Abercrombie & Fitch ( ANF ) released its second quarter results on August 30th, and posted its 14th consecutive quarter of declining sales, while at the same time saying the comparable sales will remain challenging for the remainder of the year as well. Lower traffic, particularly from tourists, can be primarily blamed for this. Their favored clientele are now moving to fast fashion brands such as Forever 21, Zara, and H&M.
While the company has made attempts to cut down its pricing, its clothes are still considered more expensive than the aforementioned companies, which have shortened their runway to shelf turnover time to enable them to offer their products at lower prices. The company has, thus, struggled to compete with these brands. While Abercrombie has attempted to convert Hollister into a fast-fashion house, by hiring designers to keep up with the trends, and shifting away from the logo-centric designs, the comparable sales for the brand fell in the quarter, after a flat performance in the first quarter. We do not expect any improvement from either of its brands in the remaining two quarters of the financial year as well.
To win back shoppers, the company is investing into its online platform, which is the only segment performing well for the company, both domestically and internationally. Its DTC (direct to consumer) channel now contributes to 23% of the company's revenue, as compared to 21% last year. Sales through mobile orders jumped nearly 60%, and their recent initiative of buy online, pickup in store, accounted for 7% of all online orders in the second quarter. The company also announced a partnership with online retail platform Zalando recently, Europe's largest online platform for fashion. For Abercrombie to be able to get access to Zalando's almost 19 million active users, who are regularly engaged through Zalando's email marketing, will be immense. Furthermore, since every sale through this website will be additional revenue, without any fixed costs associated, it may have a positive impact on the margins. The company is also not that heavily present in the continent, and hence, a presence on the website will not result in cannibalization. In the past as well, wholesale arrangements with online retailers such as Next plc and Asos Plc in the United Kingdom have resulted in increased revenue, with $10 million additional sales in the year 2015.
The company also announced a closure of an additional 60 underperforming stores, and with the expiration of half of its leases in the next year, it will have greater flexibility to shut down more stores. However, this may not necessarily mean a smaller and leaner Abercrombie in the future. This is because ANF has undertaken to open more outlet stores, where products are normally sold at cheaper prices. The company's margins are already under pressure as a result of reduced prices, and further opening such discounted stores may not result in a positive outcome.
Have more questions about Abercrombie & Fitch? See the links below:
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