The much-discussed turnaround plans of apparel chain Abercrombie & Fitch (NYSE: ANF) are apparently stuck in the spin cycle. With yet another quarter of disappointing sales in the books, the once-iconic teen retailer that was synonymous with preppy fashion is looking likely become decidedly smaller over the next year or so as it closes stores due to failure of its rebranding efforts.
Abercrombie’s third-quarter report showed net sales fell 6.5% year over year to $821.7 million, while earnings tumbled 80% to $8.2 million, or $0.12 per share. Comparable-store sales fell 6% companywide, but were down by as much as 14% at its namesake stores.
Although management says a “comprehensive set of strategic and operational actions is being taken by an experienced team under new leadership” that it expects will quickly gain traction, investors should be under no illusion that this will actually happen.
Part of the company’s rebranding process was the creation of a new tagline, “This is Abercrombie & Fitch,” which screams bland corporate marketing, and seemed unlikely to be any more successful than the retailer’s previous attempts at attracting customers. As a result, it will likely be closing quite a few stores in the near future.
Over the next 18 months, the leases will expire on about half of its 745 stores giving it the opportunity to shut down many underperforming locations, or at least renegotiate terms. Considering the relative performance of its three brands, expect to see fewer Abercrombie stores in malls a couple of years from now. Hollister, at least, improved sequentially as comps came in flat from the year ago period, but with its namesake stores doing so poorly, Abercrombie & Fitch needs to dramatically reduce its footprint.
Its international expansion plans are also apparently going awry; Abercrombie has closed its flagship store in South Korea and exercised a kick-out lease option for its flagship store in Hong Kong, meaning it will exit the location prior to the lease’s expiration in 2019. It opened the store in 2011 reportedly paying rent of HK$7 million per month, double what the previous tenant had paid.
Abercrombie & Fitch’s problems are really just a magnified version of what is occurring across all of retail, an industry that expanded too broadly during the go-go years of mall shopping, but now finds itself overextended and overstored. As e-commerce and mobile shopping grows, the need for a vast real-world footprint diminishes. The question Abercrombie must answer now is, can it find a size and style for itself that fits the new market?
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