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Abercrombie & Fitch Looks to Hollister for Lessons in Tapping Gen-Z

While the struggling mall retailer has been bolstered by good results from teen friendly Hollister, its namesake brand is still working to find its footing. CEO Fran Horowitz outlines the plan for BoF.
Source: Abercrombie & Fitch
By
  • Sarah Shannon

NEW ALBANY, United States — Sometimes, it's not such a good idea to listen to your elders.

Abercrombie & Fitch, the mall retailer that has struggled to divorce itself from its logo-heavy, scandal-ridden past, says it is focusing on lessons learned at its younger, surfwear-inspired Hollister brand in the hopes of finally turning a corner.

“Abercrombie is on track with our plans, we are making progress. We’re continuing to stay focused on our brand identity and our consumer,” chief executive Fran Horowitz told BoF shortly after the retailer reported earnings for the second quarter of its 2017 fiscal year. Sales at Abercrombie & Fitch stores open at least one year were down 7 percent, but same-store sales climbed 5 percent at Hollister. By geography, net sales in the US were unchanged. International sales fell by 1 percent.

It's been a turbulent year for the once-untouchable mall favourite. In July, the company said it was ending talks for a possible sale despite preliminary discussions with a number of suitors, believed to include direct competitor American Eagle Outfitters. Instead, it is carrying on with its own strategic plan amid growing competition from fast-fashion players including Zara and H&M, online giants like Amazon and a sluggish mall environment. It still has a lot of work to do. While Hollister is its largest brand by sales, Abercrombie's performance is weighing heavily on profits.

Horowitz says she is drawing from successes at Hollister and underwear brand Gilly Hicks to drive improvements at Abercrombie, whose "bullseye" target audience is 21 to 24 years old. “What we are learning number one is assortment,” Horowitz says, citing improvement in size and colour of product ranges for Abercrombie. “Another lesson is productivity in stores. We embarked on a revitalisation of Hollister stores several years ago. So we launched a new prototype for Abercrombie, the first one in 15 years,” she says. “It’s early days so we have to temper our enthusiasm, but we are seeing positive feedback, more productivity in less square footage and out customer is telling us engagement with [sales] associates is very strong.”

Seven more new Abercrombie & Fitch concept stores are opening this year. They are smaller, with fitting rooms that allow shoppers to control their own lighting and music as well as charge their phones. Shoppers can also place and pick-up online orders in store. The brand has also launched a version of Hollister’s successful Club Cali loyalty program in its A&F stores, and claims over 2 million shoppers have already signed up.

Creative direction at Abercrombie & Fitch has undergone an overhaul since the arrival of ex-Club Monaco designer Aaron Levine in 2015, who is marrying his sleek, understated aesthetic with elements of the brand’s heritage. Levine was initially charged with menswear, but was promoted in December 2016 to oversee women’s collections, too.

Still, some analysts argue that the brand’s offering doesn’t stand out in a crowded marketplace. “Abercrombie stores look at lot better, there’s more emphasis on classics but Abercrombie still doesn’t’ know what it is and who they are in a very challenging market. There’s an awful lot more work to be done,” says Neil Saunders, managing director at GlobalData Retail.

A more design-led influence in its products will be key, says Saunders. “I think they are struggling to do that in-house,” he says, adding Abercrombie needs to lure shoppers with more of a distinctive design twist.

Horowitz disagrees, however, describing "some nice trends currently in store" like distressed denim, off-shoulder tops that "continue to sell well" and ruffle details. "Abercrombie is a very early adopter of the embroidery trend on denim," she adds. The question is, will that be enough to stand out in a competitive marketplace? So far, same-store sales declines do not bear this out.

Another issue for Abercrombie: rolling out improved store formats and loyalty card programs is expensive and requires investment. The retailer is still operating at a loss, with the net loss in the second quarter widening to $14.6 million.

Targeting college-age consumers, versus the younger Hollister and Gilly Hicks customer, will be “about having the right product at the right time,” says Horowitz. “What I know about that consumer is they have a sense of adventure at that age. Abercrombie has always stood for experience and adventure and we believe [that] with 125 years of heritage that we really will get a nice response from that consumer.”

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