Abercrombie & Fitch Co. has a big problem, and it isn’t just lack of sales.
The core Abercrombie brand has grown up, and it even took sex out of its ads, but consumers — and Wall Street — may be clinging to the perception that it is still a “teen” brand. Teens and sex are the legacy of the reign of Mike Jeffries, the group’s former chairman and chief executive officer, who left the company in December 2014. Since then, Abercrombie has been working to separate itself from its sister brand Hollister, which does target teens.
But the road to new riches for the brand may take longer than expected — and Wall Street is looking for quicker results. After second-quarter results that missed estimates — and a forecast of a continued sluggish second half — A&F’s shares dropped 20.3 percent to close at $18.29 in Big Board trading.
One issue remains the gap between the perception of the Abercrombie brand and what A&F wants it to be seen as. In some recent research notes, analysts for the most part have included projections on how Abercrombie may do during the back-to-school sales season. The problem is that the brand wants to be seen as being targeted at a consumer who left school several years ago.
And therein might lie its conundrum — how to reposition itself to an older audience and capture more shareholder value for its investors.
Arthur C. Martinez, executive chairman of Abercrombie & Fitch, said, “We’re not a teen brand. We’re trying to demonstrate that in our visuals. We’re aging up our models that show our clothes in the photographs and in the in-store and online experiences. We haven’t just put better clothes on teen models — we’ve aged them up to be more appropriate [to the consumer we’re targeting] and with clothes that fit the lifestyle.”
Martinez said of Wall Street: “We’re here for our shareholders, and what Wall Street thinks is important.”
The executive chairman also rejects the emphasis on back-to-school, noting that it’s not as important as it once was. “It’s less important broadly in retail than it has ever been. The battle now is buy-now, wear-now. You can’t have early delivery of fall receipts when the weather is 90 degrees outside. That doesn’t work so well,” he said.
His solution is for the brand is to “co-op the buy-now, wear-now concept with later deliveries of more heavyweight fall goods than in the past….We’re ‘back-to-fall’ for Abercrombie.”
The company will have a chance to test its grown-up version of the brand when it unveils its new store prototype in the spring. Martinez said the concept will evoke the heritage of the brand, while at the same time modernizing the in-store experience.
The group earlier this year reworked the Hollister store concept. If that is any indication of what’s in store for the Abercrombie brand, one can expect a store with brighter lighting, the convenience of a central cash wrap area and easier access to improved fitting rooms.
Martinez said learnings from the Hollister renovation include getting rid of props that made navigation difficult within the store and, with consumers pre-shopping online before heading to the store, the ease of shopping — better fitting rooms to try on items before buying, open sight lines and helpful associates — became the priority of how to improve the customer experience.
As for homing in on the aging of Abercrombie, Martinez said the “back half will be more dramatic and more overt in our marketing than this company has ever done. It will not only inform people about the new brand, it will disrupt their traditional view of the brand — mostly for the customer, but also for investors and analysts. It will disrupt the notion that this is only a teen brand. It will set more clarity around the customer that we think is not as well served as he or she should be.”
So while the teen brand Hollister is about a carefree, California lifestyle, its older sibling Abercrombie is more about an “American, casual luxury brand for the twentysomething consumer,” according to company information on brand positioning.
Abercrombie is also taking other learnings from its younger sibling and translating them for the older consumer. “Fabrication is one of our success stories,” Martinez said, referring to the Epic flex denim fabrication that once was available just at Hollister. That fabric is now offered at Abercrombie, with “stretch showing up in everything, in chinos, polos and shirts,” the executive chairman said.
The retuning of Abercrombie goes on as the group continues to battle significant headwinds. Abercrombie & Fitch on Tuesday said fewer sales at flagship and tourist locations hurt its second-quarter results, pushing the retailer to a wider net loss and a 4 percent drop in comparable-store sales. The loss for the three months ended July 30 was $13.1 million, or 19 cents a diluted share, compared with a net loss of $810,000, or 1 cent, a year ago. On an adjusted basis, the net loss on a diluted share basis was 25 cents. Net sales fell 4.2 percent to $783.2 million from $817.8 million. Consolidated comps were down 4 percent. Comp sales at Abercrombie were down 7 percent, while comp sales at Hollister slipped 2 percent.
Those results had the company missing Wall Street’s adjusted diluted EPS consensus estimate of 20 cents. Analysts had expected revenues of $782.7 million.
Better news was the growth in direct-to-consumer business, both domestically and internationally, as well as a comp sales recovery in the Hollister European business. But the problem is that the company expects lagging sales at its flagship and tourist sites to continue to weigh down the business for the second half.
In the conference call to Wall Street analysts, president and chief marketing officer Fran Horowitz noted that the company saw a “nearly 60 percent increase over last year in sales generated from orders placed on mobile devices.” She also noted that the company has more than 20 million Facebook fans, seven million Instagram followers, more than 120 million impressions and more than two million engagements every month. “We continue to be active in Snapchat where our follower base increased 20 percent from last year,” she said.
The company has also been evaluating its store base for the past year. It expects to close up to 60 stores in the U.S. through natural lease expirations, which will be offset by the opening of 15 stores in fiscal 2016, including 10 in international markets, primarily in China, and five new stores in the U.S. The company also plans to open six new outlets in the U.S. The company expects capital expenditures to be at the low end of the range of $150 million to $175 million for the full year.
Last week the company inked a wholesale deal with Zalando to sell merchandise on the e-tailer’s site.