During the recession, fashion labels suffered from plummeting sales due to consumers cutting back on luxury spending. This saw firms such as Mulberry and Burberry posting profits warnings and forecasting lower than predicted annual sales due to consumers turning to more affordable brands.
Although the economic difficulties have lifted somewhat, it is by no means a guarantee that consumer confidence has risen to pre-recession levels. This has been made startlingly apparent by the disappointing results posted by teen favourite Abercrombie and Fitch this week.
The brand has experienced a 10 per cent sales slump in the second quarter when compared to the same period last year, outstripping Wall Street forecasts which stated a 2.5 per cent decline was expected. Unsurprisingly, this had a catastrophic effect upon its share values, with prices plummeting by 17.7 per cent on the same morning as the fashion chain released its results.
The US fashion retailer’s revenue during the second quarter also fell flat, with a 1 per cent decline bringing total revenue to $945.7 million. Again, this is well below analysts’ expectations of $996.2 million – although the poor result was slightly buoyed by a 15 per cent increase in international revenue.
Net income for the 13 weeks to August 31st, meanwhile, fell to $11.4 million, comparing poorly to the $17.1 million recorded during the same period in 2012. Furthermore, the company believes that this situation is unlikely to change soon, releasing a very pessimistic profit forecast for the third quarter.
Retail consultant Rahul Sharma, of Neev Capital, believes that this sudden change in the popular brand’s fortunes is partly down to the constantly fluctuating fashions of Abercrombie and Fitch’s target market.
He says; “The taste of the teen market is fickle, and so this is always a difficult space for retailers, but at the heart of it, it’s a problem with the offering.
“The appeal of the logo-heavy, preppy product is fading.”
In May, Abercrombie and Fitch admitted that its poor first quarter results were due to an inability to stock shelves with appealing merchandise quickly enough. This led its customers into the arms of rival chains such as H&M and Zara, which tend to have a greater variety and eschew logo-heavy items.
However, this sudden drop in demand could be down to the controversy caused earlier this year by CEO Mike Jeffries, who defended the chain’s decision to only stock clothing sizes up to a US 10 (UK 16). During the course of this debate, comments he made in 2006 reflected extremely poorly on the firm, with critics claiming it ostracised any customers who fail to meet its standards on body image.
Mr Jeffries said; “We go after the attractive all-American kid with a great attitude and a lot of friends; a lot of people don’t belong [in our clothes], and they can’t belong.
“Are we exclusionary? Absolutely.
“Good-looking people attract other good-looking people, and we want to market to cool, good-looking people – we don’t market to anyone other than that.”
Do you believe the chain’s attitude could be the major factor behind its fall from grace, given that the average UK dress size for women is 16-18, or is Abercrombie and Fitch simply failing to provide the products its key market desires?
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