If you are a great brand and plan to grow in international retail, make sure you have a competitive brand business model. It takes more than six packs to be successful.
As the beach boy six packs are no longer in action, what is the brand’s competitive edge? Can you remember any new store opening hype lately for Abercrombie? In 2011, at the height of Abercrombie & Fitch’s international expansion, we looked for the first time at the brand’s P&L and its retail KPIs (see retail intrapreneur). In 2011 alone, US$230m in capital expenditure was spent on expansion in Asia and Europe. The US management was counting on the success of the brand’s international expansion. We questioned whether the business model was ready for European growth.
At the Düsseldorf store opening in December 2011 we wrote: “If the US management does not pursue a new strategy with its dynamic internationalisation, the history of other American retailers who have been trying it for 7 years could repeat itself. The Gap was greeted enthusiastically in 1995, only to sell its German stores to H&M a few years later. Or take Wal-Mart – a big-bang market entry in 1998/99 and an exit after seven years and €0.5bn in investments.
And neither retailer can be accused of failing to make a lot of innovative moves for new shopping experiences. But in both cases, the international retail strategy did not pass the readiness test.” However we also pointed out that “US brands don’t have a monopoly on this strategic misstep. Asia’s Uniqlo failed with stores in the UK, as did Germany’s Esprit in Asia.” Both brands continue their struggle with international retail growth – as many other retailers and brands do.
Is A&F Ready for International Retail?
Whether Abercrombie will exit Düsseldorf seven years after the start is not yet decided. But for 2015 & 2016, A&F reports significant L4L sales losses in many international markets, while international retail expansion has been put on hold in many markets. Stores like this one in Oberhausen are still rather empty for many days during the year.
Düsseldorf, Oberhausen, London … the stores are still there, but fighting with long and expensive lease contracts. Customer queues have gone and Abercrombie’s crisis definitively reached Europe. The new CEO is working on the topic, but in the last quarters he reported a few times that the turnaround is there and it was not. Last Friday the same topic appeared again:
Kimimasa Mayama | Bloomberg | Getty Images Shares of Abercrombie & Fitch tumbled 13.76 percent in trading last Friday, as a steep dropoff in sales at the company’s namesake label showed its long-awaited turnaround has veered farther off track. The deteriorating results come amid a shakeout in the teen retail space, following Chapter 11 filings from competitors Wet Seal and Aéropostale.
The change in international retail strategy was to take sexism out of the marketing. But without sex appeal and marketing power, the brand became just another casual wear brand. What is left is a vertical retailer with very common products.
Do consumer care about Abercrombie?
As Abercrombie’s honeymoon with global consumers is over, what is next? What is left after the honeymoon, when the six packs are gone? You better have strong inner values if you want to maintain a long-lasting partnership. Google’ search trends chart shows the interest in the brand dropped, to 1/4 of what it was 5 years ago.
It seems that management has not found the new international retail strategy yet to replace the hype of earlier years with a new great marketing campaign. Only at Thanksgiving, when people desperately look for a last-minute SOS gift (Socks, Overall, Sweater) Abercrombies manage to creep back into consumers’ ‘relevant set’ of brands. But is that enough to operate expensive High Street stores throughout the rest of the year?
It seems A&F is still digesting its retail over-expansion and not surprisingly. If you take a look at our five criteria to determine retail growth readiness, it seems A&F may still struggle with some of them.
Quo Vadis Abercrombie’ International Retail Strategy?
A&F is at a strategic turning point. Management has to decide, do we aim to become a destination brand or a vertical retailer? Do we invest heavily in product and a new image? Or do we go vertical-no-thrill-retail, but with strong product value offers?
The company’s big chance may lay in the fact that A&F so far is a retailer mainly, with little wholesale business. Its retail performance is poor compared to many vertical retailers. But compared to many mid-market brands, the retail performance is not that bad. Only, these other brands benefit from a highly profitable wholesale and outlet businesses – two channels where A&F may still have significant international growth opportunities.
Forbid Justin Bieber to use sex appeal in his marketing and what is left is just a very average artist. Justin would need to work long and hard before becoming an artist of some repute. This is what happens at A&F. There was another very marketing-driven brand in the 90ies, that needed to stopp its campaigns, and so far didn’t become successful again: United Colors of Benetton. We are curious to see whether A&F will find a smarter strategic way out of the crisis. In any case, it will take a while before A & F is back with a convincing business model.
PS in October 2020
In hindsight Abercrombie’s annual result and the halt on international retail expansion demonstrated what I “read” from their numbers and strategy in 2011/2016. But I was wrong in one thing: It didn’t take them seven years to see it, it needed nine years and a Pandemic to close Düsseldorf. Hopefully, they still have a surfers strength to get back on the board to ride the wave of a truly successful business model.
About the Author
Guido is a brand and retail manager who has been working on brand retail improvement strategies for more than 20 years. As founder of Team Retail Excellence, he assisted entrepreneurs and managers to successfully grow brand distribution in many channels. Guido is currently writing a book titled “Best Practices for Brand Growth Management”, while he continues to coach brands on their growth paths. You can reach him best by email or see more from him here.