Abercrombie & Fitch, a one-time retail sales and fashion stars young people have shown signs of a remedy, its grip on the question of style in youth.
The New Albany, Ohio, company, seller of $40 T-shirts and $90 jeans, was among the worst performers during the holiday season, even with uncharacteristically high levels of discounting. The retailer posted a 19% decline in December sales at stores open at least a year, with its lowest-priced brand, Hollister, down 25% in December from a year earlier.
Retail analysts said Abercrombie's troubles go beyond pricing to its once unerring sense of style, a problem that could be trickier to fix. The logo T-shirt and torn jeans ensemble that Abercrombie made the unofficial school uniform a decade ago has played out, said Kimberly Greenberger, a retail analyst with Citigroup Inc. who tours malls every two weeks to assess trends. That misstep has created an opening for lower-priced competitors such as Aeropostale Inc. and American Eagle Outfitters Inc., which reported December sales gains of 10% and 7%, respectively.
"The look is stale," Ms. Greenberger said. "They need to figure out what the next hot trend is and push that, because that's the only way out of this downward spiral."
In a sign the company is taking the challenge seriously, Chief Executive Mike Jeffries has taken charge of selecting the chain's female clothing. Chad Kessler, the executive vice-president who had held the job, left that position in January and will depart the company by July 31. A spokesman declined to make Mr. Kessler available to comment.
Abercrombie is making a renewed push on fashion this year, the spokesman said. For instance, after missing demand for teen dresses last year, its Hollister chain has more than a dozen dress styles for spring.
Of course, all teen retailers are confronting high youth unemployment and tight-fisted parents. But Abercrombie's competitors have been finding teens willing to spend for the right trends.
Aeropostale and mid-priced rival American Eagle Outfitters are exploiting Abercrombie's absence from high-demand styles. New York-based Aeropostale is adding more fashion-forward looks to its shelves in addition to its inexpensive basics. "We are no longer a fashion follower," said Tom Johnson, Aeropostale's chief operating officer, at a retail-industry conference last month.
American Eagle, of Pittsburgh, Pa., is bringing in new merchandise every four weeks, up from every six weeks. "Increased variety and choices…will be critical and crucial as part of regaining market share," Chief Executive Jim O'Donnell said at the same conference.
Both retailers are also seeing success with accessories, especially with jewelry at American Eagle, which tends to be a high-margin category—something Abercrombie only mildly promotes.
Abercrombie succeeded for years by selling at prices sometimes twice its competitors' and refusing to discount. When the recession made that approach untenable, the chain was slow to react. It has since experimented with lowering some of its prices. Abercrombie's average unit retail price was down 14% during the holiday season, according to Christine Chen, a retail analyst with brokers Needham & Co.
But even with lower prices and more promotions, including a gift card giveaway, Abercrombie posted steep sales declines during the holidays. "Product has been a big source of Abercrombie's issue," said Ms. Chen. "They need to continue to work on the fashion."
January sales numbers roll out Thursday, and retailers are expected to post sales gains. Stores typically spend January clearing out inventory to make way from spring, and shoppers were drawn to discounts unavailable during the holiday season. Analysts polled by Thomson Reuters think sales at stores open at least a year rose 2.5% for the companies that report. Aeropostale and American Eagle are expected to show increases of 6.2% and 5.7%, respectively. Abercrombie, however, is expected to post a decline of 8.3%.
If Abercrombie's styles aren't commanding much attention from U.S. consumers, the opposite is true with shoppers overseas. Late last year, the company opened Abercrombie megastores in Milan and Tokyo, both of which have performed well, as have Hollister mall-based stores in the U.K. The robust sales come in spite of retail prices that are nearly double that of the domestic merchandise.
To maintain its international reputation, Abercrombie withheld the holiday promotional activity—including discounts and gift card giveaways—from its large domestic stores in urban locations such as New York's Fifth Avenue. Those stores are popular with international tourists and are likewise packed.
Currently, international sales account for about 10% of the company's total revenues. That share could grow to more than 20% in 2010, said Paul Lejuez, an analyst with Credit Suisse. Mr. Lejuez estimates international sales will be $313 million for fiscal 2009 and projects that figure to more than double in fiscal 2010.
But the excitement about international potential has been tempered by the most recent economic downturn.
"This is the humility to a certain extent, they are," said Credit Suisse's Mr. Lejuez. "They realize that they can not just do what they always do."
