Abercrombie & Fitch’s store on Fifth Avenue in New York City. The brand’s locations are brighter and more inclusive than they were a decade ago. Courtesy of Abercrombie & Fitch Co.
Senior Reporter
Source: www.retaildive.com, June 2024

A merchandising-first mindset is behind the once-troubled brand’s transformation into one of the best performers in retail, analysts say.

While the likes of Macy’s, Urban Outfitters and other retailers in recent earnings discussions called out uncooperative weather and/or macroeconomic headwinds as challenges, Abercrombie & Fitch Co. executives discussed neither.

In a recent report, Morgan Stanley analysts led by Alex Straton noted that lack of discussion around weather or other headwinds. “This lends credibility to the idea that there have been legitimate changes to the A&F banner such as a more disciplined inventory management, increased ‘core’ assortment, and greater exposure to more stable, higher [income] consumers, among others …that altogether minimize the business’ margin volatility” compared to its own history and its rivals, they said.

It further suggests that Abercrombie’s improvements “are durable,” they also said. This is a remarkable shift for a brand that was in shambles a decade ago, when Mike Jeffries finally stepped down as CEO. Today, in an era when AI seems poised to only amplify the role of technology in running an apparel brand, observers credit much of Abercrombie & Fitch’s rehabilitation to something they say many apparel retailers have long neglected: old fashioned merchandising chops.

Jeffries has been widely blamed for the apparel retailer’s past troubles — a history of discrimination and sexualized marketing that helped land it on the American Customer Satisfaction Index of least liked brands in the U.S. Despite all that, the company struggled to replace him for years, clouding hope for meaningful progress as sales continually faltered.

Now, though, Abercrombie & Fitch Co., which runs the namesake brand and its sister, teen line Hollister, is a standout in an otherwise tepid apparel segment. In 2023 net sales rose 16% year over year, reaching $4.3 billion, as comps rose 13% and gross margin expanded by 600 basis points to 62.9%. The momentum continued in Q1, when the company topped a record-setting billion dollars in net sales, and comps rose 21%. Net sales at the Abercrombie brand in the period grew 31.1% to $571.5 million, with comps up 29%, and at Hollister grew 12.3% to $449.2 million, with comps up 13%.

“Ten or so years ago, many had written off Abercrombie & Fitch. Today, the company is producing extraordinary results which mark it out as one of the best performers in the retail market,” GlobalData Managing Director Neil Saunders said in emailed comments. “This is the result of years of hard work to reengineer the brand, so it connects with the needs and desires of modern consumers. Enacting a 180-degree turn is extremely difficult at the best of times, but to deliver this against the backdrop of first a pandemic and then a period of economic disruption is a testament to the focus and skill of management and all working in the business.”