Retail

Here's how Abercrombie & Fitch ditched its past to try to bring back customers

VIDEO19:2419:24
How Abercrombie & Fitch lost teens

Crafting a brand is hard work. But harder still is reimaging it.

Sister brands Abercrombie & Fitch and Hollister were the go-to shops for teens in early 2000s. But as Abercrombie cultivated its rebellious image with half-naked models, controversies piled up, and its popularity fell.

By late 2013, activist investors arrived on the scene and pushed for the ouster of CEO Mike Jeffries. He had been hailed for orchestrating its success, but now as sales declined, some blamed him for being out of touch with shifts in consumer tastes. By December 2014, Jeffries retired.

After his departure, Abercrombie began to transform its image and ethos. Instead of excluding those who didn't fit Abercrombie's style, the company adopted a more inclusive attitude.

"We are a very different company than we used to be," Fran Horowitz, who was named CEO in 2017, said in an interview. "We are a much more inclusive company, we are closer to the customer, we're responding to the customer wants and not what we want them to want."

In April 2018, Horowitz laid out a four-prong vision: redesigned stores that are open; a more responsive supply chain; a seamless shopping experience online and off; and more targeted marketing spending, including an improved loyalty program. If you haven't been paying attention, the company might be unrecognizable.

Already half of all Hollister stores and 10% of Abercrombie's stores have been remodeled. Its supply chain is better able to respond to shifts in shopper tastes and its loyalty program now has 30 million members, up from 14 million in the year prior. The company began allowing Abercrombie and Hollister customers to pay with Venmo in August 2018, and the brands recently started offering checkout on Instagram — all in the name of making it easier for customers to shop its stores.

There are signs that consumers are responding well. In Piper Jaffray's biannual survey of teenage shoppers, the popularity of its key Hollister brand has been steadily rising. It ranked fourth among all clothing brands in the most recent poll, released earlier this month.

But in the fiscal first quarter of 2019, Hollister reported same-store sales growth of 2%. That missed analyst expectations of a 3.3% growth, sparking a sell-off of A&F shares and led investors to worry that momentum at the company's crown jewel was slowing. In the second quarter, same-store sales growth at both its Abercrombie and Hollister brands was flat.

The holiday season may prove to be a pivotal point. If sales at Hollister continue to slow, investors might double down on the belief that the brand is losing steam. If sales accelerate, however, that may indicate Horowitz's initiatives are winning over a new generation of shoppers.

As of this month, Abercrombie's stock has grown 26% since Horowitz took over in February 2017. But it had fallen around 28% this year as of early October.