For its next act, Abercrombie & Fitch will likely stick to what it knows best — the teen and contemporary market, according to analysts and financial sources.
While the company has been tight-lipped about what’s in store for its next concept, analysts are betting that it will be the launch of an accessories or intimates brand. “I have heard [speculation] that Abercrombie & Fitch has hired away some talent from Victoria’s Secret,” said Kimberly Greenberger, specialty retail analyst at Citigroup.
The apparel retailer has already done well with intimates and dormwear at Abercrombie & Fitch stores, especially around the holidays. With competing teen retailer American Eagle profiting from its new intimates subbrand aerie, and the possibility of the company extending the line into its own concept, Abercrombie might be looking to get a piece of the action.
“While there is already a market share in this division, with Victoria’s Secret Pink and American Eagle’s aerie, it is a repeat customer who is always buying underwear,” said Christine Chen, senior research analyst at Pacific Growth Equities.
Abercrombie & Fitch’s intimate brand would likely be less feminine than aerie and Pink, especially since chairman and chief executive officer Michael Jeffries is very protective of the masculine heritage of the brand, Greenberger said.
Abercrombie has had extremely successful launches in the past, most prominently with the teen line Hollister. But Wall Street is becoming more speculative about the ability of retailers to penetrate the intimate apparel business.
“I’ve seen many great retailers have mediocre success in breaking into the bra business. It is the most difficult new concept to launch with the lowest success rate,” Greenberger said. “But I’d be more than willing to bet on [Abercrombie to succeed].”
Although it seems an intimates concept is likely, in a third-quarter conference call to Wall Street the company said there’s money to be made in accessories. “The accessory business offers us a huge potential — huge, huge, huge. And I’m just a jerk that I’ve not been able to build more volume in the past, but I’m really on that track now,” Jeffries said.
The company sells leather products at all of its divisions, but has extended its offerings of handbags at the retailer’s Ruehl store, which targets the 30-year-old shopper.
So while it’s hazy what exactly the new concept will be, one thing is clear: The company will not tread into Baby Boomer territory. “I have to say I don’t think it’s in our DNA to really do business with mature people,” said Jeffries on the call.
“We also know that given the company’s history with advocacy groups and the raciness of the current brand, a baby concept seems unlikely,” said Thomas Filandro, retail analyst at Susquehanna Financial Group, in a research note.
Abercrombie & Fitch has been investing more money into its next concept this year than they have in the past, causing analysts to believe an announcement of their plans may come sometime in 2007, with store rollout not until late 2008.
Investing on the new, unnamed concept was included in recent capital expenditures of $50 million, the company said on the call.