Abercrombie and Fitch Analysis

Abercrombie and Fitch Analysis 1. Introduction The following report explores the company Abercrombie Fitch within its US and UK market. Key external factors have been explored such as PEST, SWOT, TOWS and the companies competitors, as well as Porters Generic strategies and Ansoff Matrix. SMART Objectives have then been formulated considering all of the above factors and then a Strategic Plan, Implementation Measurement of each SMART Objective has been created. 1.2 Company Background Abercrombie and Fitch were founded in 1892 by David T Abercrombie and offered prestigious sporting and outdoor clothing for males and females. Today the company is an upmarket US fashion retailer striving to offer their consumers casual luxury to the 18-22 year old market segment. The company has over 300 stores in the US and is also situated in the UK, Japan, Canada and Italy. They also have ongoing plans to expand into other foreign markets such as Asia in the near future. Abercrombie Fitch have three subsidiary sister companies consisting of: Abercrombie: very similar to the main brand but for children aged 7-14 Hollister Co: for teenagers 14-18 offering lower priced products to Abercrombie Fitch but very similar in style Gilly Hicks: offering lounge wear, underwear and a body care range for people aged 18+. Abercrombie Fitch also had a subsidiary company called Ruehl No.925 which offered clothing products to the 25+ age segment, however the store closed at the beginning of 2010 as it did not take off. 2. External Analysis- PEST Factors Table 1: PEST 2.1 Political/Legal Import Duty: As Abercrombie Fitch manufacture their products within the USA and Asia, products that are imported into the UK accrue an import duty. Import duty is calculated on the type of goods, their value and the country of origin. (Business Link 2010) If the product is made up of 20% or more of parts from other countries then this has to be stated to the countries customs as this may affect the price of the import duty. Labelling: As Abercrombie Fitchs products are imported from the US to the UK the company needs to ensure that all their clothing products meet the UK labelling requirements stated in the Textile Products (Indication of Fibre Content) Regulations 1986, to ensure that they are in accordance with the law. Employment law: The UK has very strict employment laws against discrimination. Abercrombie Fitch were recently faced with a law suit in June 2009 when an employee was allegedly told that her prosthetic limb was not in accordance with the companies look policy. The employee aimed to sue the company for  £20,000 for discrimination against her disability. It is important for Abercrombie Fitch and their employees to be aware of UK legislations as high profile law suits could affect their image leading to bad publicity. 2.2 Economic The Recession: Although some reports may state that the recent recession may be drawing to an end, Abercrombie Fitchs latest Fiscal-fourth quarter earnings (Talley 2010) paint a different picture as they fell 31% (Talley 2010) due to the continuing decline in their sales. This is due to the company not being prepared to reduce their prices during the recession, forcing their customers to look for cheaper competitors (see Competitor Audit for detailed list of competitors). UK Pricing: Abercrombie Fitch are constantly striving to maintain and promote the prestige image they have successfully created in the US in the UK. However when the UK flagship store in London opened in 2007 the company was criticised for over pricing, as the products cost double those offered in the US stores. This could have had a major impact on the companys success in the UK. However, so far they have found that their consumers have had strong brand loyalty to them and have been willing to pay the price for the products. Although as mentioned above, the companys earnings have been affected by the recession. 2.3 Socio-Cultural Sexual Imagery: Over the years Abercrombie Fitch have been attacked about their sexually explicit advertising within their advertising campaigns and quarterly catalogue. It is against many different religions values and beliefs for example the Muslim religion to show sexual or naked imagery within advertisements. Therefore Abercrombie Fitch need to be aware of the different values and beliefs different communities and religions have in order not to offend anyone. Market research should be undertaken as to what the best form of advertising is for any new campaigns and to determine what type of imagery should be used. However in many westernised countries, shock advertising works well and this is what they use. The company strives to be different and stand out in any which way they can. Ageing Population: With increasing life expectancy and an aging population prominent across the world, it is unwise for Abercrombie Fitch to continue into their future just focusing on consumers aged 18-22. With the recent failure of their high end brand Ruehl No.925 which focused on consumers aged 25-35 a strategy to re-brand and reinvent Ruehl may be a wise decision for the company. 2.4 Technological Internet online purchasing: With the ever increasing popularity of the internet and consumer online purchasing, it has meant that Abercrombie Fitch have been able to advertise their products to consumers via their website and also allowing the consumer to purchase products, if they wish to, around the world. Online advertisement is an excellent way to catch a younger target audiences attention. Improvement of Transport: Transport has changed dramatically over the past 50years. Roads have improved and with many more flights take off each day from large airports, companies are seeing quicker delivery times for products that are sent by sea, road and air. This is good news for Abercrombie Fitch as their products are reaching consumers quicker. As the companys products spend a lot of time in transport, some of the manufactured goods are imported from Asia then dispatched around the world to their many stores. 3. External Analysis- Competitor Audit As Abercrombie Fitch are situated in many different global markets the following competitor audit will focus on Abercrombie Fitchs main competitors in the UK and the US. 3.1 US Competitors: 3.1.1 American Eagle Outfitters American Eagle Outfitters is Abercrombie Fitchs main competitor in the US. Like Abercrombie Fitch they target 18-22 year olds, offering young fashionable products to their consumers. They have a larger range of products than Abercrombie Fitch but are not seen to be as prestigious. Unlike Abercrombie Fitch, some consumers find the American Eagles shopping experience much more pleasant, as the music is quieter and there is more lighting. The company recently opened a store in the UK in London. 3.1.2 Aeropostele Aeropostele is cheaper than Abercrombie Fitch, however it is still seen as one of their main competitors as they target the same market segment. Like American Eagle they have a large range of clothing products and accessories for the male and female markey which Abercrombie Fitch do not offer. 3.2 UK Competitors: 3.2.1 Jack Wills Like Abercrombie Fitch Jack Wills target segment is 18-22 year olds. The company call themselves the University Outfitters and often situate their stores in University towns. Although Jack Wills call themselves this name under 18s are also found to be keen Jack Wills wearers. However the company do not have a strong market share in the UK as they are seen to offer, like Abercrombie Fitch specialised clothing. 3.2.2 Urban Outfitters Urban Outfitters offer branded clothing to a unique market. Unlike Abercrombie Fitch they offer edgy, different styled fashion products to their competitor, targeting the same age segment. Urban Outfitters is a very popular US company and is very up and coming in the UK in London. 3.2.3 Hollister Although Hollister is a sister company to Abercrombie Fitch, there seems to have been some inter-company competitiveness in the UK. Abercrombie Fitch have only one store in the UK situated in London whereas Hollister have ten stores situated around the country. Although in the US Hollister targets 14-18 year olds, many older people in the UK have been wearing the brand due to accessibility of the store, as travelling to London to purchase Abercrombie Fitch clothing is not an option for some people they choose to wear the next best thing which is clothing from Abercrombie Fitchs sister company Hollister. 4. SWOT Analysis 4.1 Strengths Strong portfolio of brands other than the main Abercrombie Fitch brand appealing to consumers aged 9- 24 Annual Abercrombie Fitch Challenge which raises money for charities and organisations, raising their profile Sponsor of the Elite Racing Team In 2007 offered $75,000 scholarships to the National Society of High School Scholars Expansion plans in Canada, Europe and Asia The ability to capture 18-22 year olds attention and condition them into wanting the brands products In 2007 the company had a 2.3% market share of the US clothing retail market which put them at 3rd largest market share. In 2008 Abercrombie Fitch started modifying and upgrading their information systems 4.2 Weaknesses Money being lost to counterfeit products Company portrays a sexual image, this is not acceptable in some countries and societies Look Policy often seen to be too strict by employees With the recent closure of Ruehl No.925 there is no longer an Abercrombie store that appeals to consumers aged 25+ Expensive prices in the UK compared to US Many law suits have been seen due to Discrimination Many of the loyal customers feel that too many people are now wearing the brand and it is starting to lose its prestigious image The recent upgrading and modification on information systems within the business is a long process and could affect day to day running of the business 4.3 Opportunities Celebrity endorsements Increase brand awareness New range of products for pre 9 year olds Reinvent Ruehl No.925 and recapture the 25+ market segment Increase market share Increase sales outside of the two main selling seasons of August and November/December Completely new product launch Female jewellery Recapture prestigious image with new range Larger sizes Male and female watches Introduce real looking models (models sized UK 12+) as it is not how the clothes look on the individual, it is how they make the individual feel In store music album available to purchase Change shopping experience to include, more lighting, quieter music, clothes more readily available Completely rebrand company image from casual to smart wear e.g. suits Expansion into Eastern Europe 4.4 Threats Threat of substitution due to high prices Import taxes may rise Piracy in foreign waters, potential threat of loss of stock Economical/political change in countries in which Abercrombie Fitch operate Law suits against company for example acts of discrimination Exchange rates could affect companies profitability Change in fashion trends The availability and price of raw materials could affect the cost of manufacturing Due to global warming unforeseeable weather changes could affect consumer preference on products 5. SWOT to TOWS Table 3: SWOT to TOWS Internal elements External elements Organisational Strengths Organisational Weaknesses Strategic Options Environmental Opportunities (and risks) Strengths into opportunities: Strong portfolio of brands other than the main Abercrombie Fitch brand appealing to consumers aged 9-24. Therefore Abercrombie Fitch have the brand power to be able to introduce other product ranges into the existing markets Annual Abercrombie Fitch Challenge which raises money for charities and organisations. The Annual challenge could be made bigger, therefore raising more money for charities. The Annual event could even be brought into other countries in which the company are present to raise money for their charities Sponsor of the Elite Racing Team, this is not widely known that they sponsor the team. Therefore awareness could be increased thus enhancing brand awareness of the company In 2007 offered $75,000 scholarships to the National Society of High School Scholars. Scholarships could also be offered in other countries in which the company are present in to similar schools Expansion plans in Canada, Europe and Asia means that profits are to increase as well as brand awareness The ability to capture 18-22 year olds attention and condition them into wanting the brands products. Abercrombie Fitch have the ability to condition their customers into needing their products, therefore if a limited edition range of products were to be realised, consumer would respond to this well In 2007 the company had a 2.3% market share of the US clothing retail market, thus making them the 3rd largest market share in the US. Having the 3rd largest market share in the US gives the company the opportunity to strive to have the second largest or even beat the Gap and have the largest market share. Abercrombie Fitch should also look to increase their UK market share as currently they are not seen to be strong competition to UK brands In 2008 Abercrombie Fitch started modifying and upgrading their information systems. This therefore means that the company will soon have stronger information systems thus meaning smoother and easier running of the company Weakness into opportunities: Money being lost to counterfeit products. Abercrombie need to ensure that all products have copyright and anyone who counterfeits their products have a law suit brought upon them Company portrays a sexual image, this is not acceptable in some countries and societies, therefore Abercrombie could look towards toning down the sexual imagery within countries and societies that find this offensive Look Policy often seen to be too strict by employees. The company should therefore hold in store meetings to gather information as to what the employees find strict about the policy, then this should be raised in the Annual conference With the recent closure of Ruehl No.925 there is no longer an Abercrombie store that appeals to consumers aged 25+. Therefore information by the means of market research should be gathered from consumers as why they felt the brand failed. As well as information from store staff and stakeholders. The company could then formulate strategies to rebrand Ruehl No.925 thus penetrating the 25+ age market once again Expensive prices in the UK compared to US. Consumers are currently prepared to pay the higher prices that are at present in the UK, if the situation changes then the company should investigate the price of importing the clothes into the UK against the price they are charging and the profit that is being made. If profit is high then the company could look towards lowering their UK prices Many law suits have been seen due to discrimination. Increased awareness should be made about discrimination within the work place and more minority groups should also be introduced into the company. Many of the loyal customers feel that too many people are now wearing the brand and it is starting to lose its prestigious image. Therefore a new prestigious range could be introduced to encourage said consumers back to the brand Environmental Threats Strengths used to minimise threats: Threat of substitution due to high prices. However one of Abercrombie Fitchs strengths is that they have the ability to catch their target audiences attention and make the consumers feel they need the products Import taxes may rise. However the company are constantly expanding therefore profits should rise thus meaning if import taxes should rise it should not affect the company substantially Change in fashion trends. As Abercrombie Fitch have a strong market share within the US, it would be wise to assume that they have an excellent team of fashion forecasters that would be able to foresee this potential threat. This strength can also be used for the threat of, due to global warming unforeseeable weather changes could affect consumer preference of products Strategies to deal with weaknesses and threats: Competitive pricing should be brought in to reduce the threat of substitution due to high prices Import taxes may rise. As mentioned in the previous box, if import taxes do rise then the company should be okay as they are continuing to expand thus increasing profits, which overall should even out the rise of import tax if it should occur Law suits against company. Abercrombie Fitch need to ensure that the company is always running professionally to ensure that further law suits do not arise Exchange rates could affect companys profitability. The company need to be constantly aware of exchange rates and understand that stock being sold in an unstable political and economical market could lose value The availability and price of raw materials could affect the cost of manufacturing. Therefore Abercrombie Fitch need to ensure they are obtaining their raw materials at the best price available 6. Porters Generic Strategies Diagram 1: Abercrombie Fitch and Porters Generic Strategies Abercrombie Fitch now Focus Abercrombie Fitch for the future Middle of the Road Differentiation Cost Leadership Porter (1980) identified four types of generic strategies for a company to be competitively successful. The four strategies consisted of Cost Leadership, Focus, Differentiation and Middle of the Road. Abercrombie Fitch are currently using the generic strategy of Focus as they have a small range of clothing products focused on a specific market segment of 18-22 year olds. For the future the company should aim to move not entirely away from focus but slightly towards Differentiation, thus enhancing their products durability and perception 7. Ansoff Matrix Table 4: Abercrombie Fitch Ansoff Matrix Current Products New Products Current Market Male and Female : clothing swimwear belts rubber flip flops leather flip flops Female: classic scarves handbags signature totes signature scents, 8, Classic, 41 (perfume) and Wakely Male: boxer shorts underwear necklaces bracelets signature scents, Fierce, 41 (cologne) and Colden Womens jewellery Male and Female watches Music C.D of in store music A range of male and female winter shoes Bags for males Pyjamas New Market Expansion into foreign market for example Eastern Europe Abercrombie Fitch catalogue in which products can be ordered similar to Next Directory or Littlewoods catalogue Products available in large department stores within the UK for example John Lewis, House of Frasier, Selfridges and Harrods. A range of smart male and female clothing products Hair care products Abercrombie Fitch bottled water Surf boards Male and female clothing for age group 25+ Larger sizes 8. SMART Objectives Abercrombie Fitchs SMART objectives run over the limited period from 2010-2013. In the world of Beauty and Fashion 3-6months would be considered a shot term objective. 12-25 months a medium objective and 36+ months a long term objective. This is a very different time frame to other types of businesses, as fashion and beauty trends move very quickly, usually with the seasons. Therefore companies such as Abercrombie Fitch need to be thinking quickly about fashion changes. The following SMART objectives are listed in hierarchy, with the first objective being the objective that Abercrombie Fitch should definitely consider proceeding with if they had to choose one. Given the present economic climate, it may be in Abercrombie Fitchs best interest to wait until the end of the recession is completely in sight before producing any new products as bringing out a new product is a high risk. SMART Objective Target Segment Risk 1) Introduce a range of womens jewellery complementary to the companies style of casual luxury, consisting of 15 pieces by 1st November 2010 Women aged 18-22, educated, with reasonably comfortable income Medium Risk 2) Launch a new prestigious clothing range to re-capture higher end income consumers by 1st may 2011 Men and Women aged 18-22, educated, with high income Low Risk 3) Trail introduction of larger UK womens sizes 12-16 for clothing products in London flagship store by 1st March 2013 Women aged 18-22, educated, with reasonably comfortable income, that could not shop at the store before due to the size Large actually being the equivalent to a UK 10 High Risk If objective 3 is successful then 4) Trial introduction of integration of 2 real models within advertisements and in store staff within London flagship store by 12th June 2013 Men and Women aged 18-22, educated, with reasonably comfortable income. The advertisements and new models will aim to attract real size women in the UK sizes 12-16 High Risk 9. Strategic Plan, Implementation Measurement of SMART Objectives 9.1 SMART Objective 1 SMART Objective Porters Strategy Market Segment/ Ansoff 1) Introduce a range of womens jewellery complimentary to the companys style of casual luxury, consisting of 15 pieces by 1st November 2010 Between Focus and Differentiation Women aged 18-22, educated, with reasonably comfortable income. New Product/Current Market Product The jewellery will be in the companies style of casual luxury, items such as beaded bracelets, necklaces and earrings will be designed in accordance with market research results and offered to consumers in store and online Price Market Skimming Strategy high price offered and only gradually lowered Place Products will be available in all Abercrombie Fitch Flag ship stores around the world and on website. If successful will be brought into all other stores Promotion Direct Marketing- television adverts, magazine advertisements, in store advertisement. Celebrity endorsement Physical Evidence The Abercrombie Fitch logo of the Moose will remain present Process Products will be sent from the manufactures to Head office then distributed to the Flag Ship stores around the world People Abercrombie Fitch already make male jewellery, therefore a female specialist will be employed and work alongside the male specialist in order to create male and female jewellery products that work in harmony Measurement Small targets should be set in order to ensure the successful completion of the Objective. As the objective is short term, monthly meetings should also take place to ensure targets are being met. 9.2 SMART Objective 2 SMART Objective Porters Strategy Market Segment/ Ansoff 2) Launch a new prestigious male and female clothing range to re-capture higher end income consumers by 1st may 2011 Focus Men and Women aged 18-22, educated, with high income New Product/ New Market Product A range of male and female clothes aimed at recapturing the wealthier consumers offering them a prestigious brand once again. Once market research has be undertaken then this will determine the types of clothing products needed. Price Pricing to reflect product differentiation- price will be higher than the standard brands products Place Products will first be launched in the flag ship stores around the world and then brought into all other stores if found to be successful Promotion Direct Marketing- television advertisements, magazine advertisements, in store advertisement. Celebrity endorsement Physical Evidence The Abercrombie Fitch logo of the Moose will remain present Process Products will be sent from the manufactures to Head office then distributed to the Flag Ship stores around the world People Ruehl No.925 employees will be interviewed and asked why they feel the brand failed. Constructive criticism will be taken away and applied to making the new prestigious range successful. A person with strong knowledge of prestige brands and turn around strategies would be useful Measurement Once market research has been undertaken a target should be set as to when the first designs will be available for viewing. Then more targets set as to when the collection will be finished. Monthly meetings should be undertaken to ensure that targets are being met and to run through any problems that may arise that could affect the objective being met on time. 9.3 SMART Objective 3 SMART Objective Porters Strategy Market Segment/ Ansoff 3) Trail introduction of larger UK womens sizes 12-16 for clothing products in London flagship store by 1st March 2013 Between Focus and Differentiation Women aged 18-22, educated, with reasonably comfortable income, that could not shop at the store before due to the size Large actually being the equivalent to a UK 10 New Product/ New Market Product As well as the usual 0-10 UK womens clothing sizes being produced the company will also introduce sizes 12-16. These sizes are the most common female sizes in the UK and should be greatly accepted Price Market Skimming- high price offered and only gradually lowered Place The new sizes will be introduced into the UKs London flagship store. If found to be successful then new objectives will be set for the introduction of the sizes across the world Promotion Small in store advertisements within UK London flag ship store Physical Evidence The Abercrombie Fitch logo of the Moose will remain present Process Products will be manufactured then distributed straight to UK flag ship store in order to cut out the middle man (The US head office) Products will have to be checked in order to ensure that they are 100% before retailing People Someone with strong knowledge on female sizing in the UK Measurement Targets set and meeting undertaken to ensure that procedures are running smoothly to meeting the objective. In the first year 4 meetings will take place and then one every month in the years to follow until the object end date 9.4 SMART Objective 4 SMART Objective Porters Strategy Market Segment/ Ansoff 4) Trial introduction of integration of 2 real models within advertisements and in store staff within London flagship store by 12th June 2013 Between Focus and Differentiation Men and Women aged 18-22, educated, with reasonably comfortable income. The advertisements and new models will aim to attract real size women in the UK sizes 12-16 New Product/ New Market Product Introduction of real size models sizes 12+ within companies Marketing/Advertising campaigns and in store staff Price Price will be based on price of advertising campaign and cost of new in store staff Place Advertisements with real size models will be trialled in the UKs London flagship store. Real size models will also be hired alongside the skinny in store staff Promotion Large advertisements including real size models within direct marketing such as, magazines, television advertisements, internet and in store. As well as London buses Physical Evidence The Abercrombie Fitch logo of the Moose will remain present Process real size models casted for advertisement and for in store staff People Someone who can sympathise with the fact that clothes should not be about what you look like in them, but how you feel in them. And understand that not everyone is a size 0 model. Bring realism to the company Measurement Small targets should be set in order to ensure the successful completion of the Objective. As the objective is long term, 4 meetings will take place in the 1st year and then monthly meetings will take place in the second and thrid year to ensure targets are being met. 10. Conclusion In conclusion after considering Abercrombie Fitchs external environment as well as Porters Generic strategies and Ansoff Matrix, four SMART Objectives have been formulated and a Strategic Plan, Implementation Measurement of each SMART Objective has also been created. If Abercrombie Fitch should decide to implement any of the SMART Objectives suggested in the near future, then the current external environment should be examined as different situations may have arisen.