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Prepared by: Peach Ablah Robert Stauffer Kevin Mason Scott Southern Table of Contents 1. Executive Summary…………………………………………………3 2. Background…………………………………………………………..4 3. Problem Definition…………………………………………………...5 4. Methodology………………………………………………………….6 a. Secondary Research………………………………………….6 b. Qualitative Research………………………………………….8 c. Questionnaire…………………………………………………10 d. Survey Methods……………………………………………....11 e. Sampling……………………………………………………....12 5. Data Analysis and Conclusions……………………………………12 6. Recommendations to Client………………………………………..18 7. Research Limitations………………………………………………..20 8. Appendix……………………………………………………………...21 2 1. Executive Summary At one point in time, Abercrombie & Fitch Co. held a solid piece of the extremely competitive apparel market. Over the years, A&F has had to stay competitive against the industry giants like American Eagle and Banana Republic, while fighting off newer business along the way. The company has had little change since it took on the organizational culture of its Former CEO Mike Jeffries. This stagnant company has to make some changes to stay competitive in their industry. Through our research we attempted to understand why Abercrombie and Fitch is giving up ground to their competitors and find appropriate recommendations for the company. By way of secondary research, we gained a frame of reference on the company, customers and the market. This was facilitated by looking at financial statements on Abercrombie and their competitors. Once we had a grasp on Abercrombie and Fitch and their respective industry, our next step was to gain valuable qualitative research. By holding a focus group with 7 of our peers, we were able to gain perspective on the company from potential customers. The feedback from this focus group helped us to design our online questionnaire. With limited funds, using a free online questionnaire was easily the best option. With the use of our resource Qualtrics, we were able to create and distribute our survey with ease. Using facebook, text messaging and email, we were able to send invitations to our friends that directed them to the survey’s site. The Qualtrics data was used to forward our understanding and help solve the research questions we posed at the beginning of our research. Through analysis, we learned that Abercrombie and Fitch is off the mark in their efforts to hit the 18­26 year old target market, due to it’s “not cool” brand image. With a few open ended question, we were able to gain a feel on how our peers perceived Abercrombie and learn what they associate closest to the company. Most of the responses mentioned either their perception of “too young” reminding the of middle or high school, or the over the top atmosphere with “over­sexualization” to ”overwhelming in store fragrances”. 3 In our conclusion, we decided that there are a number of steps Abercrombie needs to take to be able to weather the storm. They must adjust their prices and broaden their product line by adding more sizes. These two corrections could definitely make a difference for the company. We think most importantly, that they need to revamp their brand image, and this should also cause changes in their stores. Lowering the music, raising the lights and removing the pungent smell could do wonders attracting new customers and trying to regain past patrons. Another interesting thing to note, during our analysis we found a link between the nationality of an individual and their perception of Abercrombie & Fitch’s “coolness”. This proved that foreign markets are viable options A&F can attempt to pursue. 2. Background We are conducting research regarding Abercrombie & Fitch Co. and their brands Hollister and Abercrombie. Abercrombie Co. started in 1892 as a retail sporting goods store. In 1900, Ezra Fitch bought a large portion of the company’s shares, and they changed the name to Abercrombie & Fitch. After many differing opinions about the future of the company, David Abercrombie sold his half of the company to Fitch, who turned the company into a sporting goods powerhouse. When Fitch retired in 1928, the company experienced many ownership changes. However, after continuous years of losing profit, the company finally closed its doors in 1977. A year later, it was purchased by Oshman’s, another sports retailer, but they continued to struggle and eventually sold the company to Limited Brands in 1988. The new owners decided to split from the sporting goods industry and began to focus mainly on apparel. Michael Jefferies was appointed president in 1992 and decided that the company should focus on the expanding teen retail market. The clothes were strategically priced extremely high, making the brand more exclusive and desirable. The company’s sales doubled in two years to $165 million and the company continued to grow for the next 15 years. At its peak the company had 1,014 stores between all of its brands. A&F began began to experience a decline in sales and consumer buzz during the recession of the late 2000’s. The refusal of A&F to lower prices during this troubling 4 economic period sped up the loss of market share. As a result of this decline A&F has lost a considerable market share to the rest of the clothing industry. With competitors like American Eagle, Forever 21, Banana Republic, PacSun, H&M all gaining value, Abercrombie needs to find ways to become more relevant to reverse this trend. A&F is a part of the retail industry. Retail industries engage in selling merchandise for personal or household consumption and render services to sell these goods. A&F sells personal clothing. With the introduction of internet shopping the retail industry has changed drastically in the way people prefer to buy their products. Rather than driving to a storefront, people in A&F’s target market prefer to shop on their computers or mobile devices for convenience and this change in buying methods need to be catered to. The retail industry is also changing in the way that brands are perceived. Many people are becoming more price­conscious and are focusing less on the need to have an expensive brand on their clothing attire. As the industry A&F changes, A&F needs take notice and adapt in order to succeed. 3. Problem Definition Our decision problem is: What are the reasons for Abercrombie & Fitch’s recent economic decline and ​ in what ways can Abercrombie & Fitch regain domestic market share? This is important because if this problem is not looked into Abercrombie will likely continue to lose market share and have to close more stores domestically, resulting in increased loss of revenue and a drop in brand resonance. Through the use of some specially formulated research questions we can evaluate the status of our company and what needs to be changed to reverse this negative pattern. The specific questions we researched in order to make an informed decision were: •Why is the older half of the Abercrombie & Fitch target market not shopping at their stores? •Why is this company losing so much of its United States customer base but not foreign base? •How much of A&F’s 18 ­ 26 target market is actually reached? •What is the brand perception of Abercrombie & Fitch to college students? 5 •What competitors are stealing away the Abercrombie & Fitch customers most? •What does the target market associate with Abercrombie & Fitch clothing? •What is least appealing to the older half of the target market about Abercrombie & Fitch brands? •What do college­aged students look for in a retail store and clothing? 4. Methodology a. Secondary Research In last year alone, Abercrombie and Fitch has had to close nearly 20% of its stores in North America due to profit losses. For years, A&F has been falling off the map. In the early to mid 2000’s the business was fueled by wealthy young people wanting to fit in but since then the younger generations have become more interested in more affordable, less flashy brands and A&F has failed to adapt to changing market conditions. Cheaper brands that are more online­focused are becoming popular in the age demographic A&F is mainly trying to target. A&F has been doing an unsuccessful job of reaching their target market of teenagers and young adults in the 18­26 demographic. By losing over 180 stores in North America A&F is clearly losing a large chunk of its market share with America’s youth. Despite the hindering western market Abercrombie has had success recently in Europe. Opening multiple flagship stores in the past year they are quickly becoming relevant in European fashion. While primary data is important in answering the research questions, secondary data can also be very useful. By analyzing a mixture of internal data such as comparable sales and external data like published annual reports, we can answer a few questions regarding declining market share, domestic and international business strategies. Using the investor presentations and annual reports to the SEC ​ ​ one can gain a frame of reference on the company as a whole. This secondary data helps to show how the company is doing and illuminates any weaknesses. With the data given from their annual financial report one can see that they are losing their place in the domestic marketplace, this problem is clearly 6 covered under their Long Term Strategic Plan (2014) “[We must begin] Recovering productivity and ​ ​ profitability in our U.S. stores”. From 2012 through 2014 Abercrombie’s comparable sales have gone from ­1% to ­11% to ­7%, respectively. This downward slide in profitability has led to mass store closings, creating a barrier between the company and their target market through availability issues. But, this loss in the domestic market share has forced them into a different market. ​ ​ With their falling domestic presence, Abercrombie has began focusing their attention on other options, as per their 10­K form for the SEC, “our growth strategy relies significantly on international expansion, which adds complexity to our operations and may strain our resources and adversely impact current store performance.” The company as a whole went from about 31% of their sales from the international market in 2012, to almost 39% in 2014.

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