A fickle customer base is a big reason why specialty apparel retailer Abercrombie & Fitch continues to experience fiscal and engagement woes, according to a report from Trefis.
According to Trefis – which analyzes how companies’ products impact stock prices, and predicts that the company’s rewards programs will spearhead a fiscal resurgence -- this year, teenage customers have shown low brand loyalty as they have been readily shifting to brands that provide relevant fashion at reasonable prices.
“Abercrombie is at the receiving end of this trend as it has been losing its customers to fast-fashion operators such as Zara, Forever 21, and H&M,” the report says. “Since these players offer their products at affordable prices, shoppers have preferred them over relatively expensive Abercrombie. Moreover, with more desirable merchandise, they have the ability to quickly turnaround the latest fashion trends. In contrast, Abercrombie has been unable to do so due to its inventory problems. Often, the retailer’s stores end up huge amount of unsold inventory that needs to be cleared before new products can be launched. Due to this, the retailer lags behind the prevailing fashion and ultimately loses its customers to fashion responsive brands. This still remains an issue for Abercrombie as it is offering heavy discounts to attain a clean inventory position for the holiday season.”
In a recent business update, Abercrombie officials said company revenue and same-store sales declined by 12% (to $1.03 billion) and 14%, respectively, in the third quarter.
The bright spot for Abercrombie has been its direct-to-consumer business (mainly ecommerce) which has grown at an average annual rate of around 35% for the past three years. Although revenue declined by 10% in the first quarter due to inventory shortage, direct sales grew by 21% in Q2 fiscal 2013, despite overall weakness, the report says. The company realized this growth on the back of its strong ecommerce and m-commerce channel, and a surge in the U.S. online apparel industry at large. In its recent business update, the company stated its direct-to-consumer revenues increased by 11% during the third quarter.
“Although this growth looks promising from long-term perspective, it was not able to lift Abercrombie’s results,” the report says. “Currently, this channel accounts for only 16% of the retailer’s net sales and thus, is not strong enough to drive its growth. Though Abercrombie is looking to increase the revenue contribution of this channel by boosting mobile investments and omni-channel retailing, it needs to focus on its products in order to regain its loyal customer base.”
According to the report, Abercrombie’s results are not surprising because the company has been struggling to hold onto its customers in a highly competitive retail environment.
“The company has been hurt by fast-fashion and low-cost chains such as H&M and Forever 21, which have been taking away market share from traditional apparel retailers,” the report says. “The apparel industry itself is going through a slump as U.S. buyers have been extremely reluctant to spend on discretionary products. Though Abercrombie’s direct-to-consumer channel continues to grow at a steady pace, it will not have any noticeable impact on the upcoming results.”