After years of resisting pressure to ditch Abercrombie & Fitch Co.’s outdated strategy, Chief Executive Officer Mike Jeffries is relenting.
Faulted by investors for a management style that alienated underlings and for weak sales results, Jeffries plans to relinquish some power to two soon-to-be named presidents of the Hollister and Abercrombie and kids brands. Stripped of his chairmanship, he has named a chief operating officer, a first for Abercrombie. Jeffries has even reversed his long-standing aversion to black-colored apparel.
In a rare interview last month at the teen chain’s wooded campus in New Albany, Ohio, Jeffries made a point of showing he listens to his lieutenants. He and his team described plans to appeal to a new generation of teens by toning down the stores’ nightclub vibe, minimizing the chain’s signature logos and enlisting so-called Instagram kids in marketing.
“This company is very sound,” said Jeffries, who at 69 affects a youthful demeanor and was wearing a striped Abercrombie button-down, jeans rolled at the ankle and flip flops. “Its customer is changing, and we’re ready to change with her and him.”
Abercrombie sales have slid for four quarters in a row, and profit shrank 77 percent last year. Internationally, where the chain plans to generate much of its growth, sales at stores open at least a year fell 19 percent last fiscal year. While the stock has gained traction this year, it’s still down 31 percent over the past 12 months.
Shares of the company, which is scheduled to report first-quarter earnings on May 29, rose 1 percent to $37.20 today in New York.
The ongoing woes attracted the attention of activist investor Engaged Capital LLC, which sought to push out Jeffries. The two sides declared a truce last month when the chain agreed to name four independent directors to the board.
“In the past it was the Abercrombie & Fitch way or the highway because Abercrombie dictated what was cool,” said Simeon Siegel, a New York-based analyst at Nomura Securities. “There are other players that clearly changed that course, and you can either adapt or you can die.”
Abercrombie’s headquarters are guarded by a gatehouse staffed with men wearing the company’s denim shirts and jeans. With all the twenty-somethings dashing around, the place feels like a college campus, complete with a dining hall and lawns where people congregate. As part of Jeffries’s plan to devolve power, the open-plan offices were recently reorganized so everyone sits with their respective brands.
Nestled within buildings constructed of blond wood and exposed metal are full-size store mockups for the Abercrombie, kids’ and southern California-inspired Hollister brands. Here, workers test layouts, displays and marketing before they’re rolled out to the company’s 843 U.S. stores.
The test stores are the first clue this isn’t the Abercrombie of yore. The Hollister stores are brighter, the music has been turned down, and the fragrance spritzed among the racks is less cloying -- 25 percent less so, the company says. The blinds on Abercrombie windows are gone, and the company is experimenting with window displays for the first time. Gone, too, are the ubiquitous photos of abs that have offended so many people over the years; they have been replaced with images and mannequins touting the clothes.
Those are changing, too. In addition to selling black clothes, a first, Abercrombie has added larger sizes; a “classic fit” T-shirt for men, available online for the back-to-school season, is looser than the company’s standard muscle-style shirt. The brands’ moose, seagull and lettered logos, once plastered on almost every product, are disappearing. And Abercrombie is partnering with other brands to produce new items, including a line of sneakers from Keds.
“They’re radical changes for Abercrombie, but for everybody else they’re kind of Retail 101,” said Dorothy Lakner, a New York-based analyst at Topeka Capital Markets.
The retailer is turning to social media to fix its image problem, partnering with fashion bloggers and kids who incorporate Abercrombie products into their Instagram posts. The company itself posts more than 300 items a week to social media sites. Craig Brommers, senior vice president for marketing, says Hollister’s rate of customer engagement -- likes, comments or shares -- has quadrupled since January.
Every five years or so a new crew of teens decides what’s popular. The question is whether Jeffries, CEO since 1992 and used to the industry following him, not the other way round, can navigate a $30 billion market dominated by cheap fast fashion from the likes of Forever 21 and H&M.
If Abercrombie can gain traction with the new generation, the turnaround effort could succeed, says Piper Jaffray’s Wissink. But there’s “still a lot of speculation” over whether the company can persuade teens it’s cool again.