Fran Horowitz, chief executive officer of Abercrombie & Fitch Co., created a playbook for the Hollister brand before taking those learnings to revitalize the company’s core A&F brand. Included in that was a rethinking of the merchandising and related supply chain needs.
Here, Horowitz discusses the need for agility, and how the ability to quickly respond to customer demands dictates adjustments to sourcing and the supply chain.
Sourcing Journal: What was the state of the supply chain for the Hollister brand when you joined the company as brand president in October 2014? One of your priorities was to reposition the brand and its product offerings. As you worked through that strategy, how did that impact the supply chain and what were the related changes that were needed?
Fran Horowitz: Our company, including our Hollister brand, has always benefited from a diversified sourcing base focused on achieving quality, value and speed. We are fortunate to have long-term relationships with our suppliers and agents. Some relationships have existed for over 10 years and several key suppliers have been partners for more than 20. I have enjoyed getting to know our vendors through both visits to Asia and our biannual vendor conference that we typically hold in the region, travel permitting. It’s been great to broaden and strengthen these existing relationships.
Our sourcing base has been a key factor in successfully repositioning our brands and differentiating our product offerings. We benefit from our suppliers’ expertise, agility and flexibility, all of which help us maintain a strong commitment to quality while always keeping our customers top of mind.
SJ: You were later named CEO of the company which then began restructuring work at its Abercrombie brand, relying largely in part on the playbook you formulated at Hollister. What did you see were the adjustments needed to the supply chain in terms of how to improve the Abercrombie product line and the logistics needed to adjust inventory levels for the brand?
F.H.: I joined A&F Co. because of the opportunity to build on the strong attributes that were already in place. In terms of adjustments, we have implemented an increased focus on efficiency, both externally and internally. Externally, we have partnered with our agents, vendors and factories to reduce product development and production lead times. Internally, something that I did early on was redefine our merchandising and sourcing roles. As part of that, we reviewed our internal milestones and deliverables to ensure all processes operate as efficiently as possible, while also fostering a creative environment that keeps a pulse on customer demand and supports trends and newness. This has allowed us to condense our production calendar and ultimately speed up the supply chain. This vendor and factory speed and agility allow us to tightly control inventory and seamlessly react to customer demands.
SJ: Does the company rely on separate sourcing and supply chains for each brand?
F.H.: We have implemented a cross-branded supply chain, which allows us to not only leverage total company volume, but to also offer differentiated raw materials and products for our customers across our brands.
SJ: When did the company begin to diversify its sourcing and supply chain network? Was China at that point still a large manufacturing base? What was the thinking behind the need to expand the network?
F.H.: Our company has maintained a diversified sourcing base. We believe it is important to maintain a balanced country-of-origin mix that allows for speed, quality and value.
We continue to have strong partners in China who have worked with us to share the burden of tariffs, and we have maintained a presence in the region in the mid-teens. While we have added additional capacity and new production facilities in other countries, it has been within our network of existing Chinese parent companies.
SJ: Over the past two years, the fashion and retail industries have had to deal with tariffs, specifically connected with the trade dispute with China. On conference calls to Wall Street, you’ve noted that the company was positioned to withstand those tariff pressures. What were the changes made to the supply chain that provided the best benefit to weather the tariff storm?
F.H.: As we have previously shared, our China penetration peaked in 2016. We have been actively working to balance our country-of-origin mix, both as a protection against tariff uncertainty and to ensure we were not overly reliant on one country. Through this migration, we have mitigated tariff uncertainty and reduced our overall reliance on China.
SJ: How has dealing with Covid impacts influenced supply chain changes or considerations going forward? Is there a rethinking of the logistics in terms of what other improvements might be needed to prepare for possible disruptions to the supply chain?
F.H.: A big thank you to our sourcing team and our vendor partners for working together to overcome adversity this year. During the first peak this past spring, 30 percent of our sourcing base was either closed or had significantly reduced capacity for approximately eight weeks. With the help of our long-term partners, we continued operating and were able to manage delivery challenges without a significant impact on inventory levels.
A balanced country-of-origin mix and vendor mix protect us from trade uncertainty and pandemic issues. We avoid being over reliant on one supplier, while still maintaining meaningful partnerships and relationships. We balance our sourcing base in China, Southeast Asia and South Asia with sourcing resources in the Western Hemisphere.
SJ: Is reshoring some production to be closer to home a possibility?
F.H.: At this time, we have a presence in Mexico and Guatemala, and we remain pleased with our current vendor base and long-term partners.
SJ: Sustainability and supply chain traceability have been a key focus for the company and Abercrombie is a participant in the United Nations Global Compact initiative. What is the nature of Abercrombie’s participation in two U.N. Action Platforms, addressing water and sanitation as well as sustainable development goals?
F.H.: We were excited to join the United Nations Global Compact in 2019, and this commitment is now weaved into everything we do from a sustainability perspective, both at the corporate and brand level. Our support of UNGC’s Ten Principles is an ongoing process, with some of our sustainability efforts having been in place for nearly two decades. We know there is no finish line to these efforts as we aim to have a positive impact on the communities we touch around the world.
Regarding water and sanitation, we joined the CEO Water Mandate’s Action Platform on Human Rights and the WASH Platform in late 2019. This aligns with the UNGC’s Sustainable Development Goal (SDG) 6, which promotes access to safe and affordable drinking water.
We continue to partner with organizations and launch initiatives that align with the SDG’s. For example, this past spring we launched our partnership with ThredUp, the world’s largest fashion resale marketplace. Our partnership allows customers to send their clothing in for gift cards to be redeemed across our brands. This collaboration aligns with SDGS 12 and 17, which encourage responsible consumption and production and building partnerships that support the goals, respectively.
SJ: The company has also rolled out its P.A.C.E. program to almost 9,000 factory workers in Cambodia across 10 factories. How did the program come about and how does it help support both your vendor partners and the U.N. Global Compact initiative?
F.H.: We know the importance of training, educating and supporting our vendor partners. That is why we have partnerships like Room to Read, HER Project, P.A.C.E. These partnerships align with our commitment to caring for our communities and worker safety and well-being, and also support SDGs 3, 8 and 17.
Regarding P.A.C.E. specifically, Gap launched this program in 2007. It was initially created to support women in the global apparel industry, and Gap has since expanded the program to community settings and more countries to unlock new possibilities for women and adolescent girls around the world.
A&F Co. is one of four brand partners involved in the P.A.C.E. program. In 2019, we rolled out our program in Cambodia, Indonesia and India. This program is connected to SDGs 3 and 5, which encourage good health and wellbeing and gender equality, respectively.
SJ: Covid-19 has impacted the sourcing and supply chain on a number of fronts. As you think about logistics and what else could happen in planning for 2021, what keeps you up at night?
F.H.: A balanced country-of-origin mix and vendor mix protect us from trade uncertainty and pandemic issues. We avoid relying too much on one supplier, while still maintaining meaningful partnerships and relationships. As we head in to 2021, we remain confident in our supply chain and our strong, long-term relationships with our partners.