Abercrombie & Fitch CEO says ‘stores matter’ – particularly the smaller ones

Discussion
Photo: Abercrombie & Fitch
May 30, 2019
George Anderson

Abercrombie & Fitch is expecting big things from small boxes. The specialty clothing retailer is continuing its transition from larger flagship stores to “smaller, more omnichannel spaces in the best locations,” according to the company’s CEO, Fran Horowitz.

The retailer announced plans to shutter three flagships — a Hollister store in New York and two A&F locations in Japan and Italy. These closures, in addition to others that have taken place in recent years, have enabled the retailer to reduce its footprint by 140,000 square feet in locations that “had below company average productivity,” Ms. Horowitz told analysts on A&F’s first quarter earnings call yesterday.

The chain, CNBC reports, will expand the total number of stores it operates while reducing its overall footprint this year. A&F’s new store designs feature brighter spaces and music set at lower volumes than the dark, disco-like cave atmospheres common in its older format.

The retailer’s focus on omnichannel operations and customer data analysis through its loyalty program are benefiting performance, as well, its CEO said.

“Digital grew to 30 percent of revenues, compared to 27 percent last year with broad-based strength across the Hollister and combined Abercrombie brand,” said Ms. Horowitz (via Seeking Alpha). “As we continue to evolve with our customer, we saw ongoing double-digit growth in our purchase online pickup in-store.” The retailer has begun providing associates with hand-held devices to better assist customers in finding the items they want.

A&F is also seeing improvements from its loyalty program first introduced in 2016. The program has enabled A&F to achieve a “customer identification rate” of roughly 80 percent, which is more than double where it stood when the initiative was first rolled out. Critical next steps, according to Ms. Horowitz, require A&F to leverage the data it collects “to better personalize the experience for each of our customers.” She added that the company has made investments in technological “systems and tools” to put it on the path to achieving this objective.

The retailer posted a same-store sales gain of one percent in the first quarter, below the 1.33 percent consensus among analysts. A&F was successful in cutting its loss with earnings per share at 29 cents, well below the 43 cents drop that Wall Street was expecting. Shares of A&F were down 26.91 percent at the close of trading yesterday.

DISCUSSION QUESTIONS: What do you find most encouraging about the changes being made by Abercrombie & Fitch’s management? Where do you see the biggest challenges for the clothing retailer going forward?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Abercrombie has had many lives and hopefully the changes it is making will add one more. "
"She should’ve said, “stores matter, just not 861 of them.”"
"You knew it was a new day for A&F when Hollister began to hang storefront signs."

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21 Comments on "Abercrombie & Fitch CEO says ‘stores matter’ – particularly the smaller ones"


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Mark Ryski
BrainTrust

Abercrombie & Fitch management are taking proactive and meaningful steps to improve the store experience and ultimately business results. The new move to smaller, more omni-friendly stores seems consistent with what consumers want. However I’m not sure closing flagships is necessarily the right move – these stores are more than merely places to buy A&F products, they are also a showcase for the brand. Beyond working on improving store experience and updating stores, the biggest challenge A&F faces is the same one all apparel retailers face – maintaining relevancy with consumers.

Paula Rosenblum
BrainTrust

The concept is great from an operating and aspirational perspective. There is no doubt that omni – particularly one that includes BOPIS prominently – is a sound business strategy. But there’s that tricky matter of making and stocking things people genuinely want to buy.

I am not sure what A&F stands for these days. I know it has gone past the “I’m too sexy for words” phase, but I’m not sure what’s unique about them now. So the other part of this initiative has to be awareness … I can’t quite tell from its website why I would go to A&F vs. Target. Why should I? That’s the magic answer I need fed to me.

Dave Bruno
BrainTrust

Another strong argument for the power of assortment to differentiate – or diminish – a brand, Paula! Well said!

Dave Bruno
BrainTrust

While I applaud much of the CRM and omnichannel work being done at Abercrombie & Fitch, the brand marketer in me has one major concern: Downsizing flagships minimizes the brand-building potential to create awareness and mindshare when flagship shoppers return home to the suburbs.

Art Suriano
BrainTrust
A&F is on the right track looking to shed the big stores and focus on smaller ones. That is the future of retail. The consumer today is perfectly happy shopping online and having items shipped to their home. However, there are those times when many of us still like to visit physical stores to see the product, try it or try it on if it’s apparel, and then decide if we wish to purchase it. The future is going to see a further blend of online and physical stores, becoming one shopping experience. Stores will be smaller by necessity, and consumers will get used to the idea of seeing the item and trying it but not bringing it home because the items in the store will not be purchased. The purchase will take place via technology online, and with the speed we see today with delivery, the item will be waiting for us by the time we get home. This is where it’s all going. Those who do not understand the value of the physical… Read more »
Carol Spieckerman
BrainTrust

Abercrombie has had many lives and hopefully the changes it is making will add one more. The most encouraging sign is that Abercrombie seems to be eating its spinach rather than going off on flights of fancy. The move toward smaller format stores in greater numbers makes sense (although “smaller, more omnichannel” made me chuckle for some reason). However, Abercrombie shouldn’t overlook the importance of making a bigger brand statement through flagship locations. Hopefully those won’t be taken out of the equation because at the end of the day, the brand is an important differentiator that drives online possibilities and mitigates price resistance.

Brandon Rael
BrainTrust

Abercrombie & Fitch was long overdue for a reboot, and the retailer is making the right moves to reinvent the in-store shopping experience, to reflect how their new consumer prefers to shop. While their omnichannel stores and digitally empowered associates are encouraging signs, I would caution the company to keep a laser focus on the customer experience outside merely technological innovations.

Abercrombie & Fitch had caught lightning in a bottle in the late ’90s and early ’00s, with their nightclub like stores and their overall image as the “it” destination. Their NYC flagship store, which should still be open, had lines around the corner on 5th Avenue and was a hit especially with the tourists. The company got off track by not modifying their go-to-market approach, their assortments did not adjust to the changing customer preference to more preppy clothing, and their pricing was far too steep.

Abercrombie & Fitch should also reconsider a smaller flagship store in NYC and other key markets.

Jeff Sward
BrainTrust

Seems to me that A&F is being candid and honest about solving real problems with real solutions directed at today’s customer in today’s market. They aren’t rationalizing and they aren’t making excuses. They are evolving and executing in a market that is more competitive than ever. That’s a very different paradigm than when they were arguably one of the hottest stores in the mall. I worked for A&F back in the mid-90s, before they were molten hot. I left for AEO. While I think that financially and operationally they are making the necessary changes, I think the product also needs a little juice. It just doesn’t have the energy it used to. Some of that was the halo effect from the cool, sexy marketing but now the marketing is also way toned down. Recapturing some level of “cool” is going to be the hard part.

David Dorf
BrainTrust

It’s nice that A&F is making changes, especially optimizing for omnichannel. But it doesn’t bode well when the flagships are closing. Since flagships represent the brand, what does closing them tell us?

Bob Phibbs
BrainTrust

Their flagships by their own admission represent less than 1 percent of sales, I’m not sure why that is a focus when they could have doubled down on making the flagship an amazing experience like Starbucks Roastery and really done something special. While it is a welcome change to not be in the oversexed/dark as a cave retail environment, I’m not sure how any of their merch can command a premium price.

Harley Feldman
BrainTrust

Abercrombie & Fitch is making the right moves with its business. With the digital business growing and BOPIS attracting customers, they are putting resources into knowing their customers better and connecting with them with personalized messaging. While the digital tools are still in development, A&F is on the right track. The biggest challenge for A&F is attracting new customers and maintaining the company brand while making the changes for the future.

Georganne Bender
BrainTrust

You knew it was a new day for A&F when Hollister began to hang storefront signs.

Abercrombie & Fitch was an arrogant brand when my kids were in high school; part aspirational and noninclusive; product was expensive, the stores were dark and the music made your ears bleed. I’m impressed with the newly designed stores and A&F’s ability to stay true to its brand while opening its arms to new channels and new customers. Fran Horowitz and her team have undoubtedly brought a breath of fresh air to a very tired brand.

Ananda Chakravarty
BrainTrust

An 80 percent customer identification rate is an amazing feat and the key step for A&F is what they do with that information to engage and convert loyal customers into even more committed buyers. It’s share of wallet and long term value for these customers and A&F has to deliver solid personalized services to make it successful.

Lauren Goldberg
BrainTrust

A&F is due for a reboot and I’m glad they are taking a methodical, data-driven approach. Also, I’m glad they are changing the in-store vibe – I always said it felt like a frat party in there, between the lighting, music and overwhelming smell of cologne. As far as closing the flagships, I hope they have another brand-building initiative up their sleeves. Flagships are a major brand statement and shouldn’t be subject to the same ROI as a traditional store in a suburban mall. I read that the flagships accounted for 1 percent of their sales, but closing them will save ~$45 million. If they can take a good percentage of that money and put it towards building a “cool” brand again, it should compliment their customer-centric efforts.

Lee Peterson
BrainTrust

She should’ve said, “stores matter, just not 861 of them.” When the retail smoke clears, especially for specialty retail which have been laggards when it comes to innovative/modern retail ventures like BOPIS, showrooming, checkout, prototype kit-o-parts, pop-up, on and on, there’s going to be 300-350 total for Abercrombie Inc., if that many. Their online business is great, so other than for billboards and events, not sure why they’ll need 861+ physical stores anyway.

Face it, even with well-run specialty retail like A&F, they’re all going to be a lot smaller in the near future. Hello long tail of the internet and hello The RealReal.

Brent Biddulph
BrainTrust

Achieving 80% customer ID, solid online growth to 30% of total sales with strong BOPIS growth (in turn, driving store traffic) is impressive, and seemingly provides a solid foundation for A&F to turn this data into meaningful business outcomes, perhaps even competitive differentiation.

Steve Montgomery
BrainTrust

As others have already stated, flagships have dual purposes. One is to sell product and the other is to create and reinforce brand and product awareness. What I didn’t see in the article was a strategy to move those flagships’ customers to another smaller nearby location, or to move them to be ecommerce customers. While cutting cost always seems like a great idea, the unintended consequences of eliminating the flagships may mean an ultimate decline in awareness for both the brand and products.

Patricia Vekich Waldron
Staff

Flagships are vehicles to promote the brand and excite customers. I’m not sure what A&Fs unique value prop is at this point….

David Naumann
BrainTrust
David Naumann
Vice President, Retail Marketing, enVista
1 month 17 days ago

Abercrombie & Fitch’s smartest move is to close its large underperforming stores and focus on smaller footprint stores that are more profitable. It is much easier to turn a profit on smaller stores, and location matters. I like that they have transitioned away from the dark, cave-like atmosphere in their stores as I have thought that it was kind of a depressing environment that sucked the energy out of shoppers.

It looks like A&F is making a lot of positive changes and it will be interesting to see how they are doing five years from now. Apparel is a challenging segment and it is difficult to survive the cycle of trends.

Craig Sundstrom
Guest

A&F’s problems, if that’s the right word for their current state, are curious because far earlier than for most retailers, a visit to one of their stores seemed to embrace “experiential” retail (even if that experience was akin to an underaged strip club). So what went wrong?

What went wrong was their customers grew up and the next cohort seems not to embrace them as did the last one. Of course this as always a problem for retailers who are youth-focused. The changes — closing and downsizing stores in response to online growth — certainly make sense, but just as certainly they’re not something that’s going to “wow!” anyone … the search for the next big thing goes on.

Balasubramanian Thiagarajan
Guest

Does A&F really need to close their flagships? Look at what Hudson’s Bay did with their 5th avenue store (Saks Fifth Avenue), they have made it into a destination with Christmas parties, mood lighting and just brilliant brand promotion. If sales account for only 1% and the cost of running the flagship is steep, why not look at retaining a small portion of the said flagship (and build it into a destination) and “rent” out the rest of the space? Mall concepts might be on the decline, but there is still some value for real estate.

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Braintrust
"Abercrombie has had many lives and hopefully the changes it is making will add one more. "
"She should’ve said, “stores matter, just not 861 of them.”"
"You knew it was a new day for A&F when Hollister began to hang storefront signs."

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