The Two A&F Strategy

Discussion
Nov 04, 2010
George Anderson

By George Anderson

Abercrombie & Fitch refused to follow the discounting route of its competitors when the economy turned downward and the result in 2009 was a 19 percent decrease in same-store sales.

While A&F CEO Michael Jeffries once described the discounting of competitors as "a short-term solution with dreadful long-term effects," the chain found that it too had to lower prices to remain relevant.

Having learned its lessons the hard way, A&F has lowered prices in its U.S. stores by roughly 10 percent. Overseas, however, there is a different story as the chain continues to sell at luxury price points.

Kimberly Greenberger of Morgan Stanley told The Wall Street Journal that the same items sold at A&F in New York are roughly 50 percent higher at the chain’s stores in Tokyo and 30 percent in London.

The same article suggested that A&F’s change in pricing in the U.S. may mean it will never be able to go back to its old, high price ways.

Discussion Questions: What do you think of Abercrombie & Fitch’s two-tier approach that has it maintaining its traditonal positioning in overseas’ markets while lowering prices in the U.S.? Will A&F ever be able to go back to its luxury pricing approach in America?

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16 Comments on "The Two A&F Strategy"


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Steve Montgomery
Guest
10 years 6 months ago

The WSJ article does not indicate whether the sales decline was principally due to international or U.S. sales or both. It also doesn’t indicate what the relative impact on profits was for either group of stores. Without that information, it is difficult to determine if the strategy is working or not.

It is unlikely that the two customer sets will have significant crossover which does allow for this type of positioning to be effective.

Dick Seesel
Guest
10 years 6 months ago

I think the overseas pricing strategy is appropriate as long as A&F can get away with it. After all, several other American brands (Levis, for example) have a completely different cachet in foreign markets than in the U.S., and can price their goods accordingly. Obviously A&F’s offshore sales did not suffer to the same degree post-recession as they did in the U.S. — but I am also assuming these stores represent a relatively small percentage of their sales, although the WSJ article didn’t make it clear.

On the other hand, A&F’s initial refusal to budge on its price position in the U.S. (while almost all of their competitors recognized the “new normal” after 2008) is practically a case study in how to sacrifice responsibility to one’s shareholders at the altar of brand equity.

Kai Clarke
Guest
10 years 6 months ago

Adapt or perish. This is a different economy, with a different consumer. No retailer is safe. Every retailer needs to change their model to adapt to today’s consumer, their needs, including price, and then make a winning mix out of this. A&F ignored this and this error is awful. It should be career ending for the CEO and his team. A 20% loss because of pride and ego amounts to hubris that none of their shareholders should tolerate.

This is a retailer that needs some new leadership…ones that listen to their customers and make the accompanying changes!

Paul R. Schottmiller
Guest
Paul R. Schottmiller
10 years 6 months ago

It looks like on the change response curve it took them a little longer than others to get past the “denial” stage relative to the “new normal” US consumer. They should be in a better position this year going into holiday having made some adjustments. We will have to wait and see what opportunities will emerge in the longer term for them to go back to past approaches/positioning.

Regarding the two tier pricing; if the brand value perception is different for consumers on different continents then there is a chance they can sustain it. However, with pricing transparency and continued globalization of retailers, especially on-line, this may become increasingly difficult.

David Biernbaum
Guest
10 years 6 months ago

I think it’s presumptuous to say that Abercrombie & Fitch suffered this decline strictly because of their pricing model. Many other possibilities exist.

Jonathan Marek
Guest
10 years 6 months ago

I’d guess they will go back as soon as they possibly can. How much the consumer cares, or punishes them, well… that’s another issue.

Paula Rosenblum
Guest
10 years 6 months ago

The problem for A&F is you need cache to charge those kinds of prices. Whether the company re-raises its prices or not, when comps are down 20%, it means customers have found another place to go. If the customers are satisfied, or even if they start looking around for something else again, there’s no reason to assume they’ll head to A&F.

A&F’s target customer (oooh, I think I just made a pun) is very fickle to start with. This doesn’t help.

Marge Laney
Guest
10 years 6 months ago

Abercrombie & Fitch has steadfastly refused to give their customers a reason to buy at full retail in the US. Even when they discount, their results have been tepid. They have done nothing to enhance their value proposition or customer engagement strategies. They have held on to their ‘models instead of service’ in-store strategy that leaves their customers servicing themselves and wondering why they should pay a whole lot more for jeans there than they would down the mall at American Eagle or Aeropostale. They should enjoy the international boost they’re getting from the thirst for the All-American look while it lasts. Don’t be surprised if you see American Eagle and Aeropostale moving into the international markets and giving Abercrombie a run for their money there as well.

Peter Fader
Guest
10 years 6 months ago

First, I feel that retailers absolutely can change their prices over time — there is far less “consumer memory” and other forms of perceived stickiness than most managers believe.

But the bigger problem here may simply be the passing fads of fashion — not pricing, per se. Today’s youth may have moved on to the next hot brand, and rpricing strategies can’t do much about that…

Ryan Mathews
Guest
10 years 6 months ago

I agree with those that feel A&F may have “jumped the shark”. As to two-tier pricing — how many of its customers read the Wall Street Journal? Clearly A&F was forced to respond to market pricing but only because they had lost the edge you need to command a luxury price. You don’t see Armani at 70% off.

Michael Tesler
Guest
Michael Tesler
10 years 6 months ago

I disagree that A&F is or was selling at luxury price points. They are at “fashion price points” and higher than the typical stores and brands selling to 18 year olds but far from luxury by most everyone’s definition of the term. When they are “out of fashion” or not as “fashion right” as lower priced competitors, they will suffer as we have seen.

Ed Rosenbaum
Guest
10 years 6 months ago

Welcome to the new world reality, A&F. Sorry you got to the party so late. There are still some slim pickings for you; but don’t expect too much. A&F will regain some of their customers; but not all. There are too many places charging less for the same merchandise. So why go for the brand that takes more from your wallet and gives no more in return.

I am curious. How did every other retailer get the message the U.S. economy was in a tailspin except A&F? I guess their email server was down that day.

Lee Peterson
Guest
10 years 6 months ago

Let’s hope for all retailers’ sakes that prices can get back to normal. But in any case, I think it was admirable of A&F to stick to their guns as long as they did. I firmly believe in the statement “It’s not what you sell, it’s what you stand for”, so, to me, what A&F stands for (quality, youthful exuberance, brand strength) has always been much more important than taking a hack at the price ticket.

They’ll be back, as long as they can deliver on what they stand for.

Ted Hurlbut
Guest
Ted Hurlbut
10 years 6 months ago

When the going got tough, A&F’s customer base no longer saw their items as a must-have fashion statement. Instead, they started to look at fashion merchandise as close to being a commodity–highly interchangeable between brands–and A&F was selling high-priced commodities.

I don’t know how a retailer reverses that. At a minimum, it will take an extended period of time to undo the damage to brand equity and pricing integrity. We are likely talking years and in the meantime, their likely will be new, hot players that claim that cachet.

Having said that, A&F had little choice in adjusting prices to remain competitive, and most of us have been highly critical of them that it took them so long to do what they did. I think the real question for A&F now is not how they get back to where they were, but what is the best strategic direction for them to take now, given where they are now.

Mark Johnson
Guest
Mark Johnson
10 years 6 months ago

I think A&F has lost its true target market and it will struggle until it is redefined.

Gene Detroyer
Guest
10 years 6 months ago

Why in the 15 or so comments regarding A&F is the word profit used only once? Making more profit (if they do) with 20% less sales is good. Making less profit with 20% more sales is bad.

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