Abercrombie & Fitch Brand Strategy: Best Practice or Marketing Mistake?
I made an observation this holiday season which I’m sure many others have as well. Email special offers GALORE. Lots of them. Often. And they get better everyday. First 20% off. Then 30% off. Then 50% off. And today…60% off. Wow. The interesting thing to me is how it has been the same story across many retailers, these three being ones I shop regularly: Banana Republic, J. Crew, New York and Company, and Victoria Secret. (Being somewhat clothing obsessed this is focused on clothing retailers).
This situation is not a surprise this year. The media told us to expect deep discounting. Retailers announced it themselves. All retailers but one: Abercrombie & Fitch. I was surprised to read in the Wall Street Journal a while ago: Abercrombie Fights Discount Tide Clothing Retailer Accepts Lower Sales in Its Strategy to Protect Margins and Hip Reputation. This is a rather bold move when the economy suggests otherwise. Imagine being the CEO making the call. The economy is down, consumer discretionary income is shrinking, and our competition will be out in full force discounting to drive sales. Short-term decision making would scream the need to follow-suite to maintain share and move inventory. I applaud Abercrombie for holding ground on the profit line. We know the business principal that in the short-term, you cannot grow market share and profit at the same time (not including a decline in CGS). At Frito-Lay I had to know which ‘mode’ we were in: Profit mode, or share mode and determine my pricing/promotion strategy.
I will be very interested to see the long-term impact on the Abercrombie Brand. Consumers become accustomed to promotional discount strategies which decreases brand value over time. I no longer pay full price at J. Crew or Banana Republic, two of my favorite stores. I know their clothes will ALWAYS go on sale. I had this discussion with some friends who do the same. Abercrombie surely is taking a hit in sales in the short-term; but this will be a great case study over time to see if the strategy pays-off in profit and strength of the brand. How well do they know their customers? Naturally, hindsight will make the CEO lauded or chastised. And the only unfortunate issue for me is that my niece wants Abercrombie clothes for Christmas. So of course I paid…full price.
What do you think of the Abercrombie & Fitch strategy?
Categories: brand marketing,marketing strategy,relevant marketing
Jackie, I agree that this has the potential to be an excellent case study. I think that Abercrombie is making a bold, but wise move. I believe that their effort to protect their premium brand equity will pay off once the economy rebounds. Whether it is in 2010 or later. The key is that Abercrombie will need to keep their product line fresh. This has been the secret to J. Crew's continued success. In the August 20, 2008 issue of Fortune, Mickey Drexler tells John Brodie of his strategy to "reposition J. Crew as a luxury-for-less alternative." They will continue to leverage value proposition through online markdowns, while simultaneously introducing their new upscale line called the J. Crew Collection. I have yet to personally shop the product, but I understand that the line will be a premium priced brand. Conversely, this is where The Gap has failed. The lines between BR, The Gap, and Old Navy have blurred. It is hard to differentiate the styles and quality between the brands. Like you, I am somewhat "clothing obsessed" and used to be a frequent shopper at BR. During the last few years, I have made the shift to shopping their Old Navy brand exclusively. Why pay $45-$50 for a pair of jeans at BR when I can get great style and quality at Old Navy for $19.99? This coupled with the online discounting that has become a standard for The Gap brands has definitely hurt and will have a long term negative impact on profitability. Like Drexler says in the Fortune article, "No profit, no fun!" I think Abercrombie and J. Crew should stay the course. Their strategies may have a short term negative impact on sales, but maintaining their margins will result in the long term beneifits of increased profitability and a sustained premium brand image.
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Well put, Michael. I am looking forward to watching this all play out. Especially from a learning perspective to see if some of the principles in branding hold up. Thanks for sharing.
J
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I agree that Abercrombie is wise not to give in to the deep discounting strategy. Afterall, the purpose of a buisness is to make money and there can't be much profit left after that 60% one-day only exclusive online sale (to be repeated next week)!
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I do not know the profile of the AF target consumer, but I would think its someone who is younger. Someone who might be considered a dependent. Someone who has a part time job and still receives money from their parents. Those consumers would tend to have more discretionary income than other consumers. I think that is why AF is able to hold onto their margins.
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Wow, I never knew that Abercrombie & Fitch Brand Strategy. That's pretty interesting...
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very informative detail thanks
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I am quite interested in this topic. Hope you will elaborate more on it in future posts.....
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I think that discount strategies work for short period of time and longer sales period decreases the value of the brand.
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Abercrombie took a big risk by not following suite of deep discounting, but in the longer run it will help them to build brand value.
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Definitely a great post. Hats off to you! The information that you have provided is very helpful.
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Maybe what Abercrombie is doing might be considered admirable in the marketing world, but for customers it just gives them a negative image of a brand, which is never putting its stuff on sale for the customers.
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I agree with what you say. Promotional discounts do decrease the brand value of the brands not into the race.
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