Engaged Capital LLC says a new CEO and a turnaround strategy could help revitalize the troubled brand
The market has not been friendly to teen retailers this year. As summer employment and extra spending money for teens becomes scarce and parents become more concerned with saving, teen retailers have been faced with dwindling sales and interest. To top it all off, continually changing fashion trends and a “fickle” customer base does not produce the most hospitable environment for store loyalty in the teen retail sector.
Now, Abercrombie & Fitch, in particular, has begun to encounter problems beyond a vanishing and picky customer base. Earlier this week, the company received a letter from Engaged Capital LLC, urging the board to replace CEO Mike Jeffries or consider a sale. In less than three years, Abercrombie & Fitch investors have lost more than 4 billion in market value as the company’s margins and same-store sales have dropped due to a failure to meet current teen fashion demands. Jeffries, who has been CEO since 1992, is facing the end of his contract at the beginning of February. As CIO of Engaged Capital Glenn Welling wrote in a letter to A&F, with the expiration of Jeffries’ contract, “The board has an important opportunity to set a new direction for company and reverse the years of disappointment.” Because of its weak stock price and its need for a turnaround, analysts consider the company a “perfect candidate” for a buyout.
However, this process is easier said than done. Suntrust Analyst Panela Quintiliano says “[Jeffries] has made it very clear that he’s not going anywhere.” She even goes so far to say Jeffries’ influence over the company “is an obstacle, and I don’t think the board would do a deal without his approval.”
While he is attributed as being the “visionary” of the Abercrombie organization, he has received a great deal of bad press recently for remarks that suggested Abercrombie clothing was only for the “attractive” consumer. Indeed, in its letter urging the board to replace Jeffries, Engaged Capital alluded to Jeffries’ “past public statements,” along with his “many years of mismanagement” as key factors in the decline of the brand’s value.
Over the past few months since Jeffries’ bad press, the company has been working to extend its offerings to include larger sizes and more colors in its women’s tops collection and began selling shoes to win back distracted customers. In addition to revitalizing merchandise, the company has also been cutting expenses, but analysts remain unconvinced that these revisions are enough to revitalize what they believe to be a “stale” brand. Currently, the company has been sacrificing margins and relying on heavy discounts in order to encourage sales. In the future however, Abercrombie says it expects margins to recover as they turn their attention from promotions to stocking a greater number of styles in smaller amounts, as opposed to larger amounts of fewer styles. The retailer also plans to increase prices on mid-to-single digit range clothing articles. Whether Jeffries will be there to oversee the company after February has yet to be determined, of course, but what remains clear is a turnaround and a new vision can’t come soon enough for A&F.
Want to publish your opinion?
Contact us to become part of our Editorial Community.