Abercrombie & Fitch's attempts to rebrand have totally backfired

AbercrombieAbercrombie/Matt JonesWhat’s going on with Abercrombie & Fitch?

The year is 1999. The summer is rolling into fall and Labour Day weekend is spent shopping for last-minute back-to-school clothes. Teen girls, in particular, are flocking to one store. After all, the LFO hit, “Summer Girls,” is playing non-stop on the radio, solidifying Abercrombie & Fitch’s status as the hottest teen retailer of the day.

Flash forward 17 years and Abercrombie has all but lost its lustre. Same-store sales have been falling for years. In its latest earnings call with investors this week, the company announced plans to close about 60 stores, signalling that its attempt to save the brand has pretty much failed.

Abercrombie has been trying to save itself around for a while now, reinventing its image and as a result becoming totally unrecognizable to the generation of kids who grew up shopping there in the late ’90s and early aughts. The goal was to appeal to older shoppers — 18 to 25 year olds, not teens.

The brand lessened its use of logos and their male models put some clothes on. The company loosened its notoriously stringent “look policy,” wherein salesclerks were formerly referred to as “models” and forbidden from having mustaches. The company tapped a former J. Crew exec and a former Club Monaco designer to lead its rebranding efforts.

In theory, this was a smart idea. Betty Chen, managing director of Mizuho Securities, pointed out that this would open the gates to a demographic with more spending money. The move would also help Abercrombie set itself apart from its more teen-friendly sister brand, Hollister.

But the brand’s attempt to execute a turnaround is proving to be very difficult.

In the fourth quarter of fiscal 2015, the company, which also encompasses Abercrombie Kids as well as Hollister Co., saw its first positive quarter since 2012, though the Abercrombie brand saw a decrease of 2%. By the first quarter of fiscal 2016, sales for the parent company were down 4%. The Abercrombie brand was down 8% then. One reason was dropping tourist and international traffic.

In late August, right before second quarter 2016 earnings were announced, Eric Beder of Wunderlich Securities highlighted that Abercrombie’s efforts to rebrand could be futile.

The “shift to an older customer makes little sense to us,” Beder wrote in a research note to clients.

“While the shift to an older customer is a strategy for Abercrombie, we see limited reasons for older customers to shift back to a ‘teen’ brand and, frankly, there are better brands and lifestyles for the 20+ customer to focus on,” Beder wrote.

Young adults now have fast fashion brands Zara and Forever 21 that beat Abercrombie & Fitch when it comes to affordability. Abercrombie costs more than the majority of fast fashion apparel — and unlike Zara, it doesn’t turn out runway trends at lightning speed. More affluent young adults may choose to shop at more under-the-radar, unknown brands like American Giant, Chen told Business Insider.

Competition aside, the company’s struggles symbolise how tough it is for a brand to shift gears as dramatically as Abercrombie is trying to do.

“In the history of retail, it is very difficult when a brand tries to reposition itself anywhere along the age demographic,” Chen said. “You can almost predict failure when you’re going older or younger.”

And Abercrombie’s image doesn’t help.

“As you can imagine, there’s some preconceived notions with the brand’s image,” Chen said.

Abercrombie & Fitch’s sordid reputation for preppy clothes and sexually explicit ads is embedded in millennial shoppers’ minds, the same way its logos were sewn permanently into its apparel.

Everything that Abercrombie & Fitch stood for just doesn’t jibe with consumers today.

“You clearly have a group that cares less about logo and brand and more just about quality,” Chen said, “and they [haven’t been] prioritising apparel [instead, they’re] using disposable income on electronics like smartphones, health and fitness, [and] even more so on experiences.”

In November, Abercrombie & Fitch chairman Arthur Martinez acknowledged that apparel represents a smaller percentage of young consumers’ spending these days.

As Beder wrote in another note to clients, the brand is losing traffic because it’s losing market share — and that’s because people aren’t interested in the brand, which may account for this quarter’s 7% drop in same-store sales.

Beder pointed to Urban Outfitters and American Eagle as two brands that posted positive comparable sales this quarter, suggesting that Abercrombie & Fitch just isn’t the king of the mall anymore.

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