SITUATION ANALYSIS OF ABERCROMBIE AND FITCH UK

Introduction

Abercrombie and Fitch is one of the oldest clothing and retail organisations in the world today. It was started in 1892 by its founder David Abercrombie in the United States. Eight years later, this company’s owner then joined with Ezra Fitch to become Abercrombie and Fitch. It continued its operations throughout the first half of the twentieth century. However, in the nineteen sixties, the company underwent financial challenges thus necessitating a change in strategy. It was purchased by “The Limited” and repositioned itself as a provider of youth apparel. The company began specialising in the provision of outdoor clothing. In 1988, the company decided to change its image to that of a Luxury lifestyle brand.

The company began expanding into other parts of the world such as Canada and the United Kingdom. (A&F, 2006) This also coincided with the launch of several brands within a decade. In the United Kingdom, the company began its operations in 2007 with its store being located in London specifically 7 Burlington Gardens. The latter location is one of the flagship stores for this company. The paper shall examine the external and internal issues facing it together with its weaknesses and strengths.

Macro environment and competitive audit
Evaluation of current situation in the macro-environment
The United Kingdom like most other countries of the world is grappling with the effects of the economic downturn. Buying power amongst consumers has decreased because of this crisis. Individuals are looking for ways in which they can cut down overall spending and it is likely that they may start with luxury items. Since A&F markets itself as a luxury lifestyle luxury brand, then chances are that the economic condition may force consumers to cut down on such purchases. Forecasts also indicate that overall expenditure growth within this region is likely to go down in the next few years.

Space expansion within various market sectors is also predicted to slow down in the wake of the current economic situation. This is largely because markets are predicted to have higher capacity yet consumer interests are continually declining. Consequently, if a few retail companies are growing, then chances are that there will be greater causalities among other players.
Population growth rates are predicted to rise in the future. It is likely that the population of the youth (who lie between 15-24 yrs) will rise by three percent in the next three years. Consequently, products targeting such consumers are likely to record positive outcomes in the near future than they are today. This is good news for A&F.

Information technology has been adopted by numerous companies currently. Now consumers have the opportunity to purchase commodities online. The latter route has become a serious source of competitive advantage amongst these various groups. This is especially the case because consumers have growing need for convenience. (Brennan, Baines and Garneau, 2003)

Analysis & evaluation of potential competition
The clothing and retail UK market is a highly competitive one. Some of the retail leaders in this sector include; Marks and Spencer, Peacock Stores, Primark stores and Matalan. The latter three companies have the potential to take over A&F’s consumers because of the fact that most clothing buyers are now shifting towards the lower budget categories which are the specialty of the latter three companies. Besides this, it should be noted that the extreme case of premium priced clothing is also another lucrative market segment and companies such as M&S are likely to give Abercrombie and Fitch a run for their money. (Drummond & Ensor, 2001)

In addition to the latter, there are a number of designer outlets that are thriving in the UK market and may continue to do so in the future. Some brands have established themselves as household names and they have achieved this through discount retailing. Companies such as Nike and Gap are growing at a fast paced rate because of the products that they may be offering. Matalan and Marks and Spencer are said to establish discount stores and this may prove to be highly competitive for Abercrombie and Fitch.

A number of other US chains have entered into the UK clothing market and this has resulted in competition within specialised clothing segments such as footwear. A company that is doing well is US owned Footlocker that has been targeting UK High Street consumers. In light of the latter issues, other companies such as Tommy Hilfiger and Ted Baker are establishing in-store brands for products outside their normal offerings. It should be noted that the UK market is highly competitive and that most companies are looking for ways in which they can reach new clients. Consequently, most companies have looked towards brand extension as one of the most feasible methods of dealing with this matter. Hennes and Mauritz (H&M) recently introduced certain cosmetic accessories and they have continued to grow in this respective market.

Companies such as Next, Miss Selfridge and GPA are continually attracting market share because they are offering consumers what they are currently looking for. Many individuals have become highly fashion conscious; both the young and the older generation. The issue is further compounded by the tendency to avoid traditional shops. Consequently, competitors such as Next, Woolworths and ASDA are doing relatively well.

Analysis and evaluation of the industry
The clothing retail market is one of the most fiercely competitive industries within the UK economy. In order for companies to stay ahead, they must look for ways in which they can offer an outstanding product or service. (Dibb, Simkin, Pride and Ferrell, 2006)

One way in which these companies are achieving the latter is through their choice of purchase location. Independents, chain stores, fashion multiples and sports shops are currently characterising the clothing and apparel industry. Besides this, the choice of location is usually linked to certain age groups. For instance, fashion multiples are normally associated with younger shoppers while departmental stores may be open to a wider variety of shoppers. In the latter mentioned outlets, men are penetrated a little more than are women except for a few exceptions. There are certain scenarios that seem to be lacking a competitive edge within this industry. For instance, the use of traditional mail catalogues is slowly becoming outdated owing to the fact that these catalogues are printed quite early in the season. Therefore, such methods cannot be able to accommodate the changes in prices synonymous with prevailing business conditions.

While online shopping is slowly becoming an influential force in the clothing industry, there are a number of hurdles that are yet to be overcome through such approaches. First of all, consumers may be hesitant to give personal details about their credit cards across the internet due to increasing cases of cyber crime. (McDonald, 2006) Another factor that could be causing this hesitation towards online shopping in the clothing and apparel industry is the tendency for users to try out clothes before buying them. The latter issue may not be important when buying other products across the internet (examples include books) but this is an issue that is unique to what A&F are offering. Additionally, online purchases are determined through brand recognition. Since A&F began its operations in the UK less than two years ago, then they may not qualify as one of the market leaders in the clothing industry.

The clothing and apparel industry is increasingly becoming open to intrusion by external operators because of the fact that mot established clothing brands are venturing into other products. For instance, Ted Baker – leading clothes retailer has now introduced skincare products. Abercrombie and Fitch may have to contend with the fact that mid market retailers are increasingly going to be sidelined. This is largely because brand awareness is an important factor in this industry. Certain types of clothes are now being associated with certain companies. For instance, in order to purchase jeans consumers will go to company ‘A’. In order to buy ports shoes, purchasers will go to company ‘B’. Consequently, such established brands are likely to maintain sales since they are firmly established. Retail companies trying to make it in the industry may not be able to do very well.

Lastly, the United Kingdom clothing market is fast becoming one characterised by extremes. Exclusive designer stores are placed in one line of the industry. On the other hand, there are discount stores to cater for the lower end of the market. The mid market retailers are finding it highly difficult to curve out a place within the retail industry. An example of a company that had to close down because of the latter issue was C&A. It is also particularly interesting to note that a number of large supermarkets or retail chains are now offering clothing and examples here include Tesco Plc and ASDA. Such companies are all worth considering when doing business within this industry.

Internal analysis
Evaluation of capabilities in terms of assets, competencies and innovation: Whether it is operating effectively within environmental constraints
A&F has over 1059 stores located worldwide. Consequently, the latter company is in a position to understand the intricacies involved in dealing with the clothing industry. (Wilson & Gilligan, 2005) Since the UK market is relatively different from the US one, the company needs to have highly flexible strategies which they have already perfected through their operations in other parts of the world. It should also be noted that certain winning strategies in other locations can be borrowed and introduced into the UK market.

Since it stores are chain stores, then their designs and layouts are replicated in different geographical locations. For instance, the A&F store has a lingering scent of their signature fragrance and loud electronic music. Its interiors designs of low dim lights and white moulding louvers are also important in selling A&F as a unique company. Additionally, marketing campaigns carried out by the latter company have attracted consumer attention because of their sexual appeal. In fact, most marketing campaigns have received a lot of acknowledgement from a number of parties. While this may be seen as a negative in certain respectives (too much deviation from the brand), one can assert that their marketing methods are effective since they are able to reach intended audiences. Consequently, these adverting capabilities have been transferred to the United Kingdom and have recorded positive outcomes so far. (Hollensen, 2003)

The company also boasts of sound financial performances within the UK stock market. As of 2008, the following were the key financial aspects linked to the company;
Sales in 2008- 1884.3 million pounds
Sales growth 2008 – 13 %
Net income – 239 million pounds
Net income growth – 12.7 %
Number of employees worldwide – 99, 000
Employee growth – 14.6%

As it can be seen from the latter results, the company is doing rather well for itself and it therefore stands to grow and expand its operations if it continues in the same manner throughout the future.

Evaluation of primary and support activities and how they add value to them
A&F takes pride in its merchandise and brand protection efforts. The company is known for its casual luxury product offerings in which it uses fine materials designed to be body conscious in order to meet the needs of the consumer. Additionally, the company also offers a number of fragrances for both females and males. Examples here include Classic, Wakely, Perfume 8 and many more. The company has signature fragrances and it also has high end fragrances that are designed to capture the essence of this company. the sale of these brands and its fragrances can therefore be seen as one of the methods used to make the brand easily recognisable.(A&F, 2009)

The core activities in A&F are the sale of the products. However, there are a number of support activities that have enabled the company survive thus far. First of all, the company established an A& F brand protection program. This is necessary after the realisation that a number of it goods were being counterfeited since its brand was growing at a very high rate. The Company’s main aim behind establishing this brand was so as to ascertain that consumers could get their respective products easily without having to deal with counterfeits.

Besides the latter matter, A&F has subsidiaries that are still managed by the latter company. These brands include Gilly Hicks in which the company offers underwear and lingerie for women over the age of eighteen. Additionally, there is the Hollister Co. Brand in which the company offers product for teenagers between the ages of fourteen and eighteen. Lastly, the company has RUEHL no. 925 in which the women can access leather bags and purse. The age targeted by this product is twenty two to thirty five.

The company has also dedicated a lot of its resources towards humanitarian and societal campaigns. First of all, the company usually sponsors the Inferno Elite racing team that dwells n cycling and is also a non profit venture. It offers scholarship to students in high school and also engages in other related ideas.

SWOT to TOWS
Strengths
One of the major strengths for this company is its experience in the US clothing industry i.e. for one hundred years. The latter company has been able to compete favourably with UK retailers because like the US market, UK consumers have a deep respect for quality and this company is able to offer them that. They have unique garment combinations and their fragrances also possess this same quality. (Aaker, 2005) They are therefore in a position to handle some of the challenges facing this respective industry.

Besides the latter matter, A&F is succeeding within the UK since there is tendency towards dressing down in the recent years. Most offices in the IT sector allow casual wear while all other offices usually have a causal Friday. Consequently, A&F which specialises in offering luxurious casual wear has higher chances of succeeding in this market than those companies offering formal clothes as their major product.

Weaknesses
One of the issues that has generated a lot of debate about Abercrombie and Fitch is the fact that the company’s marketing strategies do not portray its core idea i.e. that of comfort and a causal lifestyle. When one examines their adverts, one is likely to find half dressed men and women. The company has focused too much on portraying this “sensual” image and has thus deviated from its core idea which was to offer people causal clothes for their every day needs. The company has failed to communicate this message even in their online website as readers are bombarded by scantily dressed models that do not signify the comfortable look.

Opportunities
One major opportunity for this company lies in the fact that men are now more interested n fashion than they were a decade ago. This has been made possible through new male magazines and advertisements of men’s apparel. Therefore, A&F has a greater chance of succeeding in the UK market if they offer men products well suited to them. (Gilligan and Wilson, 2003)

Online shopping is fast becoming a force to reckon with in the retail industry. Abercrombie and Fitch may have began embracing this aspect but they still need to improve on their overall company image when dealing with this matter. First of all, the latter company needs to work on its website. It should include some vital information that may be necessary to inform consumers about its products. For instance, it could tell them about its vision and mission. It should also give details about its stores and their history. Additionally, the huge photographic advertisements of half nude models need to take up less space. The company needs to show more of its clothes than its models. Also, it could introduce an interface in which consumers can chat with company representatives across the internet.

Threats
The highly competitive nature of the UK clothing industry could prove to be a challenge to this company. A number of mid retailers have closed in the past few years and this may apply to A&F if no further improvements are made.

TOWS matrix

Organisational
Strengths Organisational weaknesses
Strategic options
Environmental opportunities
(and risks) SO: The company needs to embrace its online sales more aggressively by examining how other markets in other non – UK markets reacted to them WO: the company needs to focus on its core idea so as to overcome the issue of diversion from the core brand

Environmental threats ST: Despite UK’s competitive retail industry, the company can use in branding ideas that have worked in other parts of the world to stay above the competition WT: A&F needs to market its products in such a manner that it brings out their uniqueness. This will eliminate the threat of excessive competition from established names and will also deal with its poor advertising strategies

References

Abercrombie & Fitch (2009): Home Page, retrieved from http://www.abercrombie.com/ accessed on 4th Feb 2009
Aaker (2005) Strategic Marketing Management, 7 th edition, Wiley.
Brennan, Baines and Garneau (2003) Contemporary Strategic Marketing, Palgrave.
Dibb, Simkin, Pride and Ferrell (2006) Marketing Concepts and Strategies,
Houghton and Mifflin.
Doyle and Stern (2006) Marketing Management and Strategy, 4 th edition, Prentice
Hall.
Drummond & Ensor (2001) Strategic Marketing, Planning & Control, 2nd edition,
Butterworth‐Heinemann.
Gilligan and Wilson (2003) Strategic Marketing Planning, Butterworth‐Heinemann.
Hollensen (2003) Marketing Management, A Relationship Approach, Prentice Hall.
McDonald, (2006) Marketing Plans, 5th edition, CIM Butterworth‐Heinemann.
Wilson & Gilligan (2005) Strategic Marketing Management, 3rd edition,
Butterworth‐Heinemann

The author of this article is a holder of Masters in Business Administration (MBA) from Harvard University and currently pursing PhD Program. He is also a professional academic writer. ResearchPapers247.Com>