It’s “dog eat dog” when it comes to getting the attention and wallet of the Millennial consumer.
That’s the conclusion of Arthur C. Martinez, chairman of Abercrombie & Fitch Co., who spoke about turnaround efforts at the chain.
“I think the larger trend of the Millennial consumer spending more on electronics and eating out will continue. It makes the share of wallet available for fashion that much smaller and it will make the competitive game more intense than it has been. That is not favorable for the fashion business,” Martinez said of the macro-spending trends of Millennials.
It’s been a tough slog for the teen retailer, with growing pains resulting in a first-quarter net loss of $63.2 million that nearly tripled from the year ago net loss of $23.7 million. All that pullback on logos and inventory is finally starting to show some positive signs, according to the chairman, who noted that logos would be making a comeback at the Abercrombie brand.
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He also highlighted the sequential comparable-store sales gain in the second quarter, one that the company is predicting will continue into the back half of the year.
In addition to more fashion product, somewhat of a going-back-to-the-future decision is to inject a higher level of logo product down the road. The logo merchandise will be tweaked to reflect the tastes of the Millennial consumer. “We’ll have some detailing for the logo product that will be of higher quality. The logo will be subtle and less visible. It won’t be splashed across the chest. Logo product has an important place across the company,” Martinez said.
He added that last year, while under Michael Jeffries’ tenure as chief executive officer, the company “overreacted” and “took logo product down” too far.
Helping the brand presidents — Christos Angelides at Abercrombie & Fitch and abercrombie kids and Fran Horowitz for Hollister — have been the addition of new staffers for oversight on design and merchandising. And while the product mix has improved, there’s still more work to be done on that front, Martinez said.
So while there are early signs of more positive metrics ahead for the pressured chain, the green shoots are really centered more on the stabilization of the business than on anything revolutionary in product.
“Bottoms have been performing consistently well. This is true for both men’s and women’s. The weakness has been on fashion tops for women and men. Our two brand presidents have been focused on getting that right,” the chairman said.
As the design and merchandising teams learn what is resonating with the Millennial consumer, don’t expect the first floor sets that will show in the first week of July for back-to-school to be the turning point for the chain.
The initiatives are still in the early stages of development, Martinez said, noting that it’ll still take a “couple of months to see it through.”
The bigger macro focus is on the repositioning of the two brands.
“Each of the two brands is different. Hollister is consistent with the heritage of the Southern California lifestyle. It’s freedom and fun. Hollister is a true teen consumer. Abercrombie is less able to be a true teen brand. The Abercrombie brand can travel a bit up the age scale. It’s still predominantly a casual brand, but now it’s more sophisticated in styling in the design [particularly] on the tops [component] of the business,” Martinez said.
The teams are working on plans that will show in the marketing campaigns this fall. “We have more work to do on the Abercrombie side [due] to some of the historical positioning. We are creating a new positioning and new imagery to target the customer….[You] will see in the fall the new expression for the brand,” Martinez said.
That will have the Abercrombie brand skewing toward the college students, and those slightly older through graduate school, but “not to the mid-30s necessarily,” the chairman said.
With all the work under the direction of the brand presidents and still no ceo to replace Jeffries, could the search be on hold until one sees which brand president garners better results?
According to Martinez: “We’ve always said we are looking at internal and external candidates. No decision has been made. When we’ve got something to say, we will say it. Under the current arrangement, the two brand presidents are working effectively to driving changes to the business. It’s not great to not have a permanent ceo, but it’s always better to focus on the right decision and not a quick decision.”
In other areas of the business, the company has been testing a wholesaling arrangement where Abercrombie product is sold on the Asos.com site. Hollister product will begin selling on the site during the course of the current quarter. Martinez declined to disclose specifics about actual sales on the site. While noting that sales are not “going to be moving the needle,” the experiment is important because it is helping the retailer understand “how to work with other retailers in different channels,” he said.
For the period ended May 2, net sales were down 13.7 percent to $709.4 million. Comparable-store sales at Abercrombie slipped 9 percent, while comps at Hollister were down 6 percent.
Shares of Abercrombie were up 13.5 percent to close at $22.30 despite the wider loss. While investors were likely pleased with the guidance on comps trends, the fairly active trading day for Abercrombie shares could also have been attributed to investors seeking to cover their short position on the stock.