The Future is Uncertain for Abercrombie & Fitch

From the 1990s until the early 2010s, Abercrombie and Fitch t-shirts and wool sweaters were the must-have items of clothing for teenagers. However, after years of year-over-year sales decline brought on by shifting consumer tastes, oversexualization of catalogs and shopping bags, and controversial body-shaming comments made by former CEO Michael Jeffries, Abercrombie now faces the difficulty of selling their clothes in the saturated retail market. With teens abandoning the preppy outdoor style of Abercrombie and Fitch in favor of the cheap fast fashion options of competitors H&M, Forever21, and Zara, Abercrombie and Fitch has attempted to implement a rebrand that constituted going back to the basics and following along with the current trends, while trying to attract an older crowd. Unfortunately for the former teen sensation, people just do not seem to want to shop at Abercrombie anymore. The stock, once valued at over $70 per share in 2011, is selling at $13.22 as of May 26th. Abercrombie reported $661.1 million in sales for the first quarter, a 3.6% decline from last year’s first quarter. Abercrombie has under-performed this quarter, with comparative sales down 3% lower than analysts expected. Abercrombie and Fitch continues to close stores, and there have been talks of the retailer declaring bankruptcy.

Although Abercrombie as a whole fails to meet expectations and has not experienced any increase in sales, the Hollister brand is growing, especially in its staple denim, outerwear, swim, and intimates sectors. Hollister outperformed during the first quarter, reporting a comparative sales growth of 3% compared to the expectation of 1%. While Abercrombie has struggled to reinvent itself after the resignation of Michael Jeffries, Hollister has been able to maintain a brand image popular among teens: the California surfer style. Hollister has never abandoned its target market: teenagers. Hollister has evolved with the trends of the time, while modernizing its store design with creative use of with video clips and more open space in order to create a more appealing shopping environment. In a time where Abercrombie is facing so much trouble Hollister seems to be its saving grace in the malls and on the market.

Likely in an attempt to save the future of the brand, it is rumored that Abercrombie and Fitch is considering a joint bid between private equity firm Cerberus Capital Management and teen retailer American Eagle Outfitters. In recent quarters, American Eagle has reported higher sales than Abercrombie. Abercrombie is also reportedly considering bids from Express and a variety of other retailers. Cerberus has historically had much success in reviving struggling companies and could likely provide American Eagle with substantial funding for the takeover of Abercrombie and Fitch. The all-American image of American Eagle should help Abercrombie increase sales by avoiding more body-shaming controversies. American Eagle’s lingerie line, Aerie, especially focuses on promoting body positivity and acceptance, and the casual, slightly bohemian style of clothing is more popular among teens right now than Abercrombie and Fitch’s preppy styles.

Shares of Abercrombie and Fitch jumped 6.6% on May 24th, 2017 after the news broke of the possible buyout by American Eagle. Although a potential acquisition by American Eagle could potentially pave a better future for Abercrombie, both companies have struggled to maintain a loyal customer base with significant decline in mall foot traffic in recent years., Staple mall chains continue to close their doors at rapid rates, adding instability to a shaky retail market. A potential merger underscores the current necessity of brand combinations: mere survival.