Describing Abercrombie & Fitch Co.'s target customer on a conference call with analysts last year, chief executive Mike Jeffries was precise: "18-to-22 college guy who has a good body and is aspirational." He added: "If I exclude people — absolutely. Delighted to do so."
In the volatile world of youth fashion, executives should be careful what they wish for.
For years, the sexy-preppy retailer has worked to hone a cooler-than-you image among a select group of young men and women. But in so doing, Abercrombie appears to have focused on too narrow a target market with too narrow a fashion message. Pricey pilled sweaters and wrinkled, shrunken T-shirts, it turns out, have ephemeral appeal.
"Abercrombie needs to evolve," says John Morris, an analyst with Harris Nesbitt Gerard. "The more true they are to the brand, the more stale they run the risk of it becoming." Lauren Cooks Levitan, an analyst with S.G. Cowen Securities Corp. in San Francisco, says: "By pushing the edge of fashion, they've also pushed a lot of people out of the brand."
Abercrombie, through a spokesman, declined to comment for this article.
Based in New Albany, Ohio, Abercrombie said this month that same-store sales, a key measurement of retailer health, fell by 13 percent, putting it on track for four straight years of negative same-store results. Its stock has fallen recently. Margins and traffic are sliding, and Abercrombie is facing two high-profile racial-discrimination lawsuits.
Men have defected from the brand at a rapid rate, a fact that Wall Street partly attributes to the homoerotic undertones in the company's marketing (bare-chested guy greeters have recently been stationed at some store entrances). Increasingly, mall-prowling teens think the brand is either too expensive or simply passe.
Abercrombie said last week that it would discontinue its racy A&F Quarterly, a "magalog" that featured nude models and other freak-your-parents-out fodder such as interviews with porn stars. Long controversial, the discontinued book leaves a giant hole in the company's famously lean marketing strategy. Other youth-oriented apparel makers spend about 10 percent of revenue on marketing and advertising. Abercrombie spends about 2 percent.
The company's vision and tone spring from 58-year-old Jeffries, a three-decade fashion veteran who once told The Wall Street Journal that he ran Abercrombie "like a military operation . . . very disciplined and very controlled." The storied chain, known for outfitting legends such as Ernest Hemingway and Theodore Roosevelt, changed ownership a few times before being sold to Limited Brands Inc. in 1988. Limited tried, unsuccessfully, to cast Abercrombie as a button-down men's chain, and handed the reins to Jeffries in 1992. Now an independent company, Abercrombie offered its first shares to the public in 1996.
Despite a spotty retail track record, Jeffries understood the power of fashion imagery. Launching Abercrombie's first advertising campaign, he hired fashion photographer Bruce Weber to shoot images of partially clad, WASPy 20-somethings. He ripped the arm patches off blazers and gave the clothes a casual, rough-hewn feel — more frat house than art house. Within a few years, the Birkenstock-wearing CEO had restyled Abercrombie as a youth-oriented label synonymous with bonfires and spring break, and turned the company from a money-losing 25-store branch of the Limited to a profitable chain ready for independence.
In a bid to establish itself as a multiconcept retailer, Abercrombie followed up by launching lower-case "abercrombie" for kids and Hollister for young teens. A fourth top-secret concept — possibly for the post-grad crowd — is planned for next year. At the last official tally, the company operated 357 Abercrombie & Fitch stores, 173 abercrombies and 164 Hollisters.
As Jeffries built the Abercrombie empire, controversy over its marketing methods flared. In 1998, Mothers Against Drunk Driving attacked the A&F Quarterly for carrying a two-page spread about drinking. Abercrombie drew protest again in 2001 when it sold thong underwear for girls with words such as "eye candy" on the front. Last year, it sold T-shirts with Asian caricatures and the slogan: "Two Wongs Can Make It White." It pulled the shirts from stores and apologized, after complaints.
This year, a June 16 federal lawsuit filed in California's Northern District claimed that Abercrombie systematically "refuses to hire qualified minority applicants as brand representatives to work on the sales floor and discourages applications from minority applicants." A second race-discrimination suit was filed last month in federal court in Camden, N.J. Abercrombie has said the complaints are without merit, and that the company has "zero tolerance for discrimination."
Some analysts worry that Hollister might be cannibalizing sales from Abercrombie. Another danger sign: Once-loyal customers have been checking out other chains in the mall, such as Aeropostale, American Eagle, Hot Topic and Pacific Sunwear. Those and other competitors undersell Abercrombie.
By their very nature, fashion companies move in and out of vogue, both with customers and Wall Street. But even the most optimistic analysts are having a hard time imagining an easy reversal of fortune for Abercrombie. "It's been difficult . . . to defend a retailer who's been in the limelight of controversy and has a poor top-line (revenue) trend," said U.S. Bancorp Piper Jaffray's Jeffrey Klinefelter in a recent report. (Nevertheless, Klinefelter says he sees merit in the stock based on its strong earnings potential and low price.)
Most on Wall Street agree that Abercrombie will need to make its clothes and its message more accessible to the customers it has either alienated or lost. "I think it's fixable, but I don't see (management) demonstrating a willingness to have a radical shift in the near-term," says Levitan.