You will be redirected back to your article in seconds
Skip to main content

A&F’s Latest Turnaround Strategy: Remake Hollister into a Fast-Fashion Brand

In an effort to regain its rapidly receding market share, Abercrombie &Fitch (A&F) is looking to throw its hat in the fast-fashion ring and compete with those chains that have knocked it from its once lofty perch. To that end, A&F is planning a major overhaul of its Hollister brand, and intends to streamline its supply chain.

A&F’s grip on the teen market has been loosened by the rise of fast-fashion competitors like H&M and Forever 21, famous for their responsiveness to the quickly shifting landscape of teen fashion trends. A&F formerly owned that sector of the market, and teens clamored for its clothing, ostentatiously decorated with its oversized logo. Now, however, the dominant trend is toward cheaper, disposable clothes. Arthur Martinez, the new chairman of A&F’s board, said the chain needs “a supply chain that’s fast and responsive” in order to “bring new merchandise in far faster than the traditional cycle.”

Hollister seems like a perfect choice to retool for this purpose since it still has some brand cache among teens, capturing $2.1 billion in sales in the last fiscal year, operating more than 600 stores worldwide and another 150 stores that exclusively cater to children. However, the brand’s sales have begun to slump, sagging 14 percent in the last year.

A&F, in general, has fared even worse. The retailer’s sales plunged by more than 30 percent last year, battering its share price. For the third quarter, the company experienced a 14 percent decline in same-store sales in the U.S. And, there is no respite from its troubles in sight. According to the report, A&F’s international sales will likely plummet another 25 percent, despite the advantages gained by a significantly weaker euro. And while the industry consensus is that its 2014 earnings-per-share will land at $3.10, the Cowen Group, a financial services firm, pegs the number at a much more modest $2.25.

Related Stories

Additionally, an increasingly competitive North American market is compelling A&F to resort to aggressive discounting, further pinching the retailer’s already winnowed margins. And the competitive field is only becoming more populated with rising rivals. This has prompted a new strategy to shutter physical stores, especially in the U.S. where sales have been the weakest, and move retail online. To help make the transition online, A&F is partnering with First Insight Inc. (FI), a technology company known for consulting with retailers regarding product investment and pricing decisions. The firm will use its extensive online social media tools to study consumer preferences and establish more accurate predictive models for A&F. Under FI’s tutelage, A&F will be testing new products on a weekly basis, monitoring customer feedback and focusing on the infamously fickle teen consumer. Gillian Galner, group vice president of A&F, said, “By using First Insight to identify more winning products and price them appropriately, we are increasing speed to market with the right styles which will yield increases in sales and margin.”

A&F’s reinvention of Hollister comes coupled with a housecleaning of executive ranks, preparing for new presidents for both A&F and Hollister. Already, the retailer’s board ousted Jeffries from his position as chairman of the company. Arthur Martinez, formerly the top executive of Sears, was named Jeffries’ replacement. Jeffries will remain CEO of the company.

Jeffries recently came under fire both for his stewardship of the company and for a series of public relations gaffes. Last year, he said that Abercrombie & Fitch only intended its clothing to be worn by “cool kids,” a statement that was interpreted as a condescending snub of many teen shoppers. The retailer has also weathered persistent criticism that it neglects to offer larger sizes for women, further reinforcing the perception of its elitist exclusion of many consumers.

Not everyone is happy about the personnel changes. Glen Welling, chief investment officer of Engaged Capital, which owns a 0.5% stake in A&F, lambasted the board’s decision to remove Jeffries and tinker with the formula that made Hollister a premier teen brand. He said, “This board doesn’t have the credibility to make the determination that Hollister should be a fast-fashion retailer or that Mike Jeffries should be leading the turnaround.” He insisted that Hollister could still “differentiate itself without changing what the core brand is.”

A&F has learned the hard way both how difficult and how important the teen shopper is to success. Youth is king, at least when it comes to fashion retail. Competition for so-called “millennials”, or shoppers aged thirteen to thirty, has become fierce now that they collectively account for more than $65 billion in retail spending per year. And more than other age groups, they are keenly interested in both cutting-edge fashion trends while remaining keenly sensitive to value as well.

Apparel retailers have struggled with this consumer group for a variety of reasons. First, they are increasingly directing their discretionary income to electronics instead of clothing. Also, they simply have less money to part with since their parents are besieged by higher payroll taxes, an anemic job recovery that has disproportionately impacted millennials and the increasing price of transportation.

And the retailers who have adjusted their strategies accordingly are the ones who have prospered. Besides H&M, the Gap and Zara, Forever 21 and Uniqlo have managed to remain profitable by responding near-instantaneously to new trends with an eye to low discounted prices and high margins.

Some retail experts believe A&F’s efforts, however aggressive, are too little, too late. John Kernan, CFA at the Cowen Group, expressed skepticism that A&F could regain its lost relevancy among teen shoppers. “Teens aren’t the most loyal of shoppers and A&F has squandered much of the premium positioning it once had with that demographic.”