December 9, 2008
A&F Not Going There (Discounting That Is)
Reading a Wall Street
Journal article on Abercrombie
& Fitch (A&F) brought us back to earlier days when we would hear
some older person asking, “If everybody decided to jump off a cliff,
would you do it?”
A&F is intent on
deciding its own path and, for the retailer of preppy clothing, that means
refusing to mark down merchandise just because everyone else is doing it.
The question, ultimately for A&F, will be – is everyone actually jumping
off a cliff into greater danger or is the most dangerous position to be
found sticking to the high ground?
Analysts and investors
have begun to question A&F’s positioning and its stock price has dropped
significantly. The company’s shares are trading at about 20 percent of
their high in January. Same-store sales in November were down nearly 28
percent from the year before.
Michael Jeffries, chairman
and chief executive officer of A&F, believes that discounting the chain’s
clothing will ultimately lead to a devaluation of the brand’s equity in
the minds of consumers. He told
analysts, “Promotions
are a short-term solution with dreadful long-term effects.”
Kimberly
Greenberger, an analyst at Citi Investment Research, questioned how long
Mr. Jeffries and company would be able to maintain their position if the
recession continues to hang on.
“The
worry here is at a certain point they have to cry ‘uncle’ and capitulate
on the pricing,” she told the Journal.
David
Cupps, A&F’s general counsel, said the chain is “well positioned
to deal with a tough market” and reiterated that it would not be following “the
promotional pied piper.”
Discussion Question:
Is Abercrombie & Fitch
taking the right path or is there some middle-way between no discounts
and tactics that would in some ways devalue the brand?
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Business in November was pretty tough. The sales declines that were reported were despite unprecedented levels of promotional activity. Seemingly, nobody is focused on margins or profitability right now. They’re focused on liquidating inventory and generating cash. They’ll do what they have to do today in order to get to tomorrow.
And then there’s Abercrombie & Fitch. They’re going to hold firm on pricing. They’re going to sail right into the storm. But in an environment like we’re in now, cash flow is the key. Obviously, the stronger you are, the more pain you can tolerate. But for many retailers cash flow is a major concern right now. Given the inventory they currently own, they have to balance between the short term goal of liquidating inventory and raising cash now and the long term goal of maintaining price integrity. That inventory will generate a lot more cash in now than it will in January and February.
I’m advising my clients, mostly smaller retailers who no more want to break price than A&F does, to, at a minimum, do what they have to do now to bring end-of-December inventories into line.
Abercrombie & Fitch will break price. I was in one of their stores over the weekend and there was more staff than customers. And lots of inventory. They may wait until January and clearance season to take their markdowns, and their medicine, but they’re going to break price. They’re going to be stuck with a lot of fall and winter goods if they don’t.
I agree with most of the comments here regarding A&F’s brand equity. However, their challenge is not necessarily the size of a discount itself, rather it is more about ensuring a balance between discount and basket size to shopper traffic and consumer satisfaction to “cost of value delivered.”
In other words measurements from previous seasons must be used as an initial benchmark. Then begin to track shopper traffic by day (and day parts, if necessary). Track your basket size or register ring dollars for each ticket. Measure your ratio.
If the ratio is down from previous years, which I would suspect it is, then you will quickly know in general terms the value you are offering is not the catalyst you need this season.
Value itself can be delivered in many forms, including discounts off the price. Many (most) department stores offer percent-off promotions, which are suspect at best in terms of what the final price is netting out to be. Consumers rarely know the initial pricing of many of these goods.
Value could be delivered in the form of “selected” lines of goods in a “buy one get one free or 15% off or for 19.99.” It is dependent upon what your internal research has stated previously, what your shortfalls are in delivering total customer satisfaction however you are measuring it.
Finally–personally, I have never been attracted to an ad which does nothing but show a concept of the item, without ever mentioning the item. To me, the marketer actually believes the consumer watches the commercials.
Anyway, I am watching this season for insights yet to be determined. My own belief is, this type of consumer will be around for awhile longer.
A&F is right on. Anyone can be a discount whore, but once you go there, it’s awfully tough to get out.
It was disheartening to read Pottery Barn’s CEO last week acknowledge that all of its brands are going to be discounting in 2009. Damage in the long term for these powerhouse niche brands.
As we’ve seen this fall–how low do you have to go to get people to spend? 40%? 50%? 60%? I doubt those economics work better than holding the line like A&F.
I applaud A&F for their insight and wisdom in protecting the brand and margin. Most readers have probably done the math that suggests that retailers with a 40% margin, who proceed to cut their prices by even 10%, need to sell 33% more product to net the same margin dollars. That’s a lot more work to make the same amount of money.
Having said this, there is a need to respond to customer needs and demands. As previous writers above have indicated there is a need to provide some “value solution” for the customer. It cannot, however, be the same type of ‘panic price chopping’ that so many other retailers are adopting.
My partner, Paula Rosenblum, coined the phrase “markdown chicken”: during the holidays, it’s a game of chicken as to who the first retailer is going to be to take the big markdowns of the season. This year, we didn’t have a game of markdown chicken–that bird flew the coop weeks before we hit Black Friday. Frankly, I applaud any retailer that resists the herd mentality, especially when it’s driven by financial analysts that barely have any idea of how the industry works. As long as your inventory is moving according to your plan, why jump off the discount cliff? Just because everyone else is? Because it makes the others look bad if you don’t? Contrast A&F with Steve & Barry’s–who ran a promotion of “everything is $8.98,” found it drove sales like you would not believe, and then drove themselves straight out of business. I’ll take A&F’s strategy any day.
While we are not big on discounts as it is well documented that promotional pricing absolutely reduces profits, in an environment like this customers need a reason to buy even more than they need a reason to “shop.”
Brands always matter and some times they matter more. “Investing” in brand equity will do relatively little to deal with macro factors like a recession, hence the huge negative comps that A&F reported.
The best approach is to offer targeted discounts where you need them (i.e., to inactive or downtrending customers) while letting your full price shoppers continue buying at full price. Of course this is only done with customer data, (usually) some kind of loyalty proposition and using the data to develop customer insights to manage the business. Easier said than done…still.
While maintaining a brand identity is key to strengthening or establishing a market position, staying in business would still rank higher on the priority list.
With that said, A&F should remember that discounting is often a relative term. Nobody is suggesting they become a discount retailer. Lowering their prices to be more in line with local markets will not impact on their brand, but will improve their chances of still being around when this recession ends.
After all, preppy professionals can curb their spending as well as anyone else.
There is much middle ground between maintaining price at all costs and constant discounting. With economists predicting that the current recession will last through 2009 and into 2010, A&F should be exploring that territory now.
A&F does not need to discount every item in the store. Limited time promotions on select items will help bring consumers back into A&F stores. This can be accomplished without damaging the brand. Losing 30-40% of your customers through stubbornness will inflict far more damage on the brand.
Nobody’s comp sales in November were good (unless your name is Walmart), but A&F stood out with a 28% same-store decrease. While it’s admirable that Abercrombie is trying to stay off the on-sale/off-sale rollercoaster, they clearly need to try harder to offer better value to their core consumer than they have been doing. This isn’t a new issue: A&F has faced competition from value-oriented retailers like American Eagle for years.
The young consumer targeted by Abercrombie is almost as pinched by the recession as her parents. It’s tougher finding that part-time job, there is less disposable income to go around, and the general economic malaise has the entire family watching its discretionary spending. Without getting into the realm of nonstop 40-to-50% off sales, surely there are creative ways to offer better value through savings on multiples items and coordinates, more aggressive clearance events, frequent-shopper discounts, and so on.
Even the luxury retailers recognize that “brand integrity” only goes so far when you have obligations to your investors and associates to keep the business moving forward. A&F may find itself sticking to its principals and losing the share war.
Walking through the local mall this weekend, we passed A&F by as we always do and always did when my daughter was in high school. It was never a choice, and never will be. I believe that to be the case for many for other reasons besides price. But, that’s another issue all together. As I always do, being what could be called a ‘retail observationalist’ as we all are, I peered inside. I looked beyond the displays, the darkness and the obnoxious scent pumped in the air flowing out the door to see nothing but emptiness.
The mall was crowded elbow to elbow. Folks with bags in hand to the extent that I was asking myself “what recession?”
I recognize that it could just be my market area for this type of retailer, however, there would be no surprise in seeing them gone from our market in January. Brand equity without sales is meaningless.
The young consumer targeted by Abercrombie is definitely feeling the pinch–as many of them are spending their parents’ money and most parents I know are curbing their spending this holiday season. This is actually the first Christmas I am NOT buying my three nieces sweat shirts at A&F. At more than $50 a piece, it just seems excessive. A discount could have swayed me in the other direction though, and I have a feeling many gift givers are in my boat. There’s a fine line between becoming a discount retailer and offering a few creative promotions to entice loyal shoppers in a tough economy!
A&F is showing some real management foresight and courage here. They are to be commended for recognizing the source of their brand value and the profit premium it provides. The siren song of promotion is such a slippery slope. Pick your pun–there are dozens of them coined by manufacturers and retailers reading this who thought we could walk the promotional tightrope–but they all mean the same thing–“that first step is a lulu….”
But A&F does need to recognize the pain of their loyal customers right now–even if it is mostly psychological. They need to empathize and share that pain somehow. One way might be some form of loyalty rewards program. Something that says “you are part of our club and we appreciate you.”
At least part of the reason for the highly successful airline loyalty programs at their inception was to create that empathy with the road warrior. The “you fly five days a week and so do we so we know how it feels” feeling was a welcome acknowledgment of our pain to those of us who earned those one, two and three million mile cards. Perhaps A&F can find an equivalent to connect with their customers?
Brand image is created and sustained by many other factors than price. A&F has many positive associations with its brand in addition to its high prices. A&F would not suffer that much if it lowered prices and had more sale items, particularly in a situation of economic turbulence like consumers are experiencing now. As others have said, there are certainly strategies that A&F can employ between the extremes of no price discount and massive sales that would boost sales and not have detrimental long-term impacts on its brand image.
I guess I’ll be playing Devil’s Advocate here (or something along those lines), but exactly how is A&F protecting its “brand” with high price points? To many/most people, the name is synonymous with overly-decibeled background music and oversized b/w photos of underdressed young men…in short, it was already “cheap,” if not low-cost; I don’t see where price entered into the picture. For Tiffany, Nordstrom…maybe even Target, price=quality=brand, but I don’t see that equation with A&F.
I am fairly new here to RetailWire but this article was directly on track with a conversation I had with a friend of mine in the automobile sales business.
We had spoken about “discounts” and “incentives” for his customers and the funny thing is, no one will buy a car now unless they get “employee pricing” or “huge incentives” or something similar.
If you discount enough, even when times are good, people will not buy unless you give them the “discounts” because you have taught people to buy just like that. As was mentioned before, providing value to your customers is not the same thing as a discount and A&F believes they are providing a lasting value proposition to their customers and client base.
Will they weather the storm? Only time and the shareholder meetings will decide that.
If A&F doesn’t have to do sales I say all the more power to them!
Nordstrom only does two sales a year and the rest of the time their stores in my area are still packed.
The fact that A&F has essentially been making the same clothes since 1997 with cargo shorts and T-shirts with such success says a lot about the talents of their Art Direction/Advertising team.
I firmly believe in the value of brand equity. But let’s face facts here. Customers do not want to spend. So what should a retailer do? Let inventory pile up so that we can protect the brand? There has to be a balance between brand equity and supply and demand.
If I was the CEO and I saw a 28 percent decrease going into season, I would react. Fire sales are not necessary but AF needs to reach out to their customers. I’m not sure people care about brand equity as much as A&F does but I am 100 percent positive they will sell more sweaters if they had a sale. That may even improve the brand standing with customers.
Wouldn’t holiday numbers be more interesting if companies reported their bottom line instead of their top line? What really matters is how much cash is left after all the vendors, employees, and landlords are paid. Sure you want to protect your brand, but then again you need to stay in business so your brand matters.
With that being said, I agree with previous posts that a retailer can show value and help their customers without discounting. Giving gift cards towards a future purchase is just one way to do so and will have no negative impact on the brand image.
I say no to discounting and yes to demonstrating more value. (It is a fine line, isn’t it?)
You know, there’s something very admirable about their stand as a “regular priced brand,” it’s very pure. As is everything else they do; the store, the people, the graphics, the music, the annual “challenge”…everything is just very, very brand-right. They never veer off.
It’s the classic CEO vs CFO battle; money vs. brand…I say, Stay the Course, Mike! Don’t let them get you off track! A year from now, they’ll call you a genius.
Bravo for A&F! Their stock is only 20% off their January high. It sounds as if they are doing something right. Same store sales off 28% in November? Could that not be an omen for disaster?
So, which way do we vote on this one? I vote that A&F is on the right track. I am a great believer in brands and over many, many years have seen brands devalued by promotional efforts. How many retailers will ultimately be selling merchandise below cost to turn their inventory? Retailers actually plan for this. I fail to see why they just don’t cut their inventory levels and hold their prices higher. How many dollars are they losing to customers would have bought the item at full price or even 20% off, rather than 40% off?
I have had two experiences in the last 2 months where I purchased an item only to see it discounted further a week or so later. So, I went back, returned the item I bought and repurchased it at the lower price. In the two situations together, the retailers lost over $60 in revenue and sold nothing more. Surely, I am not the only customer smart enough to do that?
Certainly, A&F will post poor December numbers as well. But, the November-December period is driven by gift buying. If one is buying for an A&F fan, there is only one place to get the item and the price is the price one has to pay when they walk in the store. That A&F gift will be purchased no matter if it is full price or 70% off.
Consider, a fashion retailer whose same store sales are down 28% without promotion may be making more profit than a retailer who matches last year’s same store sales with average mark downs breaking 50%. I don’t think anyone would dispute that the average holiday markdowns will hit record levels.
I wold suggest that we wait and look at their ultimate profitability instead of being the usual retail slaves to same-store-sales sales numbers. If their stock is only down 20% from its 2008 high, I’d say someone on Wall Street agrees.
That being said, I’d look at some form of value-added promotion such as giveaway items, gift cards with purchase, free gift wrap, etc., to increase the value of the purchase without lowering their prices.
I don’t agree with Michael Jeffries on most of his strategies and tactics; however I commend their foothold on a full price approach. They have a core customer that has an expectation.
A brand needs to understand who their customer is and then stay relevant to their customer’s circumstances. Without the use of creative discounting (category and time specific, gift with purchase, purchase with purchase), A&F will ultimately alienate their customers and becomes less relevant. Properly done and with relevant, creative discounting in these tough times, more brand loyalty will be created for A&F in the long run.
Tiffany and Cartier aren’t running bogo’s. Why should Abercrombie & Fitch? A&F is the high-priced brand. Eroticism creates the value. Retailers with no eroticism (99% of everyone else except Victoria’s Secret) only have price as the lever. Which costs the retailer less: sexy photos or 50% off?
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Business in November was pretty tough. The sales declines that were reported were despite unprecedented levels of promotional activity. Seemingly, nobody is focused on margins or profitability right now. They’re focused on liquidating inventory and generating cash. They’ll do what they have to do today in order to get to tomorrow.
And then there’s Abercrombie & Fitch. They’re going to hold firm on pricing. They’re going to sail right into the storm. But in an environment like we’re in now, cash flow is the key. Obviously, the stronger you are, the more pain you can tolerate. But for many retailers cash flow is a major concern right now. Given the inventory they currently own, they have to balance between the short term goal of liquidating inventory and raising cash now and the long term goal of maintaining price integrity. That inventory will generate a lot more cash in now than it will in January and February.
I’m advising my clients, mostly smaller retailers who no more want to break price than A&F does, to, at a minimum, do what they have to do now to bring end-of-December inventories into line.
Abercrombie & Fitch will break price. I was in one of their stores over the weekend and there was more staff than customers. And lots of inventory. They may wait until January and clearance season to take their markdowns, and their medicine, but they’re going to break price. They’re going to be stuck with a lot of fall and winter goods if they don’t.
I agree with most of the comments here regarding A&F’s brand equity. However, their challenge is not necessarily the size of a discount itself, rather it is more about ensuring a balance between discount and basket size to shopper traffic and consumer satisfaction to “cost of value delivered.”
In other words measurements from previous seasons must be used as an initial benchmark. Then begin to track shopper traffic by day (and day parts, if necessary). Track your basket size or register ring dollars for each ticket. Measure your ratio.
If the ratio is down from previous years, which I would suspect it is, then you will quickly know in general terms the value you are offering is not the catalyst you need this season.
Value itself can be delivered in many forms, including discounts off the price. Many (most) department stores offer percent-off promotions, which are suspect at best in terms of what the final price is netting out to be. Consumers rarely know the initial pricing of many of these goods.
Value could be delivered in the form of “selected” lines of goods in a “buy one get one free or 15% off or for 19.99.” It is dependent upon what your internal research has stated previously, what your shortfalls are in delivering total customer satisfaction however you are measuring it.
Finally–personally, I have never been attracted to an ad which does nothing but show a concept of the item, without ever mentioning the item. To me, the marketer actually believes the consumer watches the commercials.
Anyway, I am watching this season for insights yet to be determined. My own belief is, this type of consumer will be around for awhile longer.
A&F is right on. Anyone can be a discount whore, but once you go there, it’s awfully tough to get out.
It was disheartening to read Pottery Barn’s CEO last week acknowledge that all of its brands are going to be discounting in 2009. Damage in the long term for these powerhouse niche brands.
As we’ve seen this fall–how low do you have to go to get people to spend? 40%? 50%? 60%? I doubt those economics work better than holding the line like A&F.
I applaud A&F for their insight and wisdom in protecting the brand and margin. Most readers have probably done the math that suggests that retailers with a 40% margin, who proceed to cut their prices by even 10%, need to sell 33% more product to net the same margin dollars. That’s a lot more work to make the same amount of money.
Having said this, there is a need to respond to customer needs and demands. As previous writers above have indicated there is a need to provide some “value solution” for the customer. It cannot, however, be the same type of ‘panic price chopping’ that so many other retailers are adopting.
My partner, Paula Rosenblum, coined the phrase “markdown chicken”: during the holidays, it’s a game of chicken as to who the first retailer is going to be to take the big markdowns of the season. This year, we didn’t have a game of markdown chicken–that bird flew the coop weeks before we hit Black Friday. Frankly, I applaud any retailer that resists the herd mentality, especially when it’s driven by financial analysts that barely have any idea of how the industry works. As long as your inventory is moving according to your plan, why jump off the discount cliff? Just because everyone else is? Because it makes the others look bad if you don’t? Contrast A&F with Steve & Barry’s–who ran a promotion of “everything is $8.98,” found it drove sales like you would not believe, and then drove themselves straight out of business. I’ll take A&F’s strategy any day.
While we are not big on discounts as it is well documented that promotional pricing absolutely reduces profits, in an environment like this customers need a reason to buy even more than they need a reason to “shop.”
Brands always matter and some times they matter more. “Investing” in brand equity will do relatively little to deal with macro factors like a recession, hence the huge negative comps that A&F reported.
The best approach is to offer targeted discounts where you need them (i.e., to inactive or downtrending customers) while letting your full price shoppers continue buying at full price. Of course this is only done with customer data, (usually) some kind of loyalty proposition and using the data to develop customer insights to manage the business. Easier said than done…still.
While maintaining a brand identity is key to strengthening or establishing a market position, staying in business would still rank higher on the priority list.
With that said, A&F should remember that discounting is often a relative term. Nobody is suggesting they become a discount retailer. Lowering their prices to be more in line with local markets will not impact on their brand, but will improve their chances of still being around when this recession ends.
After all, preppy professionals can curb their spending as well as anyone else.
There is much middle ground between maintaining price at all costs and constant discounting. With economists predicting that the current recession will last through 2009 and into 2010, A&F should be exploring that territory now.
A&F does not need to discount every item in the store. Limited time promotions on select items will help bring consumers back into A&F stores. This can be accomplished without damaging the brand. Losing 30-40% of your customers through stubbornness will inflict far more damage on the brand.
Nobody’s comp sales in November were good (unless your name is Walmart), but A&F stood out with a 28% same-store decrease. While it’s admirable that Abercrombie is trying to stay off the on-sale/off-sale rollercoaster, they clearly need to try harder to offer better value to their core consumer than they have been doing. This isn’t a new issue: A&F has faced competition from value-oriented retailers like American Eagle for years.
The young consumer targeted by Abercrombie is almost as pinched by the recession as her parents. It’s tougher finding that part-time job, there is less disposable income to go around, and the general economic malaise has the entire family watching its discretionary spending. Without getting into the realm of nonstop 40-to-50% off sales, surely there are creative ways to offer better value through savings on multiples items and coordinates, more aggressive clearance events, frequent-shopper discounts, and so on.
Even the luxury retailers recognize that “brand integrity” only goes so far when you have obligations to your investors and associates to keep the business moving forward. A&F may find itself sticking to its principals and losing the share war.
Walking through the local mall this weekend, we passed A&F by as we always do and always did when my daughter was in high school. It was never a choice, and never will be. I believe that to be the case for many for other reasons besides price. But, that’s another issue all together. As I always do, being what could be called a ‘retail observationalist’ as we all are, I peered inside. I looked beyond the displays, the darkness and the obnoxious scent pumped in the air flowing out the door to see nothing but emptiness.
The mall was crowded elbow to elbow. Folks with bags in hand to the extent that I was asking myself “what recession?”
I recognize that it could just be my market area for this type of retailer, however, there would be no surprise in seeing them gone from our market in January. Brand equity without sales is meaningless.
The young consumer targeted by Abercrombie is definitely feeling the pinch–as many of them are spending their parents’ money and most parents I know are curbing their spending this holiday season. This is actually the first Christmas I am NOT buying my three nieces sweat shirts at A&F. At more than $50 a piece, it just seems excessive. A discount could have swayed me in the other direction though, and I have a feeling many gift givers are in my boat. There’s a fine line between becoming a discount retailer and offering a few creative promotions to entice loyal shoppers in a tough economy!
A&F is showing some real management foresight and courage here. They are to be commended for recognizing the source of their brand value and the profit premium it provides. The siren song of promotion is such a slippery slope. Pick your pun–there are dozens of them coined by manufacturers and retailers reading this who thought we could walk the promotional tightrope–but they all mean the same thing–“that first step is a lulu….”
But A&F does need to recognize the pain of their loyal customers right now–even if it is mostly psychological. They need to empathize and share that pain somehow. One way might be some form of loyalty rewards program. Something that says “you are part of our club and we appreciate you.”
At least part of the reason for the highly successful airline loyalty programs at their inception was to create that empathy with the road warrior. The “you fly five days a week and so do we so we know how it feels” feeling was a welcome acknowledgment of our pain to those of us who earned those one, two and three million mile cards. Perhaps A&F can find an equivalent to connect with their customers?
Brand image is created and sustained by many other factors than price. A&F has many positive associations with its brand in addition to its high prices. A&F would not suffer that much if it lowered prices and had more sale items, particularly in a situation of economic turbulence like consumers are experiencing now. As others have said, there are certainly strategies that A&F can employ between the extremes of no price discount and massive sales that would boost sales and not have detrimental long-term impacts on its brand image.
I guess I’ll be playing Devil’s Advocate here (or something along those lines), but exactly how is A&F protecting its “brand” with high price points? To many/most people, the name is synonymous with overly-decibeled background music and oversized b/w photos of underdressed young men…in short, it was already “cheap,” if not low-cost; I don’t see where price entered into the picture. For Tiffany, Nordstrom…maybe even Target, price=quality=brand, but I don’t see that equation with A&F.
I am fairly new here to RetailWire but this article was directly on track with a conversation I had with a friend of mine in the automobile sales business.
We had spoken about “discounts” and “incentives” for his customers and the funny thing is, no one will buy a car now unless they get “employee pricing” or “huge incentives” or something similar.
If you discount enough, even when times are good, people will not buy unless you give them the “discounts” because you have taught people to buy just like that. As was mentioned before, providing value to your customers is not the same thing as a discount and A&F believes they are providing a lasting value proposition to their customers and client base.
Will they weather the storm? Only time and the shareholder meetings will decide that.
If A&F doesn’t have to do sales I say all the more power to them!
Nordstrom only does two sales a year and the rest of the time their stores in my area are still packed.
The fact that A&F has essentially been making the same clothes since 1997 with cargo shorts and T-shirts with such success says a lot about the talents of their Art Direction/Advertising team.
I firmly believe in the value of brand equity. But let’s face facts here. Customers do not want to spend. So what should a retailer do? Let inventory pile up so that we can protect the brand? There has to be a balance between brand equity and supply and demand.
If I was the CEO and I saw a 28 percent decrease going into season, I would react. Fire sales are not necessary but AF needs to reach out to their customers. I’m not sure people care about brand equity as much as A&F does but I am 100 percent positive they will sell more sweaters if they had a sale. That may even improve the brand standing with customers.
Wouldn’t holiday numbers be more interesting if companies reported their bottom line instead of their top line? What really matters is how much cash is left after all the vendors, employees, and landlords are paid. Sure you want to protect your brand, but then again you need to stay in business so your brand matters.
With that being said, I agree with previous posts that a retailer can show value and help their customers without discounting. Giving gift cards towards a future purchase is just one way to do so and will have no negative impact on the brand image.
I say no to discounting and yes to demonstrating more value. (It is a fine line, isn’t it?)
You know, there’s something very admirable about their stand as a “regular priced brand,” it’s very pure. As is everything else they do; the store, the people, the graphics, the music, the annual “challenge”…everything is just very, very brand-right. They never veer off.
It’s the classic CEO vs CFO battle; money vs. brand…I say, Stay the Course, Mike! Don’t let them get you off track! A year from now, they’ll call you a genius.
Bravo for A&F! Their stock is only 20% off their January high. It sounds as if they are doing something right. Same store sales off 28% in November? Could that not be an omen for disaster?
So, which way do we vote on this one? I vote that A&F is on the right track. I am a great believer in brands and over many, many years have seen brands devalued by promotional efforts. How many retailers will ultimately be selling merchandise below cost to turn their inventory? Retailers actually plan for this. I fail to see why they just don’t cut their inventory levels and hold their prices higher. How many dollars are they losing to customers would have bought the item at full price or even 20% off, rather than 40% off?
I have had two experiences in the last 2 months where I purchased an item only to see it discounted further a week or so later. So, I went back, returned the item I bought and repurchased it at the lower price. In the two situations together, the retailers lost over $60 in revenue and sold nothing more. Surely, I am not the only customer smart enough to do that?
Certainly, A&F will post poor December numbers as well. But, the November-December period is driven by gift buying. If one is buying for an A&F fan, there is only one place to get the item and the price is the price one has to pay when they walk in the store. That A&F gift will be purchased no matter if it is full price or 70% off.
Consider, a fashion retailer whose same store sales are down 28% without promotion may be making more profit than a retailer who matches last year’s same store sales with average mark downs breaking 50%. I don’t think anyone would dispute that the average holiday markdowns will hit record levels.
I wold suggest that we wait and look at their ultimate profitability instead of being the usual retail slaves to same-store-sales sales numbers. If their stock is only down 20% from its 2008 high, I’d say someone on Wall Street agrees.
That being said, I’d look at some form of value-added promotion such as giveaway items, gift cards with purchase, free gift wrap, etc., to increase the value of the purchase without lowering their prices.
I don’t agree with Michael Jeffries on most of his strategies and tactics; however I commend their foothold on a full price approach. They have a core customer that has an expectation.
A brand needs to understand who their customer is and then stay relevant to their customer’s circumstances. Without the use of creative discounting (category and time specific, gift with purchase, purchase with purchase), A&F will ultimately alienate their customers and becomes less relevant. Properly done and with relevant, creative discounting in these tough times, more brand loyalty will be created for A&F in the long run.
Tiffany and Cartier aren’t running bogo’s. Why should Abercrombie & Fitch? A&F is the high-priced brand. Eroticism creates the value. Retailers with no eroticism (99% of everyone else except Victoria’s Secret) only have price as the lever. Which costs the retailer less: sexy photos or 50% off?