Hefty discounts? That isn’t Abercrombie’s style
Teen retailer Abercrombie & Fitch Co. has never played by the rules.
Over the years, the company has become known not only for its polos and hoodies, but also for its shirtless store greeters and racy catalogs featuring semi-nude models.
And this Christmas, when struggling retailers are slashing prices, Abercrombie is embracing yet another risky move: Almost nothing is on sale.
“We will not become promotional,” said David Cupps, general counsel and secretary at Abercrombie. “We’re not ‘everybody.’ If your position is everybody has to change, then perhaps it’s everybody but one has to change.”
At stake is the apparel company’s carefully crafted image as a casual-but-elite lifestyle brand for young adults. Abercrombie executives worry that offering hefty discounts could hurt the brand’s integrity and appeal in the long run.
But it’s a gamble that could cost the company some of its customers.
“The importance of the brand is still there, it’s still relevant, teenagers still like the product -- they just can’t afford it,” said Linda Tsai, a specialty retail analyst with MKM Partners. “And the parents aren’t going to pay up right now, not when the competition is discounting so heavily and offering more value for the money.”
At the Grove shopping center this week, Alex Sparer, 20, said she liked Abercrombie’s fashions but couldn’t afford them. With fewer tips coming in at the California Pizza Kitchen where she works as a server, she’s had to pay even more attention to price lately.
“I only buy their stuff when they’re having sales, so I usually don’t buy anything,” said Sparer, a junior at Cal State Northridge.
Already, Abercrombie’s tactic has raised eyebrows among retail experts.
“It’s a pretty difficult strategy to execute,” Tsai said. “With consumer spending, if there seemed like there was a light at the end of the tunnel, it would make more sense because discounting less does protect the brand. But at this point, I don’t think it’s something that’s very sustainable.”
At a time when even luxury chains such as Neiman Marcus and Saks Fifth Avenue are offering massive markdowns, it is unusual that Abercrombie -- essentially a jeans-and-T-shirts company -- is refusing to participate.
As the economy has worsened, the company’s no-discounts rule has quickly hit its top line.
Last week the retailer, based in New Albany, Ohio, reported that November sales at stores open at least a year fell 28% over 2007, significantly worse than the results of other teen apparel retailers.
Nonetheless, Chief Executive Michael Jeffries told analysts during an earnings call last month that Abercrombie was sticking to its strategy.
“We will use markdowns only to clear through seasonal product in a brand-positive way,” Jeffries said. “It is clear to us that the short-term relief provided by the use of promotions is more than offset by the damage inflicted on the brand in the long-term.”
In stark contrast, American Eagle Outfitters Inc., one of Abercrombie’s major competitors, has never shied away from offering low prices, spokeswoman Jani Strand said.
“We recognize that in this kind of environment, our customers are looking for value, and we’re a partner to them in that,” Strand said. “We are certainly underscoring our value message more and offering more fashion items at lower opening price points without sacrificing quality.”
Eli Portnoy, a Los Angeles brand strategist, said he has historically advised clients against “going the price-discount route.” But not anymore, he said, noting that he hasn’t seen a retail landscape this weak in 30 years.
“We are in the midst of a major paradigm shift, and traditional brand strategy is being challenged,” Portnoy said. “This means a pricing policy that permits changes to market conditions will have to take place.”
This week, American Eagle held a buy-one-get-one-50%-off sale on nearly everything in stores and online. Aeropostale Inc. posted a $10 off in-store coupon on its website and boasted markdowns of as much as 70% off select merchandise.
Abercrombie, meanwhile, made no mention of sales or special offers on its home page. At its location at the Grove on Tuesday, the store was selling nearly all its merchandise at full price, including a pair of women’s jeans for $89.50 and a men’s striped sweater for $140.
And unlike its competitors, which have been touting sales with huge window posters, in-store displays and online ads, the store’s few clearance items -- mainly summer wear such as tank tops and denim skirts -- were hidden in a back corner.
Some analysts said Abercrombie could afford to stand by its policy for now. The retailer -- which has roughly 350 namesake stores nationwide and is the parent company to a handful of other brands including Hollister Co. -- has a strong balance sheet with virtually no debt and is led by a smart management team, they said.
“What they’re doing has not been done before,” said Richard Jaffe, a retail analyst with Stifel, Nicolaus & Co. “But then again, there’s been no one that has created an aspirational brand for teenagers like Abercrombie.”
The big question is how long the company can hold out, especially if the retail landscape worsens, as many economists predict.
But Cupps said customers shouldn’t expect to see lower prices any time soon, even if sales continue to falter.
“I see no prospect for deviating from our no-promotion strategy,” Cupps said. “What we are offering, we are offering at a fair price.”
Although Abercrombie remains one of the most sought-after brands for trendy teens, a prolonged refusal to lower prices “runs the risk of maybe even alienating their customer,” said Howard Tubin, a retail analyst with RBC Capital Markets.
“You keep the brand pure and aspirational,” he said, “but you’re giving your customer the opportunity to go somewhere else, and there’s the chance that that customer stays somewhere else.”
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