In the past few years Abercrombie & Fitch had to decide how to adjust their marketing strategy despite the growing net sales and overall positive figures. There are two key problems: how to grow sales in the future and with which market segments to work.
A&F was founded more than a century ago and went through bankruptcy in 1977, but now it is a well-known company that own four brands: Abercrombie Kids, Abercrombie and Fitch, Hollister and Gilly Hicks. By 2012 the company maintained over 1,000 stores in the USA and overseas. In-store marketing is of the highest importance for A&F and TV ads are almost never used. A&F instore marketing and overall store experience are directed toward a specific target audience. A&F’s key competitors are: GAP, American Eagle Outfitters, Aeropostale, J.Crew, Victoria’s Secret. In 2011, A&F had the highest net sales in the market – $3.5 billion.
According to the case study, A&F has already partly addressed the problems mentioned above. The company understood that their four brands had to be renewed due to the fierce competition. So the products became more affordable and now can be bought on the internet and in some developed countries in Europe and Asia. Moreover, 180 stores were closed in the USA due to underperforming. Nevertheless, gross profit rates decreased due to a decrease in average unit retail, increase in average unit cost, and higher marketing expenses.
So, despite the changes A&F still has to think of the proper strategy that could help them increase sales in the future. Direct-to-customer operations could be the most important factor of growth for A&F. Secondly, the company should rethink their market segments. So far A&F has been focused on the young people. For instance, A&F web-sites appeal more to young women and college graduates under the age of 35 who usually browse from school or work. Thirdly, the company should act more quickly abroad in order to use the advantages of immature markets.
According to the data provided in the case study, direct-to-consumer sales rose rapidly in the past few years. In just 10 years, sales increased by 600%. The only disadvantage is that A&F put too much emphasis on the in-store marketing which is difficult to reproduce online. Moreover, the company focuses mainly on the young people. This is why Hollister and A&F bring 88% of total sales. The other two brands A&F kids and Gilly Hicks were not able to significantly increase A&F’s presence in the market. Therefore they will need to be better promoted. Finally, the company is too careful when entering the foreign markets. One of the advantages of such an approach is that they can save their product appeal. At the same time, statistics shows that international stores bring more and more profits. So, the company is underperforming.
Therefore, A&F management should work in all three directions, but the key two are direct-to-customer sales and expanding overseas. Direct-to-customers sales are the only right alternative in the long-term, because e-commerce is getting more and more popular. At the same time, expanding overseas already helps A&F to boost sales. However, due to the unstable situation in the different regions of the world, the decision to enter a new market should be well planned and take into account the experience of the other brands, for example Gap.
In order not to risk too much with direct-to-customers sales and expanding overseas, the company should think of the mechanisms how to control the risks and to react to the changing business environment more quickly. Logistics and IT may help the company gather the necessary statistics that will help to avoid making ineffective and costly decisions. A&F has already acquired IBM’s WebSphere platform. To sum up, the new growth strategy should be more aggressive and innovative than before. At the same time, the product appeal should not be lost due to the changes in the vision of the company.
References
Mahi, C., Boelsems, G., Garrison, J. (2012). Abercrombie & Fitch. Richard Ivey School of
Business Foundation.
