With the holidays behind them, retailers get serious about clearance sales in January -- posting signs in their windows that shout 50% off and more.
But at the Abercrombie & Fitch store at the Grove shopping center in Los Angeles a few days after New Year’s, nothing was on sale.
The “too-cool-for-school” retailer, as one customer calls it, took a similar approach the day after Thanksgiving, offering sparse discounts on one of the most ferociously competitive shopping days of the year.
And the strategy has been working: Shoppers have liked the clothes well enough that, for the most part, they have been willing to pay full price to get them, analysts say.
After a long stretch starting in 2000 of declining or flat sales at stores open at least a year, Abercrombie sharply reversed course in 2005.
The Ohio-based retailer, with more stores in California than in any other state, started getting attention more for its financial performance and less for the controversial products and outlandish marketing -- thongs for preteen girls, naked models in an R-rated “magalog” -- that had made it a veritable outrage factory.
Abercrombie upstaged competitors during the holidays, sharpening its focus as a purveyor of “casual luxury” for young shoppers and proving that college-age customers will shell out $80 for a camisole, $150 for a cashmere sweater, $198 for a pair of jeans or $250 for a hooded parka trimmed with faux fur.
The retailer logged year-over-year gains of 23% in November and 29% in December in so-called same-store sales, even as major specialty apparel retail chains as a group posted increases of 3.2% and 1.5% during those months, dragged down by Gap Inc.'s poor performance. Same-store sales are considered the best measure of a retailer’s health.
Analysts say that Abercrombie’s product has been appealing and that it has ratcheted up its emphasis on service, putting aside its trademark aloofness, so that shoppers are tended to and the stores look sharp.
“They were delivering to customers exactly what the customers wanted,” said Howard Tubin, an analyst with Cathay Financial Inc., who rates the stock “outperform.”
With Abercrombie set to release fiscal fourth-quarter earnings next month, analysts predict per-share profit of $1.75 for the fourth quarter and $3.68 for the year, which would represent year-over-year increases of 52% and 45%, respectively.
Anthony Fitzgerald is doing his part to help. Examining a stack of T-shirts at the Grove store, the Hollywood resident said he was obsessed with Abercrombie & Fitch, and not just because he and the company share initials.
“It’s a preppy look, but it’s not over-the-top preppy,” said Fitzgerald, 21, manager of an organic grocery store. “There’s a quality about Abercrombie.”
Abercrombie, which logged $2.02 billion in revenue in its last fiscal year, is one of many retailers cashing in on shoppers’ heightened taste for more expensive clothes.
Whether customers in the luxury segment keep spending or begin retreating in 2006, analysts say, Abercrombie for now is dead-on with its offerings, which have the fit, styling and edge to suit many young shoppers.
“I shop there all the time,” said Avalon Barrie, 18, an actress from Malibu who likes Abercrombie’s “casual and comfy” approach and, in particular, the fit of its jeans.
Spending per customer visit and sales per square foot have been growing in each of Abercrombie & Fitch’s divisions, which in addition to the namesake chain consist of abercrombie stores for children (sometimes called “little a”), the beach-themed Hollister chain and Ruehl for young adults. The company operates about 820 stores in all.
Although Abercrombie has at times marked down the cost of some merchandise -- including a sale that started Christmas Eve -- analysts say it was one of the least promotional retailers during the holiday season.
And even when products went on sale, many shoppers snapped up the newer, full-priced merchandise.
Analyst Robert Buchanan of A.G. Edwards & Sons credits Chief Executive Michael S. Jeffries, at the helm since 1992, with assembling a strong team that reversed the slide in same-store sales.
“I think they’ve got a good product leader in Mike,” said Buchanan, who has a “buy” rating on the stock.
Other factors have helped the retailer look good. The styles it touts, notably jeans, have been in sync with recent fashion trends. Further, it’s easier to post strong numbers when they are being compared with a weak previous year.
Even as it has engineered a sales rebound, Abercrombie, which declined requests for interviews, has had plenty of headaches in recent years.
In November 2004, the company agreed to revise its hiring and training practices and pay $40 million to thousands of employees and job applicants to settle three lawsuits that accused it of discriminating against women and minorities, allegations that it denied.
This month, the company disclosed that the Securities and Exchange Commission had opened a formal probe into the trading of the company’s stock, requesting information from current and former officers and directors.
And just last week the retailer agreed to pay as much as $2 million to settle a lawsuit filed on behalf of more than 250 California store managers who claimed that they were denied overtime pay. The company admitted no wrongdoing.
Still, lawsuits and SEC probes don’t make the things-to-worry-about list of the young people who shop in Abercrombie’s stores. And pushing the limits is part of the company’s appeal, some of them say.
“Sex sells,” said John Walters, 18, a student from Tucson, standing in front of the Grove store, which was blanketed with a three-story picture of a shirtless hunk reclining in a bed of leaves. “It seems like they give off a too-cool-for-school attitude.”
Experts have differing opinions about whether the bad-boy image helps or hurts the retailer.
“I think it’s gotten them some publicity, but I don’t know if it actually sold any clothes,” said Adrienne Tennant of Wedbush Morgan Securities in Los Angeles.
Although teens don’t give a hoot if Abercrombie raises eyebrows, parents often do, and they are the ones spending money at the abercrombie chain for younger children, a division that has done better as the company has toned down its image somewhat, Tennant said.
Analysts tend to fret more over other issues, such as the retailer’s high levels of inventory and its dependence on denim.
On Friday, analyst Stacy Pak of Prudential Equity Group downgraded the stock to “neutral weight,” citing concerns over inventory as well as valuation in light of the recent run-up in the share price past $67. The stock fell $2.37 on Friday to $63.76.
And there’s always the risk that young shoppers will balk at Abercrombie’s rising prices. Some of Barrie’s pals already have.
A lot of them, she said, prefer American Eagle Outfitters Inc. “because their prices are cheaper but they have the same type of clothes.”
Having carefully honed its edgy image, Abercrombie probably will continue to rankle some.
T-shirts piled on a round table at the Grove store bear sayings such as “It’s obvious you want me"; “Fighting for peace is like having sex for virginity"; and “Sleeps well with others, resume upon request.”
Some that use wordplay to make racier statements are too much even for Fitzgerald, the Hollywood resident who is otherwise so crazy about the store.
“More or less this is a one-stop shop for all my needs,” he said. “Except I wouldn’t wear these T-shirts to church.”