Abercrombie & Fitch Case Study - Strategic Mgt

November 12, 2017 | Author: Andre Bakara | Category: Retail, Brand, Luxury Goods, Strategic Management, Competition
Share Embed Donate


Short Description

Download Abercrombie & Fitch Case Study - Strategic Mgt...

Description

Case Analysis Strategic Management Magister Manajemen Universitas Indonesia

ABERCROMBIE & FITCH: An Upscale Sporting Goods Retailer Becomes A Leader in Trendy Apparel

By: Alexandra Ryan Ahmad Dina - 0906585641 Andre Samuel Saut Bakara - 0906585673 Deni Rahmatsyah - 0906585793 Didit Raditya - 0906585811 Emalia - 0906499165

Abercrombie & Fitch: An Upscale Sporting Goods Retailer Becomes a Leader in Trendy Apparel |

2

Abercrombie & Fitch Competitive Strategy and Advantage in the Marketplace Overview Abercrombie & Fitch (A&F) is headquartered in New Albany, OH. The name Abercrombie and Fitch originated in 1892, with a slogan “The Finest Sporting Goods Store in the World” was producing luxurious sporting goods and rugged apparel for affluent customer. All the way through history, A&F did a good job with keeping up customer relationship and changing fashion. Just like during the World War II, the innovation was just adjusted with the war condition and consumed properly in the market. Due to some internal and external problems, the company went for bankruptcy in the year of 1977 and a year later Oshman’s sporting goods bought Abercrombie for $1.5 million. This acquisition gave its first touch by changing the slogan into “The Adventure Goes On”. Study for the old company was conducted, the positive ones to be retained and gave a hit in expanded the variety. In 1988 Limited acquired the company for $45 million and completely turned around and changed everything, eliminating sporting goods and started introducing casual, classic American men and women’s apparel. It was about repositioned the company as a provider of youth apparel with specializing in the provision of outdoor clothing. In 1988, the company decided to change its image to that of a Luxury lifestyle brand and expanding their retail store thought large market. The acknowledgeable CEO of A&F, Michael Jeffries, able to make the store concept and strategy as the place that match with the fickle youthful needs and wants, A&F was ranked as the 4th profitable (net income as percentage of sales) company in apparel retailers in 2006. A&F survived by catering to local tastes and preferences. However, the trends eventually go beyond age, therefore A&F expanded the products to meet needs and wants different life stage. The company hires the best looking employees to represent their store as brand representatives and dressing employees in their latest fashion and styles. Currently, the brand name has expanded since its success, and has gone global. The group markets under different stores: 356 Abercrombie & Fitch stores, 212 Abercrombie, 515 Hollister co, 28 RUEHL and The newest brand 14 Gilly Hicks (Winthrop Corporation). Under Jeffries leadership, A&F gain an astonishing performance. The net profit is just keep going up and the company development retailers become emergent. It recognized to become the largest retailer apparel in the world. But a question was raised, whether with the current and future condition, will the business keep sustain?

Abercrombie & Fitch: An Upscale Sporting Goods Retailer Becomes a Leader in Trendy Apparel |

3

Problem Identification The challenges that would be faced by A&F in the future were to maintain its competitive advantage in which new entrant from US and abroad intent to imitate A&F strategies. As our group has concluded that the main competitive strength of A&F are their ability in extracting the values which their consumer can relate to, and reflecting this value through their product and marketing communication. Therefore, in answering this challenge A&F has to ensure that they are able to: 1. Maintain their connectivity with their very dynamic target market. 2. Anticipate the move of their rivals.

Case Analysis Transforming A&F’s Image The Abercrombie & Fitch (A&F) brand was established in 1892 and considered as luxury sporting goods retailer with conservative tastes that became well known as rugged and high-quality outdoor gear for affluent clients, including adventures, hunters, president and heads of royal family. Famous for outfitting the safaris of Teddy Roosevelt and Ernest Hemingway and the expeditions of Admiral Byrd to the North and South Poles, A&F goods were prominent for their durability and dependability. This image was positioned A&F as expensive and exotic goods. A&F was not just a place to purchase goods and apparel. It was also a place where individual in the community. Through its history, A&F did a great job keeping up with customers and changing fashions. In 1978 Oshman’s Sporting Goods bought A&F which at that time was struggling to develop a strong identity & experienced with recessions, war-time troubles, inventory shrinkage, bankruptcy, changing ownership & legal battles. After evaluated the business model, A&F’s slogan was changed from “the finest sporting goods store in the world” to “the adventure goes on”. This acquisition became a turning point for A&F to build the new character of the brand. Some of values such as good qualities and legendary old product were retained. The new management believed that A&F can change their initially image to adapt and keep up-to-date with styles for the 1980s. After a few owners, A&F was bought by Limited Inc. in 1988. In 1992, Michael Jeffries was appointed as new CEO and began repositioning Abercrombie & Fitch as a more fashion-oriented casual apparel and classic American clothes business directed at 18 to 22 year-old male and female college students with a product assortment reflecting a youthful lifestyle based upon an East Coast heritage and Ivy League traditions by introducing new format.

Abercrombie & Fitch: An Upscale Sporting Goods Retailer Becomes a Leader in Trendy Apparel |

4

Before defining the A&F’s new format and competitive advantage that brought them became a leader in trendy apparel industry, the analysis starts by evaluating the external and internal environment factors which potentially affect A&F’s business situation and management’s decisions regarding to its long-term direction, objective, strategy, and business model.

A&F’s Industry and Competitive Environment Analysis 

Analyzing A&F’s industry and competitive environment begins with identifying the industry’s dominant economic characteristics. The market size and growth rate of apparel industry is slightly big and growing quite fast as changes of lifestyles. A&F had three main competitors, American Eagle Outfitters Inc. (AEOS), Gap Inc. (GAP) and J. Crew Group, Inc. From these three competitors, GAP was the largest, with 3,000 stores worldwide and generated $16 billion revenue in 2005. The industries characterized by rapid product innovation which required designer, merchandisers and marketer to know better what consumer want and also strong product innovation capabilities such as continuous product innovation is primarily a survival strategy in this industry.



After gaining an understanding of the industry’s general economic characteristics, further analysis should focus on the competitive dynamics of the industry. The most powerful and widely used tool for assessing the strength of the industry’s competitive forces is the fiveforces model of competition1. •

The barriers to entry are relatively low as the cost to purchase and produce apparel is minimal. In the specialty retail industry, economies of scale provide a significant advantage over the local stores. The low growth in this industry also “makes it less attractive to new entrants”.



In the apparel industry, rivalry is moderate to high. The rivalry between competitors is intense and forces each company to reinvention itself to maintain efficiencies and inventory control. The apparel industry is mainly comprised of several main rivals of equal size. As a result of a mature apparel industry, there is a lack of drastically new innovative products that creates rivalry when firms are unable to differentiate their products in the industry.



Though some goods may not be considered direct substitutes due to brand identification, once the name brand has been removed, one article of clothing becomes difficult to tell apart from a similarly looking article of clothing.

1

The five-forces model of competition is the creation of Professor Michael Porter of the Harvard Business School. For his original presentation of the model, see Michael E. Porter, “How Competitive Forces Shape Strategy,” Harvard Business Review 57, no. 2.

Abercrombie & Fitch: An Upscale Sporting Goods Retailer Becomes a Leader in Trendy Apparel |



5

The suppliers also hold little power due to the company buys merchandise from numerous factories and suppliers around the globe, primarily located in South East Asia and South America, thereby allowing retailers leverage in negotiating prices.



Consumers as buyers are willing to pay a premium price for perceived quality and “fashion recognition”, but the pricing points tend to be very elastic. One would expect buyers to hold minimal power over their suppliers because of the fragmentation of the retail industry.

Due to analysis above, most of the collective impact of the five competitive forces is moderate to week, it meant that the apparel industry is still competitively attractive in the sense that A&F can reasonably expect to earn good profits. 

Once these competitive forces defined, the next step is to determine the driving forces2 that might influenced in reshaping the industry landscape and altering competitive condition. The potential driving forces for A&F in the apparel industry are as follows: •

Increasing globalization – competition in apparel industry begins to shift from a regional focus to international. Sometimes globalization becomes a strong driver to broaden its current market share. As known that A&F planned to open its first European store in London in 2007.



Emerging new Internet capabilities and applications – the ability to reach consumers via the internet gives buyers extraordinary ability to explore the product offerings from any brands and shop the market for the best value. A&F enhanced their capabilities to sell the product through Web sites equipped with shopping-cart technologies.



Product innovation – creating wider product differentiation to attract more firsttime buyers has been a key driving force in apparel industry. To do so, A&F tried to introduce two or three new items in its stores every week. Moreover A&F also launched new men’s line, Ezra Fitch, featured with high-quality apparel made from cashmere, velvet and leather for upscale segment and Gilly Hicks is a lifestyle brand specializing in women's “knickers from casual to sexy, relaxed PJ's and beauty things.”3



Marketing innovation – using controversy as a free advertising such as publishing a provocative catalog photograph, revealing clothes and racy slogans can alter the

2

Driving forces are the major underlying causes of change in industry and competitive conditions, “Essentials of Strategic Management: The Quest for Competitive Advantage” Second Edition, p 58 3 Gilly Hicks, http://en.wikipedia.org/wiki/Gilly_Hicks

Abercrombie & Fitch: An Upscale Sporting Goods Retailer Becomes a Leader in Trendy Apparel |

6

competitive positions of rival firm and effectively attract attention of teenager and young adult who often respond positively to this kind of marketing strategy. •

Changing social concerns, attitudes and lifestyles – rising social issues & changing attitudes and lifestyles can be dominant to lead the industry change. Apparently young people purchase the product not just for the functionality but because it promotes a certain value that they can relate to. To address this, Michael Jeffries made sure that A&F apparel reflected the lifestyles of college student by assigned team of designers, merchandiser and marketers visited college campuses once a month to talk to student and explore what they liked and how the spent their time.



After determining its driving forces, A&F need to reveal the market positions of industry competitor using strategic group mapping4. This tool is useful for comparing the market positions of industry competitor. As shown in figure 1 below, A&F has better positioning in term of fashion content and price compare to two main competitors.

FIGURE 1. COMPARATIVE MARKET POSITIONS OF SELECTED APPAREL RETAILERS5



The next analysis is competitive intelligence which scanning the rivals’ strategies, action and announcement, resource strengths and weaknesses and the thinking and leadership styles of their executive is valuable for predicting the strategic moves competitors are likely to make next. A&F need to anticipate that AEOS planned to launch two new store concept in 2006, one is Martin+Osa, the clothing store selling denim and active sportswear to men and women ages 24-40 and the other one is Aerie, an intimate apparel sub-brand and stand-alone stores. Other competitor, J Crew, also planned to launch Madewell, a

4

A strategic group is a cluster of industry rivals that have similar competitive approaches and market positions, “Essentials of Strategic Management: The Quest for Competitive Advantage” Second Edition, p 62 5 Source: Goldman Sachs

Abercrombie & Fitch: An Upscale Sporting Goods Retailer Becomes a Leader in Trendy Apparel |

7

lower price casual clothing store for women selling merchandise and preparing an initial public offering of common stock of $355 million. 

Following that, A&F need to define the industry’s key success factors (KSFs)6 which affect the ability to prosper in the marketplace. In the apparel industry, the KSFs are appealing design and color combinations, low-cost manufacturing to achieve scale economies, a strong network or store concept and advertisements that effectively communicate value and the brand’s image.



The final step in evaluating the industry and competitive environment is consolidating the above analyses to determine if the apparel industry offers strong prospect for attractive profits. Based on that, this apparel industry market is fundamentally attractive for A&F since they had an evitable market. It catered to teenagers, whose population in US was growing and somewhat considered to be recession-proof.

A&F’s Resources and Competitive Strength Analysis A&F provide higher quality, higher priced items and focus mainly on clothing. Most consumers are willing to pay extra for the Abercrombie name and style. A&F’s major competitive advantage is its brand name. A&F is a major status symbol in many high schools and colleges in America because of its higher price and fashionable look. Furthermore, A&F need to evaluate its internal situation, including its collection of competitively valuable resources & capabilities to focus their competitive advantage on current market trends. The company has figured out what works for them as an organization using SWOT analysis. Strengths 

A&F has continually made a successful profit over the years, even through in economic recession (strong financial performance).



Putting emphasis on a comfortable and positive work environment for their employees illustrates that they know what it takes to be successful (such as taking away the usual way of working; cubicles and strict eight hour days, and replacing them with open work areas that promote team work).



Leading by example is another strong characteristic. Michael Jeffries is not held up in a stuffy office where is he is inaccessible. He like his employees works in a communal area with his staff members. A&F provides healthy meals that help stimulate good ideas

6

Key success factors are the strategy elements, product attributes, competitive capabilities, or intangible assets with the greatest impact on future success in the marketplace. “Essentials of Strategic Management: The Quest for Competitive Advantage” Second Edition, p 67.

Abercrombie & Fitch: An Upscale Sporting Goods Retailer Becomes a Leader in Trendy Apparel |



8

A&F knows that in order to be successful in selling a high priced product, the people who represent Abercrombie must believe in the brand itself. They must eat, sleep, and breathe Abercrombie.



A strong management team is the number one reason that Abercrombie and its brands are successful. Management is successful in continually creating a strong brand that will continue keep them in the lead for a specialized product.

Weaknesses 

A&F has not done well in creating a culturally diverse atmosphere internally or externally. They have been accused of racial profiling and discriminating against minorities that desire to work in their stores. By desiring to remain exclusive, they have alienated particular groups that have expressed interest their brand.



Spend a lot of energy figuring out ways of perfecting their brand without racially excluding customers and potential employees.



Overpriced and high cost of structure.

Opportunities 

In light of the economy decreasing, people are not as willing to spend a large amount of money on clothes. Now is the time for many to become conservative, save money and shop for bargains. To maintain their customers and possibly gain more, A&F could take advantage of the bargain hunter. A&F has made it clear that they chose not to lower prices as it would cheapen the product. In order to appeal to the mass, they could keep their current line, but add a line with a lesser price base. This will attract a broader base of customers. More interest equates to more money.



Expanding their current brands is always a way of staying competitive in today’s market. Overall, A&F’s brands are mainly, skirts, pants, shorts, polo shirts, along with perfumes and hats. Creating a beach inspired footwear line, may complete the look. It would be in A&F’s interest to branch out from the norm. When a customer gets too comfortable with a certain name brand, it becomes easy for them to venture out and buy from someone else. Keeping it exciting, new and fun will ensure that the customer will always come back looking for more.



A&F can take advantage in creating a theme which is happening on t-shirt, a bag to hand out to customers with their purchase that they can use every time they make a purchase (such as “Go Green”, “peace” theme).



Expand internationally by export or subsidiary



Online shopping or E-commerce business to expanding their service lines

Abercrombie & Fitch: An Upscale Sporting Goods Retailer Becomes a Leader in Trendy Apparel |

9

Threats 

Abercrombie & Fitch has been known for not being very diverse. By not being as diverse as many other clothing companies, A&F could stand the chance of losing business.



They were striving for a certain look and style. It was mainly consisted of young white male and females with nice bodies, beautiful hair and shapes that fit their tiny clothes.



Racial profiling, has also limited the type of clientele that frequents the stores, it limits the potential income that the company could be earning.



Abercrombie and Fitch have four brands such as Hollister, Ruehl, Abercrombie and Gilly Hicks. A negative mark on one brand can possibly negatively affect all brands.



Economic slowdown (cyclical economic changes)



Rising cost of materials, commodity prices



Competition from other apparel players at the low & high end of the spectrum (i.e., GAP, AEOS, JC)

STP (Segmentation, Targeting, Positioning) Analysis Segmentation Apparel is an already fragmented industry, the market is segmented demographically and psycho graphically. The demographic segmentation of the industry includes segmentation by age, gender, profession, education, income level, race, body profile. The Psychographic segmentation includes segmentation by hobby, values, sports preference, sexual preference, etc. Targeting A&F targets are described as cool, attractive, fashion-conscious consumers with age ranging from elementary school to post-college, which are served by four of their brands: 

A&F (1992 - reflected youthful lifestyle of the East coast & Ivy League traditions): College students



Abercrombie (1998): Age 7-14 with fashions similar to A&F line



Hollister Company (2000 - promoted the laid-back & California surf lifestyle): High school students with lower priced casual apparel, personal care product and accessories



Ruehl (2004 - inspired by lifestyle of New York City’s Greenwich Village): Post-college consumer at age 22-35 with more upscale and expensive casual sportswear, trendy apparel and leather goods.



Gilly Hicks (2007 - inspired by the Australian theme of “Down Under”): A lifestyle brand specializing in women's “knickers from casual to sexy, relaxed PJ's and beauty things” and

Abercrombie & Fitch: An Upscale Sporting Goods Retailer Becomes a Leader in Trendy Apparel |

10

offers underwear and loungewear for women 18 and up. Gilly Hicks is officially labeled as “the Cheeky cousin of Abercrombie & Fitch”. Positioning A&F aim to achieve the position as the coolest brand, the brand with greatest quality, the inspirational brand of college students. Furthermore, A&F catered the needs of very niche market. The term used is for this type of retailer is a specialty retailer, which in this market they aim to position themselves as a market leader. Brand Positioning: Luxury vs. Near Luxury vs. Standard Luxury apparel stores typically target customers in the highest income bracket who can afford to pay the highest prices for premium-quality merchandise. Apparel retailers of “near luxury” or “inspirational” brands target customers from the middle- and upper-middle class who desire to wear the latest fashions, but can not afford to pay premium, luxury prices so they settle for these “near luxury” apparel brands such as Abercrombie & Fitch and Polo Ralph Lauren. Finally, standard-level apparel stores such as The Gap target middle- and lower-class customers with average incomes who purchase lower-priced merchandise and look for clearance sales.

4P Analysis The main competitive strength of the A&F in maintaining their position in the industry relied heavily on their focus at the target market, and their ability in serving the needs of their consumer. This is strategically done by continuously making effort to connect and get as close as possible to the consumer. A&F promote the value they believe their target market can relate with, that is sensuality, youthful lifestyle, a love for outdoor and fun with friends. Those values are communicated through their brand concept of “Casual Luxury”, and the marketing strategies (marketing mix). Promotion & Communication The communication of A&F to their customer is translated into 4 main messages namely; 1. The Abercrombie & Fitch person (through cutting or shape of clothes) 2. Uniqueness (through design & logos) 3. Luxury (through the store concept and advertising) 4. Exclusivity (through membership and promotional event) The most important aspects of the Abercrombie & Fitch person are the target age, being young adult. Models in the catalogs, magazines, website, and store posters appear to be in their early

Abercrombie & Fitch: An Upscale Sporting Goods Retailer Becomes a Leader in Trendy Apparel |

11

twenties. In addition, store employees and in-store brand representatives appear to be in their late teens and early twenties. The firm believe “to win teens” loyalty, you have to speak their language” This means consumers relate to models, so the models must be like the target audience. The build of an Abercrombie & Fitch person is another predominant message communicated through catalogs, consumers, employees, gift cards, in-store brand representatives, magazines, mannequins, models, posters, shopping bags, the product, and the website. The Abercrombie & Fitch person is not overweight; models used for advertising & promotional items were notably thin. The Abercrombie & Fitch magazines and catalogs also communicated messages of luxury. The magazines were printed on higher quality linen paper, which alluded to a higher class than other retail magazines. Consumers that identified with messages of the A&F image including the look, uniqueness, luxury, eventually were persuaded to purchase the clothing, and become part of the elite club. This concept of exclusivity is reinforced with club membership (Hollister’s Club Cali), and some of the brand promotional event- such as when they issued after-hours parties invitation with the new bands to the shoppers during thanksgiving. In channeling their message across to the target market, A&F is known for their eagerness in being involved on controversy. As the matter of fact, part of their competitive strategy is to stir up controversy, go against convention, and appeal emotionally to its youthful customer. While adults tend to react negatively to the company provocative move, teenagers and young adult were thought to respond positively to the move. This is possibly as an act of rebellion against the traditional values, or because they feel connected to the life-style images that is portrayed in A&F ads. Some observers assume that A&F intentionally create controversy to draw attention in hope that this will bring shoppers to the outlet, and sell more products. Place Design of outlets is luxurious. The Company views the customer's in-store experience as the primary vehicle for communicating the spirit of each of the brands. The company uses the visual presentation of the merchandise, the in-store marketing, music, fragrances and the sales associates, or brand representatives. This is an effort to reinforce the inspirational lifestyles represented by the brands, the youthfulness and the sensuality which they endorse. Each outlet was designed in one of several prototypes which are created at company HQ. CEO Jefferies himself examine the model closely to make sure the right messages are communicated in all stores across the nation. Each detailed is comprehensively checked during his regular store visit.

Abercrombie & Fitch: An Upscale Sporting Goods Retailer Becomes a Leader in Trendy Apparel |

12

Price A&F are usually able to sell the products at premium price without necessity for regular discounts. Management feels discounts would cheapen A&F brand. However they categorize their price range with respect to the product line and the market segment. Product Products sold by Abercrombie & Fitch send messages of luxury. Abercrombie & Fitch clothing always had something to identify the person as wearing its product, such as the signature stitch on the back pocket to jeans, the words Abercrombie, Abercrombie & Fitch, or A&F, or their symbol the moose. The usage of word logos like A&F tended to be on the more relaxed clothing such as tshirts, sweatpants, and sweatshirts; whereas the usage of the moose symbol was on the more luxurious clothing such as button up shirts and cashmere sweaters. Abercrombie & Fitch products are also shaped to continue the message of thinness as the build of Abercrombie & Fitch person. A&F clothing is not made in large sizes; women’s sizes were XS to L in shirts and 00 to 10 in pants and men’s clothing was sized S to XXL in shirts and 30x30 to 36x34 in pants. All messages communicated a build of thin and toned bodies. These in turn convince consumers that wearing the product make a person more attractive. As have been highlighted above, A&F has a tendency to create controversy. This is also done through the product they launched. Some of the controversy they create includes; selling a T-Shirt with racist remark on the shirt, launch thong underwear for girls ages 10 and up with sexual phrases on the product, and selling a T-Shirt which promote underage drinking.

Competitive Strategy Analysis We have analyzed Abercrombie and Fitch strategies and performances in order to evaluate their sustainable competitive strategy7. With all of the competition in the apparel industry, Abercrombie & Fitch strategy could be considered as a focus differentiation strategy, it differentiate itself from all other competitors through offering carefully designed products and services to appeal to the unique preference and needs of their narrow (niche) target market which is men and women of ages ranging from 7 to 22. A&F occupy differentiation-based focus strategies targeted at young & teenagers buyers. The market contain buyer that willing to pay a price premium for the very finest items available.

7

A competitive strategy concern the specifics of management’s game plan for competing succescully and securing a competitive advantage over rivals. “Essentials of Strategic Management: The Quest for Competitive Advantage” Second Edition, p 97.

Abercrombie & Fitch: An Upscale Sporting Goods Retailer Becomes a Leader in Trendy Apparel |

13

Conclusion and Recommendation xxxxx Future direction, in the long term A&F should continuously look for more opportunities to invest in overseas for expanding into the European and Asian markets. And for the short term, A&F could emphasize on online shopping, sponsoring college events, re-evaluating the needs and preferences of its target market, improve its customer service and review the choice of magazine were A&F places ads. With such a dynamic management team and the desire to the specialty apparel by storm, they can figure out a way to remain exclusive without being insulting and hurtful. It is ok to make a brand in a particular style and fashion that will fit a certain body type, but it should to still be available to anyone. It shouldn’t be marketed to anyone who feels as though they can fit that mold. The brand should not only have models of one race and color or associates of one race and color. Executives must come together in become the leader in diversity without compromising their goals.

Abercrombie & Fitch: An Upscale Sporting Goods Retailer Becomes a Leader in Trendy Apparel |

14

References 1. “Essential of Strategic Management: The Quest for Competitive Advantage” Second Edition, John E. Gamble and Arthur A. Thompson, Jr., McGraw-Hill International Edition 2. Case 11 “Abercrombie & Fitch: An Upscale Sporting Goods Retailer Become a Leader in Trendy Apparel”, Janet L. Rovenpor, Manhattan College, Essential of Strategic Management: The Quest for Competitive Advantage, McGraw-Hill International Edition 3. Online Sources: 

http://www.abercrombie.com



http://en.wikipedia.org/wiki/Abercrombie__Fitch



http://www.abercrombie.com/webapp/wcs/stores/servlet/home



http://blogs.albawaba.com/aber622



http://www.wikinvest.com/wiki/Abercrombie_Fitch



http://globalization.suite101.com/article.cfm/going_global



http://www.articlesbase.com/entrepreneurship-articles/situation-analysis-ofabercrombie-and-fitch-uk

View more...

Comments

Copyright ©2017 KUPDF Inc.
SUPPORT KUPDF