How Abercrombie & Fitch Engineered Its Dramatic Turnaround And Will Keep Moving Forward

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Amidst a fashion retail market that is basically flat – growing only 1% from $303.4 billion in 2022 to $307.1 billion in 2023 – Abercrombie & Fitch Co. growth trajectory is nothing short of astounding. Full-year 2023 net sales were up 16% across its flagship Abercrombie and teen-focused Hollister brands, reaching $4.3 billion.

Corporate revenues were about evenly split between the two brands, yet in 2023, Abercrombie led the charge in growth with revenues up 27% year-over-year, from $1.7 billion to $2.2 billion. Hollister pulled off a decent 6% uptick, but the big story is the turnaround of Abercrombie, which less than a decade ago CNN called out as “America’s most hated retailer,” based on the American Customer Satisfaction Survey conducted with over 9,000 American consumers.

After listening to numerous interviews with CEO Fran Horowitz – the company has yet to grant me the honor – she modestly credits the success to good retail practices.

“Getting close to the customer and understanding what they are looking for is the win. Put out there great product, fashion and an equation that they are excited about. They’re willing to spend,” she shared on CNBC “’Squawk on the Street,” after the first quarter 2024 earnings call when she reported the Abercrombie brand grew an even more astounding 31% from previous year. Corporately, sales were up 22%, with Hollister registering a 12% uptick in the quarter.

A hot, newly-minted fashion brand might generate growth like that, but it’s hardly expected from one that has been around since 1892 like Abercrombie & Fitch. And the fashion retail industry is not wanting well trained, experienced and more than capable leadership teams who know the same good retail practices that Horowitz does.

So what’s made Abercrombie & Fitch such a leader in the dicey fashion retail business? Horowitz does more than talk the talk of the classic 4Ps of marketing – Product, Price, Place and Promotion. She walks the walk.

And more significantly, she’s leaned into the missing and arguably the most important P – People – since the retail business is first and foremost a people-business.

People Come First

From mid-2014 when CEO Mike Jeffries left the company under a cloud until Horowitz’s appointment in February 2017, Abercrombie & Fitch Co. was without a CEO. In the interim, executive board chairman and former Sears CEO Arthur Martinez took the lead in earnings calls and left the company in Horowitz’s capable hands in early 2018. Nigel Travis is now the board chair and Horowitz serves on the board.

Her ascension is a classic example of the right person in the right place at the right time. She joined the company in October 2014 as Hollister president and was never tainted by Jeffries’ brush. Within a year, she was promoted to president and chief merchandise officer across Abercrombie & Fitch Co.

She came to Abercrombie & Fitch with a stellar fashion retail background, including years with Ann Taylor Loft, Express, Bloomingdales, Bergdorf Goodman, Bonwit Teller and Saks Fifith Avenue, and she holds an M.B.A. from Fordham University.

At the time of Horowitz’s CEO appointment, Martinez said, “She is a talented, creative and dedicated executive who has energized our team around important cultural values, a consumer-center mindset and a commitment to our Company’s success. We are confident that as CEO, she is the right person to lead the company forward.”

Since then, she’s lived up to those prophetic words. She became a stabilizing hand at the wheel, after the increasingly disruptive style of Jeffries, who the BBC reports is still under investigation for sexual exploitation claims during his time with the company.

And just as Horowitz became the adult-in-the-room at the company, she helped the Abercrombie brand grow up as its original Millennial target customer matured.

In 2012, when Abercrombie & Fitch was at its peak of $4.5 billion, Millennials were aged 16 to 31 years. Now, its prime Millennial customers are aged 28 to 43 years with considerably more money to spend and a much wider range of fashion needs.

That broadening focus has opened the door for Abercrombie to appeal to a wider audience. “From our design and marketing perspective, our target is a young Millennial mid-to-late 20s,” Horowitz shared with Yahoo Finance.

“But the exciting thing about the brand is now such a broader range of people are responding to it. So perhaps they started shopping with us in their 20s, they’re still here in their 30s and 40s. We are seeing both a broadening of categories and broadening of ages visiting the brand,” she continued.

Right Product At The Right Price Wins

While Hollister remains the company’s teen brand, Horowitz has elevated the look and feel of Abercrombie offerings, all at readily accessible price points. Its menswear-inspired Sloane pant for women became an instant quiet luxury classic, priced under $100 and machine washable. Horowitz says it is one of the brand’s biggest franchises. And Abercrombie has upped menswear from everyday casual to tailored suiting.

The brand’s launch of the A & F Wedding Shop this spring ahead of the peak wedding season demonstrates how Horowitz and her team take their cues by listening to customers. The Wedding Shop for women evolved from its Best-Dressed Guest Collection for men introduced several years ago after hearing from customers that weddings are no longer a single day event, but one that spans two, three, even four days, requiring a suitcase full of looks for both men and women.

A sleek maxi dress with a plunging cowl back detail is suitable for the bride in white and bridemaids or guests in a range of colors for $130. And among the selections is a pleated number that is reminiscent of Marilyn Monroe’s Seven Year Itch subway-scene classic.

In the most recent earnings call, Horowitz reported that The Wedding Shop has exceeded expectations and predicts it will pick up steam as the prime summer-fall wedding season advances.

The company’s chase model is what Horowitz credits with keeping inventory light while assuring the fashion offerings are fresh and on-trend. “Once we get an indication about product, we can chase and get back into it in a relatively fast period of time,” she explained to Brian Sozzi of Yahoo Finance.

Being In The Right Place

Horowitz literally turned the lights back on at Abercrombie & Fitch stores and made them pleasant places to shop instead of dark, moody and intimidating. That took some maneuvering as it streamlined its 2017 footprint from 355 stores, including 311 in the U.S., to 224 in 2022 and down to 173 U.S. locations.

Then it began to expand again with smaller footprint stores in prime locations to support the brand’s strong online presence. Fiscal 2023 closed with 247 Abercrombie & Fitch stores, including 194 in the U.S. Hollister’s store count dropped slightly from 543 in 2017 to 518 in 2023 with just under 400 in the U.S.

This year’s plan includes opening 60 new stores, remodeling and right-sizing 65 more and closing 40. Horowitz did not specify which brands, though past history suggests Abercrombie will get the lion’s share of new stores and remodels.

Regarding the Abercrombie & Fitch shopping environment, Neil Saunders of GlobalData Retail said, “The newest stores are light and bright with a lot of natural wood fixturing. Everything is laid out cleanly and clearly. They’re actually very engaging places to shop.”

The next places Abercrombie & Fitch will show up are in international markets. During the first quarter, the board held a meeting in London to explore further international opportunities.

It has formed corporate teams embedded in London to develop the U.K. and European business, particularly focusing on Germany, and in Shanghai for the APAC region. The company has already built a strong presence in EMEA countries generating $687 million there versus $318 million in APAC in fiscal 2023.

Promotion Catches Attention

“Customer acquisition remains a key focus for the brand, and we increased global marketing investments year-over-year to help grow community and brand affinity,” Horowitz shared in the latest earnings call, adding that marketing investment had increased from 4% of sales same period last year to 5% this.

“What’s exciting about our current marketing spend is that we’re actually, with the strength of the brands, able to spend that marketing over the bottom, middle and top of funnel,” she continued.

Influencer marketing is a big part of the marketing mix that allows the brand to reach further, faster and more cost effectively across its digitally-native customer base. “The affiliates and the influencers are very big part of our business,” Horowitz shared with CNBC. “That user-generated content that they create is something that really resonates with our consumer.”

Influencer marketing, particularly that which grows organically, provides the authentic voice of the consumer, which Horowitz recognizes is the voice that ultimately matters.

A&F Playbook To Carry The Company Forward

In June of 2022, Horowitz and her leadership team mapped out the company’s Always Forward strategic plan to reach $5 billion by 2025. It’s been the playbook through which the company has delivered such exceptional growth over the past year and into 2024.

The plan is grounded in operating with strict financial discipline to generate profits and free cash flow. Its effective execution has enabled the company stock to grow from just under $40 per share a year ago to reach nearly $200 early in June. It is now trading in the $170 to $175 range.

Corporately, the plan commits to accelerating the enterprise-wide digital revolution “through Knowing Their Customer Better and Wowing Them Everywhere.” The company will continue to invest in customer analytics and focus on omni-channel growth.

And the playbook focuses on maximizing the unique growth opportunities for each of its brands in their respective spaces, including Abercrombie & Fitch adult, Abercrombie Kids, Hollister and its women’s activewear Gilly sub-brand, which it plans to expand by 15% in CAGR sales by 2025.

However, Horowitz expects Abercrombie & Fitch adult to lead the charge in overall growth.

“Our company and brands are purpose-led, and listening to and learning from our global customer is deeply ingrained in our thinking and culture in a way that it never has been before. We are committed to constantly adapting to meet and exceed their ever-changing needs, and I firmly believe that the changes we have made position us to deliver steady growth,” she said.

By all reckoning, that is what Horowitz will continue to deliver for Abercrombie & Fitch Co.

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