Reality Check for Abercrombie

Abercrombie and Fitch has negotiated a new contact with long-time CEO Michael Jefferies after an activist investor had called for his replacement. After years of lagging return on investment the controversial CEO has lived to see another day.

Hollister men's and women's

Hollister men’s and women’s

Jefferies is among a small cadre of visionary retail executives and a known micro-manager. He remade a tiny travel and sporting goods retailer in the ’80’s into a teen retail powerhouse. It has been a rocky road laced with discrimination lawsuits and boycotts over policies and racy marketing.

When a customer choses to shop a specialty store they already relate to the brand on some level. Most customers visiting an Abercrombie & Fitch, Hollister or Gilly Hicks store aren’t discovering the store for the first time. They already identify with the upscale, American, traditional style, with a big dose of teenage sexual tension.

The appeal of the brand experience is the “maybe I’m too young to be here” rich decor, dim lighting, loud music and strong fragrance wafting through the air. It is retail theater at its best, even if it is a tad annoying for the credit card-carrying accomplice. I actually love to visit Gilly Hicks. (Too bad they are closing them down to focus on their core business.)

Things have changed in teen retail since the boom times post-Recession. The last few years have seen the explosion of fast fashion emporiums of Forever 21, H&M and Zara.

Abercrombie Holiday 2013

Abercrombie Holiday 2013

Forever 21 operates very large stores that carry complete looks… apparel, accessories and shoes merchandised throughout the store. A budget conscious Millennial can walk out with an armload of cheap chic clothing and accessories for $50. They serve up a huge range of fashion and uber-edgy looks in less than stellar quality, but most of their customers don’t care. They sell them in women’s, Love 21 sizes which area a bit bigger and plus sizes as well. No girl leaves Forever 21 without finding something that fits.

Abercrombie is stuck in the flip phone era of teen fashion. It is not the appeal of their clubby stores. It was their original calculation not to promote during the height of the Recession and their unwillingness to face the reality that today kids are bigger, than their cultural vision of a preppy, blonde waif. The narrow-minded intention to cut everything close to the bone has cost them significant sales. What store today can afford to lose a motivated customer segment over 1-2”?

 I can personally attest to this. My 13-year-old niece (who proclaims Gilly Hicks her favorite store) has been slightly bigger than the Gilly Hicks size large since she was 11 1/2. She relates to their clean, lounge lifestyle and sporty looks. Unfortunately, 90% of what she tries on doesn’t fit because they don’t carry an extra-large. She can only buy their most oversized pieces. We usually walk out empty-handed, in spite of Gilly Hicks great promotional prices.

We don’t bother to shop Abercrombie, even though we both like the traditional aesthetic and quality of their merchandise. We know the styles are cut too small and she’ll end up discouraged. In fact, Abercrombie’s key competitive advantage over Forever 21 is their more traditional looks. There are plenty of girls in America that relate to A+F’s classics with a modern twist, over fast fashion; and there aren’t any other national retail brands for kids that offer modern, traditional looks. (Except American Eagle and Gap, which are quite different overall.)

Therefore, we end up at Forever 21. As an industry veteran I hate the quality, but we can always find something acceptable and reasonably tasteful in their giant assortment. My niece always leaves Forever 21 feeling good about herself.

If Jefferies wants to make his bonus performance targets in his last act (He’s 69) He is going to have to see the teen market as it is today. It’s not 2007.

Dix&Pond is the blog of Dix & Pond Consulting Creative and strategic consulting for retail, wholesale apparel,  footwear, consumer products and branding agencies. Follow me to get the latest posts

 

 

 

 

 

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Hubris Maximus – Ron Johnson and JCP

Unsurprisingly, Ron Johnson, the former Apple retail executive, has finally been dumped by the J.C. Penney board after 17 disastrous months, as CEO at the mid-tier department store. He took the Texas-based company from a profit in 2011 to a staggering loss in 2012.

William Ackman the activist hedge fund manager (who owns an 18% stake in the ailing JCP), pushed for Ron Johnson to take over the plodding retail behemoth and got his wish to huge fanfare. He touted Johnson, because of his success at Apple and stint at Target as the divine solution to turnaround JCP. No one doubted the need for an overhaul and Johnson provided a compelling sales pitch of a reimagined JCP.

Entrance to the Joe Fresh Department at JCP

Entrance to the Joe Fresh Department at JCP

Johnson was given free rein to continue living in California and play chess with the lives of thousands of employees, vendors and shareholders while disappointing loyal customers. He laid off thousands, stopped sales promotions and created slick Target-esque marketing before changing lack-luster product lines.

This was a classic case of  big-city-smarty-pants going to show those country bumpkins, how to run a better company. Johnson’s attitude was arrogance unchained and a sense of self-infallibility. This is a perfect case study in “Hubris Maximus” for the B-schools. Ackman imparted and granted supernatural powers on a big coastal ego that had no clue how to create and sell apparel and home products. Let face it, anyone can be a genius (pardon the pun he invented the “Genius Bar” in Apple stores) when you are selling the world’s most coveted products. Apple products will sell out of a shack, peddled on the street or at any ordinary retailer. He didn’t create the magic of Apple, he ran their stores.

A JCP turnaround requires more than making physically appealing stores (he succeeded with better visual merchandising); it is a product issue, reinvention of many private label brands and establishing meaningful creative partnerships that would inspire existing customers and attract new ones. There are a few bright lights, but for the most part the new products, like the revamped Liz Claiborne department, is nothing more than make-up on a very big corpse.

William Ackman isn’t the only guy to hire someone who breathes his same rarefied air. So many companies, only want to hire from their social circles, élite schools or MBA’s without regard to their actual credentials and cultural sensitivities to get the job done. They like smelling their own and like-minded perfume.

Better visual merchandising didn't substitute for the traffic driven by promotions.

Better visual merchandising didn’t substitute for the traffic driven by promotions.

The key to the JCP turnaround was respecting the desires of their loyal customers, a willingness to listen and learn before you shoot, testing before your roll out, building meaningful brands and inspiring and empowering your employees. Success was never going to happen with the blind ego of a mere mortal. Ackman made a fool’s bet and lost his shirt.

Dix&Pond is the blog of www.dixandpond.com Creative and strategic consulting for retail and wholesale apparel, shoe and consumer product companies. Follow me to get the latest posts

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