Abercrombie & Fitch Faces Grim Reality: Decides to Slash Prices

May 16, 2009

(ChattahBox)—The Wall Street Journal is reporting that the high-end youth orientated retailer, Abercrombie & Fitch is bowing to the inevitable, by announcing plans to slash its prices, in a bid to compete in a dwindling market during a deep sustained recession.

During its first quarter, Abercrombie posted a huge loss of $26.8 million, or 31 cents a share, with a 34 percent drop in same-store sales from last year.

Despite previously vowing to refuse to succumb to discounting its premium brand merchandise, “promotions are a short-term solution with dreadful long-term effects,” said sixty-year old CEO Michael Jeffries, he has now changed his mind.

In the wake of severe loses, Jeffries tried to sooth investors’ fears by pointing to the company’s success in weathering through the recession of 2001, but the current recession is proving more problematic.

Jeffries now is planning “meaningful reductions” in prices, particularly at subsidiaries, Hollister and Abercrombie Kids. The retailer is also conducting a “strategic review” of its struggling higher-end Ruehl division.

However, while the retailer plans to slash prices, it also plans to expand capital expenditures to $200 million, an increase of approximately $25 million from last year. The Capital expenditures will fund the company’s ambitious plan to increase its international expansions, when Europe is also experiencing a deep recession and a severe drop in retail sales.

A reduction of its pricey and trendy sportswear is welcome news to the many teens who have had to make do without their coveted pair of ripped Abercrombie & Fitch $90.00 jeans, and simple cotton polo shirts, which retail for $50.00.

But will the price reductions be enough to turn the tide? Caitlin McDevitt from The Big Money, thinks not. Last month she declared the end of cool for Abercrombie & Fitch, predicting budget conscious teens have already ditched the high-end retailer like an old shoe.

Teens who still have money in their pockets are turning instead, to cheaper mall clones of Abercrombie & Fitch like, American Eagle and Aeropostale, which offer constant sales and buy-one get-one promotions on popular items, like polo shirts.

Abercrombie & Fitch has already lost significant ground in the retail price wars. Teens can purchase cotton polos, almost identical to the $50 style sold by Abercrombie, for $19.50 ($7.99 on sale) at Aeropostale and $24.50 ($19.95 on sale) at American Eagle.

For years, Abercrombie & Fitch has relied on its glitzy marketing campaigns and “soft core porn” catalogues, with half naked models to convince fashion conscious teens that they couldn’t live without yet another, polo shirt from the retailer with its trendy embroidered moose logo, but maybe those days are long gone.

Will Abercrombie & Fitch survive the current recessionary retail shakeup, at a time when shoppers are making an about-face from style at any cost, to price dictating their purchasers? Time will tell, but those cheaper Aeropostale and American Eagle polos are looking pretty good right about now.


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