Abercrombie & Fitch: An Upscale Sporting Goods Retailer Becomes a Leader in Trendy Apparel | 2 Abercrombie & Fitch C o m p e t i t i v e S t r a t e g y a n d A d v a n t a g e i n t h e M a r k e t p l a c e Overview

Abercrombie & Fitch (A&F) is headquartered in New Albany, OH. The name Abercrombie andFitch originated in 1892, with a slogan The Finest Sporting Goods Store in the World was producing luxurious sporting goods and rugged apparel for affluent customer. All the way throughhistory, A&F did a good job with keeping up customer relationship and changing fashion. Just likeduring the World War II, the innovation was just adjusted with the war condition and consumedproperly in the market. Due to some internal and external problems, the company went forbankruptcy in the year of 1977 and a year later Oshmans sporting goods bought Abercrombie for$1.5 million. This acquisition gave its first touch by changing the slogan into The Adventure Goes On . Study for the old company was conducted, the positive ones to be retained and gave a hit in expanded the variety. In 1988 Limited acquired the company for $45 million and completely turned around and changedeverything, eliminating sporting goods and started introducing casual, classic American men andwomens apparel. It was about repositioned the company as a provider of youth apparel withspecializing in the provision of outdoor clothing. In 1988, the company decided to change itsimage to that of a Luxury lifestyle brand and expanding their retail store thought large market.The acknowledgeable CEO of A&F, Michael Jeffries, able to make the store concept and strategyas the place that match with the fickle youthful needs and wants, A&F was ranked as the 4thprofitable (net income as percentage of sales) company in apparel retailers in 2006.A&F survived by catering to local tastes and preferences. However, the trends eventually gobeyond age, therefore A&F expanded the products to meet needs and wants different life stage. Thecompany hires the best looking employees to represent their store as brand representatives anddressing employees in their latest fashion and styles. Currently, the brand name has expanded sinceits success, and has gone global. The group markets under different stores: 356 Abercrombie &Fitch stores, 212 Abercrombie, 515 Hollister co, 28 RUEHL and The newest brand 14 Gilly Hicks(Winthrop Corporation). Under Jeffries leadership, A&F gain an astonishing performance. The netprofit is just keep going up and the company development retailers become emergent. It recognizedto become the largest retailer apparel in the world. But a question was raised, whether with thecurrent and future condition, will the business keep sustain? Problem Identification The challenges that would be faced by A&F in the future were to maintain its competitiveadvantage in which new entrant from US and abroad intent to imitate A&F strategies.As our group has concluded that the main competitive strength of A&F are their ability inextracting the values which their consumer can relate to, and reflecting this value through theirproduct and marketing communication. Therefore, in answering this challenge A&F has to ensurethat they are able to:1.

Maintain their connectivity with their very dynamic target market.2. Anticipate the move of their rivals. Case Analysis Transforming A&Fs Image The Abercrombie & Fitch (A&F) brand was established in 1892 and considered as luxury sportinggoods retailer with conservative tastes that became well known as rugged and highquality outdoorgear for affluent clients, including adventures, hunters, president and heads of royal family.Famous for outfitting the safaris of Teddy Roosevelt and Ernest Hemingway and the expeditions of Admiral Byrd to the North and South Poles, A&F goods were prominent for their durability anddependability. This image was positioned A&F as expensive and exotic goods. A&F was not just aplace to purchase goods and apparel. It was also a place where individual in the community.Through its history, A&F did a great job keeping up with customers and changing fashions.In 1978 Oshmans Sporting Goods bought A&F which at that time was struggling to develop astrong identity & experienced with recessions, war-time troubles, inventory shrinkage, bankruptcy,changing ownership & legal battles. After evaluated the business model, A&Fs slogan waschanged from the finest sporting goods store in the world to the adventure goes on . Thisacquisition became a turning point for A&F to build the new character of the brand. Some of valuessuch as good qualities and legendary old product were retained. The new management believed thatA&F can change their initially image to adapt and keep up-to-date with styles for the 1980s.After a few owners, A&F was bought by Limited Inc. in 1988. In 1992, Michael Jeffries wasappointed as new CEO and began repositioning Abercrombie & Fitch as a more fashion-orientedcasual apparel and classic American clothes business directed at 18 to 22 year-old male and femalecollege students with a product assortment reflecting a youthful lifestyle based upon an East Coastheritage and Ivy League traditions by introducing new format. Before defining the A&Fs new format and competitive advantage that brought them became aleader in trendy apparel industry, the analysis starts by evaluating the external and internalenvironment factors which potentially affect A&Fs business situation and managements decisionsregarding to its long-term direction, objective, strategy, and business model. A&Fs Industry and Competitive Environment Analysis Analyzing A&Fs industry and competitive environment begins with identifying theindustrys dominant economic characteristics . The market size and growth rate of apparelindustry is slightly big and growing quite fast as changes of lifestyles. A&F had three maincompetitors, American Eagle Outfitters Inc. (AEOS), Gap Inc. (GAP) and J. Crew Group,Inc. From these three competitors, GAP was the largest, with 3,000 stores worldwide andgenerated $16 billion revenue in 2005. The industries characterized by rapid productinnovation which required designer, merchandisers and marketer to know better whatconsumer want and also strong product innovation capabilities such as continuous productinnovation is primarily a survival strategy in this industry.

After gaining an understanding of the industrys general economic characteristics, furtheranalysis should focus on the competitive dynamics of the industry. The most powerful andwidely used tool for assessing the strength of the industrys competitive forces is the five- forces model of competition 1 . The barriers to entry are relatively low as the cost to purchase and produce apparelis minimal. In the specialty retail industry, economies of scale provide a significantadvantage over the local stores. The low growth in this industry also makes it lessattractive to new entrants . In the apparel industry, rivalry is moderate to high . The rivalry betweencompetitors is intense and forces each company to reinvention itself to maintainefficiencies and inventory control. The apparel industry is mainly comprised of several main rivals of equal size. As a result of a mature apparel industry, there is alack of drastically new innovative products that creates rivalry when firms areunable to differentiate their products in the industry. Though some goods may not be considered direct substitutes due to brandidentification, once the name brand has been removed, one article of clothingbecomes difficult to tell apart from a similarly looking article of clothing. 1 The suppliers also hold little power due to the company buys merchandise fromnumerous factories and suppliers around the globe, primarily located in South EastAsia and South America, thereby allowing retailers leverage in negotiating prices. Consumers as buyers are willing to pay a premium price for perceived quality and

fashion recognition , but the pricing points tend to be very elastic. One wouldexpect buyers to hold minimal power over their suppliers because of thefragmentation of the retail industry.Due to analysis above, most of the collective impact of the five competitive forces ismoderate to week, it meant that the apparel industry is still competitively attractive in thesense that A&F can reasonably expect to earn good profits.

Once these competitive forces defined, the next step is to determine the driving forces 2 thatmight influenced in reshaping the industry landscape and altering competitive condition.The potential driving forces for A&F in the apparel industry are as follows: Increasing globalization competition in apparel industry begins to shift from aregional focus to international. Sometimes globalization becomes a strong driver tobroaden its current market share. As known that A&F planned to open its firstEuropean store in London in 2007. Emerging new Internet capabilities and applications the ability to reachconsumers via the internet gives buyers extraordinary ability to explore the productofferings from any brands and shop the market for the best value. A&F enhancedtheir capabilities to sell the product through Web sites equipped with shopping-carttechnologies. Product innovation creating wider product differentiation to attract more first-time buyers has been a key driving force in apparel industry. To do so, A&F triedto introduce two or three new items in its stores every week. Moreover A&F alsolaunched new mens line, Ezra Fitch , featured with high-quality apparel madefrom cashmere, velvet and leather for upscale segment and Gilly Hicks is a lifestylebrand specializing in women's knickers from casual to sexy, relaxed PJ's and beauty things . 3 Marketing innovation using controversy as a free advertising such as publishinga provocative catalog photograph, revealing clothes and racy slogans can alter the competitive positions of rival firm and effectively attract attention of teenager andyoung adult who often respond positively to this kind of marketing strategy.

 Changing social concerns, attitudes and lifestyles rising social issues & changingattitudes and lifestyles can be dominant to lead the industry change. Apparentlyyoung people purchase the product not just for the functionality but because itpromotes a certain value that they can relate to. To address this, Michael Jeffriesmade sure that A&F apparel reflected the lifestyles of college student by assignedteam of designers, merchandiser and marketers visited college campuses once amonth to talk to student and explore what they liked and how the spent their time.

After determining its driving forces, A&F need to reveal the market positions of industrycompetitor using strategic group mapping 4 . This tool is useful for comparing the marketpositions of industry competitor. As shown in figure 1 below, A&F has better positioningin term of fashion content and price compare to two main competitors. F IGURE 1. C OMPARATIVE M ARKET P OSITIONS OF S ELECTED A PPAREL R ETAILERS 5

The next analysis is competitive intelligence which scanning the rivals strategies, actionand announcement, resource strengths and weaknesses and the thinking and leadershipstyles of their executive is valuable for predicting the strategic moves competitors arelikely to make next. A&F need to anticipate that AEOS planned to launch two new storeconcept in 2006, one is Martin+Osa, the clothing store selling denim and active sportswearto men and women ages 24-40 and the other one is Aerie, an intimate apparel sub-brandand stand-alone stores. Other competitor, J Crew, also planned to launch Madewell, a

competitive positions of rival firm and effectively attract attention of teenager andyoung adult who often respond positively to this kind of marketing strategy. Changing social concerns, attitudes and lifestyles rising social issues & changingattitudes and lifestyles can be dominant to lead the industry change. Apparentlyyoung people purchase the product not just for the functionality but because itpromotes a certain value that they can relate to. To address this, Michael Jeffriesmade sure that A&F apparel reflected the lifestyles of college student by assignedteam of designers, merchandiser and marketers visited college campuses once amonth to talk to student and explore what they liked and how the spent their time.

After determining its driving forces, A&F need to reveal the market positions of industrycompetitor using strategic group mapping 4 . This tool is useful for comparing the marketpositions of industry competitor. As shown in figure 1 below, A&F has better positioningin term of fashion content and price compare to two main competitors. F IGURE 1. C OMPARATIVE M ARKET P OSITIONS OF S ELECTED A PPAREL R ETAILERS 5

The next analysis is competitive intelligence which scanning the rivals strategies, actionand announcement, resource strengths and weaknesses and the thinking and leadershipstyles of their executive is valuable for predicting the strategic moves competitors arelikely to make next. A&F need to anticipate that AEOS planned to launch two new storeconcept in 2006, one is Martin+Osa, the clothing store selling denim and

active sportswearto men and women ages 24-40 and the other one is Aerie, an intimate apparel sub-brandand stand-alone stores. Other competitor, J Crew, also planned to launch Madewell, a A&F knows that in order to be successful in selling a high priced product, the people whorepresent Abercrombie must believe in the brand itself. They must eat, sleep, and breatheAbercrombie.

A strong management team is the number one reason that Abercrombie and its brands aresuccessful. Management is successful in continually creating a strong brand that willcontinue keep them in the lead for a specialized product. Weaknesses

A&F has not done well in creating a culturally diverse atmosphere internally or externally.They have been accused of racial profiling and discriminating against minorities that desireto work in their stores. By desiring to remain exclusive, they have alienated particulargroups that have expressed interest their brand.

Spend a lot of energy figuring out ways of perfecting their brand without racially excludingcustomers and potential employees.

Overpriced and high cost of structure. Opportunities

In light of the economy decreasing, people are not as willing to spend a large amount of money on clothes. Now is the time for many to become conservative, save money and shopfor bargains. To maintain their customers and possibly gain more, A&F could takeadvantage of the bargain hunter. A&F has made it clear that they chose not to lower pricesas it would cheapen the product. In order to appeal to the mass, they could keep theircurrent line, but add a line with a lesser price base. This will attract a broader base of customers. More interest equates to more money. Expanding their current brands is always a way of staying competitive in todays market.Overall, A&Fs brands are mainly, skirts, pants, shorts, polo shirts, along with perfumesand hats. Creating a beach inspired footwear line, may complete the look. It would be inA&Fs interest to branch out from the norm. When a customer gets too comfortable with acertain name brand, it becomes easy for them to venture out and buy from someone else.Keeping it exciting, new and fun will ensure that the customer will always come back looking for more.

A&F can take advantage in creating a theme which is happening on t-shirt, a bag to handout to customers with their purchase that they can use every time they make a purchase(such as Go Green ,

peace theme).

Expand internationally by export or subsidiary

Online shopping or E-commerce business to expanding their service lines Threats

Abercrombie & Fitch has been known for not being very diverse. By not being as diverseas many other clothing companies, A&F could stand the chance of losing business.

They were striving for a certain look and style. It was mainly consisted of young whitemale and females with nice bodies, beautiful hair and shapes that fit their tiny clothes.

Racial profiling, has also limited the type of clientele that frequents the stores, it limits thepotential income that the company could be earning.

Abercrombie and Fitch have four brands such as Hollister, Ruehl, Abercrombie and GillyHicks. A negative mark on one brand can possibly negatively affect all brands.

Economic slowdown (cyclical economic changes)

Rising cost of materials, commodity prices

Competition from other apparel players at the low & high end of the spectrum (i.e., GAP,AEOS, JC) STP (Segmentation, Targeting, Positioning) Analysis Segmentation Apparel is an already fragmented industry, the market is segmented demographically and psychographically. The demographic segmentation of the industry includes segmentation by age, gender,profession, education, income level, race, body profile. The Psychographic segmentation includessegmentation by hobby, values, sports preference, sexual preference, etc. Targeting A&F targets are described as cool, attractive, fashion-conscious consumers with age ranging fromelementary school to post-college, which are served by four of their brands:

A&F (1992 - reflected youthful lifestyle of the East coast & Ivy League traditions):College students

Abercrombie (1998): Age 7-14 with fashions similar to A&F line

Hollister Company (2000 - promoted the laid-back & California surf lifestyle): High schoolstudents with lower priced casual apparel, personal care product and accessories Ruehl (2004 - inspired by lifestyle of New York Citys Greenwich Village): Post-collegeconsumer at age 22-35 with more upscale and expensive casual sportswear, trendy appareland leather goods. Gilly Hicks (2007 - inspired by the Australian theme of Down Under ): A lifestyle brandspecializing in women's knickers from casual to sexy, relaxed PJ's and beauty things and offers underwear and loungewear for women 18 and up. Gilly Hicks is officially labeled as the Cheeky cousin of Abercrombie & Fitch . Positioning A&F aim to achieve the position as the coolest brand, the brand with greatest quality, theinspirational brand of college students. Furthermore, A&F catered the needs of very niche market.The term used is for this type of retailer is a specialty retailer, which in this market they aim toposition themselves as a market leader. Brand Positioning: Luxury vs. Near Luxury vs. Standard Luxury apparel stores typically target customers in the highest income bracket who can afford topay the highest prices for premium-quality merchandise. Apparel retailers of near luxury or inspirational brands target customers from the middle- and upper-middle class who desire towear the latest fashions, but can not afford to pay premium, luxury prices so they settle for these near luxury apparel brands such as Abercrombie & Fitch and Polo Ralph Lauren. Finally,standard-level apparel stores such as The Gap target middle- and lower-class customers withaverage incomes who purchase lower-priced merchandise and look for clearance sales. 4P Analysis The main competitive strength of the A&F in maintaining their position in the industry reliedheavily on their focus at the target market, and their ability in serving the needs of their consumer.This is strategically done by continuously making effort to connect and get as close as possible tothe consumer. A&F promote the value they believe their target market can relate with, that is

sensuality , youthful lifestyle , a love for outdoor and fun with friends . Those values arecommunicated through their brand concept of Casual Luxury , and the marketing strategies(marketing mix). Promotion & Communication The communication of A&F to their customer is translated into 4 main messages namely;1. The Abercrombie & Fitch person (through cutting or shape of clothes)2. Uniqueness (through design & logos)3. Luxury (through the store concept and advertising)4. Exclusivity (through membership and promotional event)The most important aspects of the Abercrombie & Fitch person are the target age, being youngadult . Models in the catalogs, magazines, website, and store posters appear to be in their early twenties. In addition, store employees and in-store brand representatives appear to be in their lateteens and early twenties. The firm believe to win teens loyalty, you have to speak their languageThis means consumers relate to models, so the models must be like the target audience.The build of an Abercrombie & Fitch person is another predominant message communicatedthrough catalogs, consumers, employees, gift cards, instore brand representatives, magazines,mannequins, models, posters, shopping bags, the product, and the website. The Abercrombie &Fitch person is not overweight; models used for advertising & promotional items were notably thin.The Abercrombie & Fitch magazines and catalogs also communicated messages of luxury . Themagazines were printed on higher quality linen paper, which alluded to a higher class than otherretail magazines.Consumers that identified with messages of the A&F image including the look, uniqueness, luxury,eventually were persuaded to purchase the clothing, and become part of the elite club. This conceptof exclusivity is reinforced with club membership (Hollisters Club Cali), and some of the brandpromotional event- such as when they issued after-hours parties invitation with the new bands tothe shoppers during thanksgiving.In channeling their message across

to the target market, A&F is known for their eagerness in beinginvolved on controversy. As the matter of fact, part of their competitive strategy is to stir upcontroversy, go against convention, and appeal emotionally to its youthful customer.While adults tend to react negatively to the company provocative move, teenagers and young adultwere thought to respond positively to the move. This is possibly as an act of rebellion against thetraditional values, or because they feel connected to the life-style images that is portrayed in A&Fads. Some observers assume that A&F intentionally create controversy to draw attention in hopethat this will bring shoppers to the outlet, and sell more products. Place Design of outlets is luxurious. The Company views the customer's in-store experience as theprimary vehicle for communicating the spirit of each of the brands. The company uses the visualpresentation of the merchandise, the in-store marketing, music, fragrances and the sales associates,or brand representatives. This is an effort to reinforce the inspirational lifestyles represented by thebrands, the youthfulness and the sensuality which they endorse. Each outlet was designed in one of several prototypes which are created at company HQ. CEO Jefferies himself examine the modelclosely to make sure the right messages are communicated in all stores across the nation. Eachdetailed is comprehensively checked during his regular store visit. Price A&F are usually able to sell the products at premium price without necessity for regular discounts.Management feels discounts would cheapen A&F brand. However they categorize their price rangewith respect to the product line and the market segment. Product Products sold by Abercrombie & Fitch send messages of luxury. Abercrombie & Fitch clothingalways had something to identify the person as wearing its product, such as the signature stitch onthe back pocket to jeans, the words Abercrombie, Abercrombie & Fitch, or A&F, or their symbolthe moose. The usage of word logos like A&F tended to be on the more relaxed clothing such as tshirts, sweatpants, and sweatshirts; whereas the usage of the moose symbol was on the moreluxurious clothing such as button up shirts and cashmere sweaters.Abercrombie & Fitch products are also shaped to continue the message of thinness as the build of Abercrombie & Fitch person. A&F clothing is not made in large sizes; womens sizes were XS to Lin shirts and 00 to 10 in pants and mens clothing was sized S to XXL in shirts and 30x30 to 36x34in pants. All messages communicated a build of thin and toned bodies. These in turn convinceconsumers that wearing the product make a person more attractive.As have been highlighted above, A&F has a tendency to create controversy. This is also donethrough the product they launched. Some of the controversy they create includes; selling a T-Shirtwith racist remark on the shirt, launch thong underwear for girls ages 10 and up with sexual phraseson the product, and selling a T-Shirt which promote underage drinking. Competitive Strategy Analysis We have analyzed Abercrombie and Fitch strategies and performances in order to evaluate theirsustainable competitive strategy 7 . With all of the competition in the apparel industry, Abercrombie& Fitch strategy could be considered as a focus differentiation strategy , it differentiate itself fromall other competitors through offering carefully designed products and services to appeal to theunique preference and needs of their narrow (niche) target market which

is men and women of agesranging from 7 to 22. A&F occupy differentiation-based focus strategies targeted at young &teenagers buyers. The market contain buyer that willing to pay a price premium for the very finest items available Conclusion and Recommendation xxxxxFuture direction, in the long term A&F should continuously look for more opportunities to invest inoverseas for expanding into the European and Asian markets. And for the short term, A&F couldemphasize on online shopping, sponsoring college events, re-evaluating the needs and preferencesof its target market, improve its customer service and review the choice of magazine were A&Fplaces ads.With such a dynamic management team and the desire to the specialty apparel by storm, they canfigure out a way to remain exclusive without being insulting and hurtful. It is ok to make a brand ina particular style and fashion that will fit a certain body type, but it should to still be available toanyone. It shouldnt be marketed to anyone who feels as though they can fit that mold. The brandshould not only have models of one race and color or associates of one race and color. Executivesmust come together in become the leader in diversity without compromising their goals