Although people are fashion conscious, especially teenagers, and are quite particular about their fashion tastes, not all fashion retailers are doing well. This is because younger customers are more attracted to expensive smartphones and other gadgets and want to spend less on expensive clothing. Hence, they have shifted to more casual clothing and the ones which are comparatively cheaper.
Apparel retailer Abercrombie & Fitch (ANF, Financial) too is suffering from this problem. This was very much reflected in its second-quarter results reported recently. The numbers were mixed, sending its share price down.
Into the numbers
Revenue for the quarter slipped 6%, to $891 million, over last year. This was below the Street estimate of $916 million. The key reason for the decline is the fact that customers are less attracted to its products now. There has been a shift of customers, especially teenagers, to lower-priced clothing which brands like Zara and H&M offer.
Same store sales declined 7% despite price reductions made in the Hollister brand. Prices were cut mainly because the retailer wanted to make it competitive to other lower-priced retailers. However, sales of the Hollister brand plunged 10% during the quarter.
Earnings did meet the estimate as it jumped to $0.19 per share, whereas analysts were expecting it to be $0.10 per share. Hence, the bottom line came in as a relief to the investors.
The peer side of the story
Even the new back-to-school collection did not do well with lower-than-expected sales. On the other hand, many other industry players, such as H&M, registered an increase in sales for the back-to-school season. Nonetheless, there are many who have suffered like Abercrombie & Fitch, American Eagle Outfitters (AEO, Financial) being one of them.
American Eagle too reported a lackluster quarter with a 2% decline in revenue and a 7% drop in same-store sales. Lower demand for its products and intense competition from other fashionable retailers led to lower sales. In fact, the company plans to close 150 North American stores in the coming months.
Makeover plan
Nonetheless, Abercrombie does have a backup plan to revive its sales. It plans to turn around its business through some restructuring efforts. Firstly, it plans to shut down about 60 unprofitable stores in order to cut its unnecessary costs. This should help the company remain focused on the profitable ones.
Further, it has changed the look and the feel of its stores. The once nightclub-type stores with loud music has been transformed into a store full of lights and low music. Also, it plans to remove its logos from the apparel and make it more fashionable and casual. This should help Abercrombie in attracting more customers.
Moreover, it plans to bring in plus size apparel for the healthier section of people. This move was important after negative marketing of its brand which brought in a lot of criticism. This should also enable the retailer to cater to a larger section of people.
Final word
The fashion retailer is definitely undergoing a tough phase, wherein lower demand for its products is already evident in its results. On the other hand, competitors fast moving fashion apparels have been a major hurdle. However, Abercrombie has always managed to register an attractive bottom line. Also, its efforts to revive its business and lure customers look interesting. But it is difficult to say how these efforts will materialize. Thus, staying on the sidelines is a good idea.
