Abercrombie & Fitch Brand strategy follow-up: Is it the 'Brand Bubble'?

A follow-up to a prior post about Abercrombie & Fitch’s brand pricing strategy for the holiday season: In a nut-shell, Abercrombie was not going to play the game of deep discounting like their competitors. They were hoping to gain long-term brand impact by maintaining their prices. I had many comments on that blog-post. Most agreed the short-term hit would help their long-term brand image.

In the Wall Street Journal on February 14th (happy belated Valentines’ day) is the article ‘Abercrombie Profit Drops 68%’. They had to reduce prices as much as 90% in January to clear inventory’. That isn't really a surprise. Unless they were really obtuse, they had to know that would happen in this economy. The WSJ article goes on to say Abercrombie’s CEO referred to the fourth quarter as ‘a nightmare that included unprecedented promotional activity by other retailers’.  HUH? While I applauded his guts to hold firm, what planet was he on not to expect this short-term hit? When managing for long-term profit, you can expect a hit in volume.

This will sound so text-bookie, but a review of three factors that influence the demand curve, or shifts in demand, simplifies the issue: 1) Consumer Tastes. Let’s assume that didn’t change. 2) Available substitutes. They were beat here with many choices. 3) Consumer Income. Hmmmm. This is a no-brainer as consumers traded down.

I’m no financial genius but I'm sure they realized when managing for long-term profit, you can expect a hit in volume. The long-term strategy makes sense if consumers find  value in the brand. I wonder if they considered that before stocking the shelves with holiday inventory. Maybe they were hopeful. Maybe they had their head in the sand. Maybe it’s just the ‘Brand Bubble’…(more on that later).

Would love to hear your comments.

Jackie

Posted by Jackie Kuehl at 2/19/2009 8:25 AM
Categories: marketing strategy
 

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