Retail

Abercrombie & Fitch insists it's not a teen retailer as it struggles to shed its sexy reputation

A pedestrian stands outside of the Abercrombie & Fitch store on Fifth Avenue in New York City.
Craig Warga | Bloomberg | Getty Images

Abercrombie & Fitch is trying to change the notion that it's all about scantily-clad teenagers.

So far, those efforts are falling flat.

Despite launching its largest-ever advertising campaign during the holiday season, comparable sales at the company's namesake label tumbled 13 percent in the fourth quarter. That followed a 14 percent drop in the prior three-month period, pouring water on the promise that trends would improve in the second half.

Now, with the company once again speaking to a second-half inflection, it will need to do a better job articulating the changes afoot at its namesake brand — and hope that customers like what they see.

"They missed on [nearly] every metric," Stacey Widlitz, president of SW Retail Advisors, said of the company's fourth-quarter earnings results. "I don't think things have gotten much better."

Under pressure from the growth of fast-fashion, off-price and online retailers, Abercrombie has been trying to reverse its sales declines by reinventing its brand.

While in the past it was known for risqué marketing and the idea that teens had to dress a certain way to be cool, its new look preaches inclusivity and individuality. A similar type of "be yourself" messaging has contributed to the rampant success of American Eagle's Aerie label, which bans the use of airbrushing on models.

To introduce its new position, Abercrombie in October ran an advertising campaign that challenged the idea that people had its brand figured out. The ad then showed a series of young people smiling while wearing its clothes.

"Not only is the message confusing and opaque, but the promise of change that it suggests is not entirely delivered on by stores, which look and feel the same," Neil Saunders, managing director of GlobalData Retail, told investors.

Fran Horowitz, who filled the company's long-vacant CEO role in February, admitted the brand could have been sharper in communicating its new identity. To fix that, the company in January named a new chief marketing officer, who will be charged with "enhancing the power and clarity" of its brand.

Yet even if it succeeds in doing so, it will be tough for Abercrombie to turn the tide. Whereas the company's California-centric Hollister brand has made some strides, it didn't start off with the same polarizing reputation.

What's more, Abercrombie is now trying to attract an older customer. Executive Chairman Arthur Martinez underscored the brand's traction with twentysomethings on the company's conference call, saying more than 80 percent of its U.S. sales come from people over age 18.

Yet while that customer may be an easier sell than fickle, cash-strapped teens, it's still a tough demographic to nail down, Widlitz said. That's particularly true as the company moves farther away from putting small logos on its products, likely in response to consumers' distaste for oversize branding.

The last time Abercrombie took this approach, sales "fell off a cliff," Widlitz said.

"Is the consumer at any age willing to pay $60… for a sweater that you can't identify, when you can get it anywhere else for a third of the price? I think the answer is no," she said.

Abercrombie on Thursday reported revenue and earnings that fell short of Wall Street's expectations, while same-store sales came in a hair better than anticipated.

The stock rose more than 15 percent in afternoon trading, a move analysts attributed to a slightly better than anticipated first-quarter outlook and short sellers covering their positions. Short sellers borrow shares of a stock and repurchase them later when the price drops. The goal is to profit on the price difference.

Abercrombie shares have lost more than half their value over the past year. They were last trading hands at $13.41.