 02 2010 at 11:34 AM Report abuse +1 rate up rate down Reply
tcullispt1

A&F? Who's that?

September 01 2010 at 10:45 PM Report abuse -1 rate up rate down Reply
trvwlk492

From someone who used to work for the company high up, it is a cult on a scale no less than scientology. The way those people think and talk is right out of a movie it's so unbelievable. To call Mike Jefferies a modern day Hitler would not be out of the question. The part time employees and managers can come on here and defend their stores, but they are kept in the dark (no pun intended) about what really goes on.

September 01 2010 at 8:34 PM Report abuse +1 rate up rate down Reply
rose

It is not that they exclude. They down right alienate. My childern are the typical "Abercrombie all american" kids. But they complain about how dark and loud the stores are. You have to buy an item and take it home, to even see the color. They limit you on the amount of item you can buy during your sale to 20 items. And if you buy on line it is only 15 items. I have 5 childern, it would take me 10 trips to the store to buy all that that would need. They will not sell a display item, even if you need that size, or it is the last in the store. How does business this way? Now it is bitting them in the butt!!!!!! GOOD.

September 01 2010 at 5:42 PM Report abuse +6 rate up rate down Reply
Lui D

HAHAHAHHAHA A&F is going out of business. Thats what you get for trying to exclude everyone else from your clothing line. Who ever buys A&F is just is just following a fashion trend that is senseless none the less. thats why i stick to regular clothes..

September 01 2010 at 4:26 PM Report abuse +4 rate up rate down Reply
J-DUDE

I work for the company as one of its sales associates and shirtless greeters. It comes as no suprise that people will go online to rant on and on about Abercrombie. Tell me something cjg2585 from one ignorant unproductive member of society (you) to a college student soon RN (me) since I work for Abercrombie when I'm not at school as do a few of my friends, shouldn't my G.P.A. be lower than your expectations? Shouldn't I be extreemly narcisistic? Shouldn't I only wear jeans with holes and polo shirts one size too small? Well I don't. If you don't fit in... who cares. Abercrombie has clothes.. if you want to buy them, buy them.. if not, buy clothes elsewhere. With such erroneous tangents being brought into this discussion you begin to see that some people simply have nothing better to do. IT'S JUST A CLOTHING STORE.

September 01 2010 at 3:04 PM Report abuse +1 rate up rate down Reply
1 reply to J-DUDE's comment
poko2000

J-DUDE, you just proved cjg2585 right.

September 02 2010 at 2:07 PM Report abuse +1 rate up rate down Reply