How Abercrombie & Fitch turned from teenagers to market trend

Sarah Freedman started shopping at Abercrombie & Fitch when she was 12 in 2007, but by the time she was in high school, the brand had fallen out of favor with her fashionable peers in Manhattan.

After a long absence, she has been drawn back to Abercrombie after seeing social media influencers promoting the retailer’s US rebrand. Now 30 and a US size 16, Freedman finds that few stores carry clothes that fit her so well. Abercrombie also offers “more bang for my buck” at a time when she has become much more selective about her clothing spending, she says: “I’m telling everyone to go shop at Abercrombie.”

Freedman’s conversion helps explain how Abercrombie, a mall star of the early 2000s whose preppy styles and high prices eventually fell out of favor, has pulled off the rarest of retail comebacks. Over the past year, it has become one of the US stock market’s strongest performers, with its shares outperforming those of Nvidia, the chip company that has led the market’s growth.

“This is a completely new business,“said Corey Tarlowe, an analyst at Jefferies. “What you’re seeing now is the fruits of years of work to recreate that brand.“

The retailer once prided itself on being an exclusive brand that sold logo-embellished polo shirts to “cool, cool kids,” as former chief executive Mike Jeffries put it in 2006. While the exclusive brand operated in the early 2000s, it soon became a recipe for disaster, and accusations of discrimination and sexual exploitation followed.

The company officially began its turnaround when Fran Horowitz took over as chief executive in 2014 and renamed both its Abercrombie & Fitch and Hollister labels. Now she markets her same brand to millennial and Gen Z shoppers of various sizes, offering stylish clothing that can be worn to work, at home or even to weddings. Hollister, his second brand, caters to today’s teenagers.

“We inspected every part of this business,” chief financial officer Scott Lipesky told the Financial Times. “We’ve totally transformed every aspect of the company.”

Abercrombie expects annual net sales growth of 10 percent this year, making it the standout among its peers. Last year, its top line grew 16 percent even as other apparel retailers were saying discretionary spending had moderated.

Analysts expect Abercrombie to maintain momentum this year even as consumers tighten their belts. But its on-trend and convenient products are only part of the reason: they also manage credit with a behind-the-scenes inventory strategy that has allowed it to make the most of its resurgent popularity.

“Abercrombie and their marketers have anticipated consumer trends and met them,” said Greg Portell, a principal partner at consulting firm Kearney.

“We hear a lot about retailers looking for and gathering consumer insights, investing in knowing their customer,” added Portell. “But being able to execute at that scale, at pace, is still the biggest challenge in retail.”

Jessica Ramírez, an analyst at JHA, said Abercrombie now offers more tailored and “essential” items, which include elements such as T-shirts, button-downs and dresses, making it less dependent on seasonal items that are more likely to be marked. down.

While Abercrombie has seen viral success with its tailored Sloane women’s pants, a trend that fashion forecasting company WGSN said first appeared about five years ago, it has continued to diversify its offering into rather than relying on a few familiar items.

“What we want is a balanced variety,” Lipesky said. “If you fit too much into a certain category. . . it can be really good if that category is performing or it can be really bad if that category goes down.”

Abercrombie began managing its inventory more tightly after pandemic lockdowns temporarily closed stores in 2020, Lipesky noted. The company quickly realized it could be more productive with less inventory by working with retailers to “track,” or fast-order, styles that are selling well.

Depending on the category, Abercrombie now places orders months or weeks in advance, compared to the traditional industry standard of about nine months in advance.

“The customer is moving faster than ever, the industry is moving faster than ever, and therefore your inventory process needs to be as agile and nimble as ever,” Lipesky said.

Abercrombie reported fewer promotions in the first quarter that helped it increase its gross profit margin from 61 percent a year ago to 66.4 percent. Rivals Aritzia and American Eagle Outfitters, on the other hand, reported gross profit margins of 38.3 percent and 40.6 percent, respectively, for the quarter.

“The best marketers in this space don’t rest too much on what has already proven to be a popular trend. . .[they]buy easily for what’s going to work or what’s going to be popular,” said Dylan Carden, an analyst at William Blair.

Abercrombie has also focused on fit and finish, which Mark Cohen, a Columbia Business School professor and former chief executive of Sears Canada, said has been a winning strategy.

“Making sure the merchandise fits. . . that’s been the downfall of a lot of brands that create beautiful things that nobody could wear,” Cohen said.

Better-fitting items have not only attracted plus-size customers. Sabrina Ramkhelawan, 30, said that even as a size 0 in the US she has struggled to find clothes that fit well elsewhere.

“If I can’t fit it, who is it for?” Ramkhelawan asked, adding that Abercrombie’s tailoring had made it her clothing store since 2021.

Joey Yu, 24, said he started shopping at Abercrombie last year for the first time since high school after noticing that it sold trendy styles he saw on TikTok for a reasonable price.

“Abercrombie does a good job of balancing trend and style, but also quality and comfort of clothes,” he said, adding that the brand had beaten out Uniqlo and PacSun to become his top seller.

Despite continued inflation, Lipesky said Abercrombie has been able to add higher-priced products to its assortment that consumers have embraced.

“We’re selling dresses at prices we haven’t seen in the past, but because we’ve earned the right to sell them to our customers,” he said.

After returning to its home market, Abercrombie is now looking to push overseas. Its business in Europe and Asia combined represented under 20 percent of its net sales in the first quarter, but grew even faster than its US business.

It is now building teams in Shanghai and London to “localize its assortments,” Lipesky said.

“The company is in a really good place to launch global growth,” he said. “That’s what’s next for us.”