How Abercrombie & Fitch plans to grow into a $5 billion company


Abercrombie & Fitch Co. is ready to grow again, even as the size and number of stores shrink.

The New Albany-based retailer hosted its annual investor meeting in New York on Wednesday and shared its aspiration to be a $5 billion business and some of the steps it will take to hit that goal. Abercrombie sales were $3.49 billion last year, up 4 percent from 2016, with notable improvement in both the Hollister and Abercrombie & Fitch brands.

CEO Fran Horowitz touted the last several years of work, including defining the overall company, differentiating the Hollister and Abercrombie & Fitch chains and identifying and reaching core customers. She said the next three years for the company are about “growing while transforming.”

“Looking back one or two years ago, a claim like that might have raised quite a few eyebrows,” she said of the $5 billion goal. “We feel we’re in the right place at the right time. … We have a stable foundation. We understand our customers and we have a clear plan.”

Key to that plan is continued growth of direct-to-consumer sales, which were 28 percent of 2017 receipts, and strengthening its stores – though that doesn’t necessarily mean growing in number.

The company had 870 stores worldwide with 679 in the U.S. at the end of 2017. It had closed around 400 over the previous several years. With 60 percent of U.S. leases expiring in the next two years, more closings are expected, but those lease negotiations also are an opportunity to renegotiate and renovate existing stores.

Remodels of 150 Hollister stores to date have resulted in higher sales, while seven Abercrombie remodels last year are generating improved sales per square foot in a smaller, less expensive footprint. The company will continue its remodel rollout with 100 to 150 Hollisters and between 50 and 75 Abercrombies to be redone in the next three years.
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Stacia Andersen, president of the Abercrombie & Fitch and kids brands, did reveal one area where stores will be expanding – college campuses. Though no sites were named, she said the company will be opening smaller, campus-based shops. They not only create direct access to the retailer’s key demographic, but will be testing labs for omnichannel capabilities, allowing customers to order online while in store from stock that might not physically be there, as one example.

That mission to find consumers where they want to shop and want to be entertained is a big driver of recent success, executives said. Be it streaming programs or mobile gaming, as it has done with Hollister, or movie screenings and music festivals as it is now doing with Abercrombie & Fitch.

The company held more than 30 advanced screenings of the movies Thor: Ragnarok and Justice League last year. This year it will be the fashion partner of a musical festival that draws more than 150,000 attendees with a slate of 70 acts. Executives didn’t name the festival, but they hinted that loyalty club members would get the scoop when the time comes.

Executives talked more about the retailer’s two sub-brands as well.

Sales of the Gilly Hicks underwear brand and the Hollister swim line nearly tripled expectations last year, said Kristin Scott, president Hollister and Gilly Hicks. Gilly Hicks will get more side-by-side stores and carve-outs within Hollister shops this year.

The Abercrombie kids brand is now a true kids brand as opposed to a mini-version of Abercrombie & Fitch, Andersen said. Last year was its strongest in years and this year it has earned accolades for its Everybody Collection line of gender-neutral clothing, which will continue to be part of the merchandise mix going forward.

International growth is a big part of the plan, tabbed at $1.5 billion of that $5 billion potential. The company already has 28 stores in China and 117 stores in Europe, including 100 Hollister shops in mall locations and 17 Abercrombie stores, many still the massive, tourist-centric flagship models launched years ago.

That isn’t the future though. The company is downsizing those where it can, having just closed its Hong Kong flagship and replacing it with a smaller store with plans to do the same in Copenhagen, Denmark.

Chief Operating Officer Joanne Crevoiserat noted that despite the decrease in size, productivity in that Hong Kong space has more than tripled from sales of $550 per square foot to $1,700 per square foot in the new space.

International growth doesn’t necessarily mean new stores. Abercrombie’s international online presence includes 20 sites/apps in 11 languages transacting in 29 different currencies, as well as wholesale partnerships with overseas retailers like Next and Asos.

CFO Scott Lipesky noted that the company will take a disciplined approach focused first on digital and wholesale sales growth and then on using that data to determine if and where brick-and-mortar is warranted.

“We’ll only add a store when there is a high probability of a return and a clear need for a physical store,”

Categories: Apparel, Asia, Brands, Business, Hong Kong, Retail, USA

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