Why Abercrombie & Fitch (Almost) Never Puts Anything On Sale

When the Great Recession hit in 2008 it was not uncommon for retailers to cut their prices in the interests of preserving volume and market share. Abercrombie & Fitch, for the most part, did not. Now, five years later, that controversial strategy looks sound.

Why is Abercrombie & Fitch almost alone among fashion retailers in not struggling to cure post-recession customers of a “discount addiction"?

It’s largely because of their willingness to change everything in order to hang on to a non-price position and a revenue-driven profit formula. After being spun off from The Limited as public company in 1996, A&F enjoyed four years of rapid store growth and industry-leading margins and ROA (Return on Assets). Its position was defined by a unique combination of leading-edge style, edgy and highly focused advertising and a highly differentiated in-store experience that made A&F “the one to beat” in teen and young adult casual clothing. This often required A&F to incur higher relative costs than its competitors, spending more on, for example, its store locations, store fixtures and in-store personnel (who were officially categorized as models and often hired based on physical attractiveness). It generated higher profitability despite incurring higher costs, thanks to prices that were consistently and materially higher than its competitors’.

Retail, however, has a stereotypical growth and decline cycle driven typically by opportunities to open new locations. A concept that proves popular can grow quickly and profitably for as long as it remains popular and there are new shopping malls to colonize. Once customers get bored or the real estate runway has been exhausted, a retailer must focus on same-store sales growth and somehow find ways to stay “trendy” and “relevant” to fashion-conscious shoppers for whom there is nothing less cool than what they used to like.

Abercrombie & Fitch tackled this problem head on, working hard to keep the core A&F brand on the leading edge while also launching new brands that targeted different segments of the clothing market, often defined primarily by age group. A new line, “abercrombie,” was launched in 1997, targeting grade schoolers (ages 7–14); Hollister Co. came along in 2000, aimed at the 14 to 18 age group; Ruehl No. 925 in 2004, courting the post-collegiate crowd (22–34); and Gilly Hicks in 2008, which focuses on women’s lingerie and accessories.

They were not all successful--Ruehl was shuttered in 2010--but all shared the same positioning as trendy, “fashion forward” brands with price points that were higher than most of their competitors. All the while, A&F enjoyed industry-leading ROA results. In short, A&F was willing to create whole new images--perhaps the defining feature of fashion retail--in order to more effectively target new segments. Yet it never wavered in its dedication to a position driven by non-price value and a price-driven profit formula.

This sort of persistence was not always uncontroversial, even if it has been successful over the years. When the Great Recession hit in 2008 it was not uncommon for many retailers to cut their prices in the interests of preserving volume and market share. Abercrombie & Fitch, by and large, did not follow suit, sometimes provoking outspoken criticism. Although still regaining its footing, there are signs of a rebound at A&F. It’s revenues are growing again on relatively modest volume increases thanks to consistently higher prices. Those competitors that coped with the recession with price discounts, are finding it difficult to increase their prices, having taught their customers that their T-shirts do not have to cost $30 after all.

The unavoidability of change illustrates that persistence does not mean becoming a corporate barnacle, gluing oneself to a spot and then eating one’s own brain. In a dynamic economy, a company in total stasis is unlikely to even survive, never mind deliver exceptional performance. For exceptional companies, position and profit formula are the only things that are non-negotiable. Everything else is up for grabs.

And everything means everything.

Excerpted from The Three Rules: How Exceptional Companies Think. Published by Portfolio/Penguin. Copyright © Deloitte Development, LLC., 2013.

--Michael E. Raynor is a director at Deloitte Services LP. Mumtaz Ahmed is a strategy practitioner in Deloitte Consulting LLP and the chief strategy officer of Deloitte LLP. They are coauthors of The Three Rules: How Exceptional Companies Think.

[Jeans on Floor: Oleg Golovnev via Shutterstock]

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11 Comments

  • Eva Brain

    Abercrombie & Fitch, are down this year. It's been a painful experience for investors holding shares of these laggards as the rest of the market has exploded to new highs.It is down 27% year to date, and its revenues are sharply lower than last year; however, the analysts at Bidness Etc are neutral on the stock and they can tell why A&F never puts anything on sale the outlook becomes clearer.

    -Source "BidnessEtc"

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  • Zach

    Abercrombie was just late to start offering sales.  After 17 straight months of losing money during the recession, they started offering discounts.  However they still kept their full price items ridiculously high, but you could get t-shirts and jeans for under $15 bucks.  Right now everything in the store is 40% off.  To be honest, I think they were late bloomers in reducing prices and tried to hold out as long as possible to preserve their image, but it ended up falling through

  • Kyle

    2012: 71 stores closed

    2013: 40-50 stores expected to close

    By 2015: 180 of its US stores expected to close

  • Sivart Nedyrd

    Surprisingly inaccurate article. No local fact-checking opportunity? Rare miss FastCo.

  • diiaannx

    "not uncommon for many retailers to cut their prices in the interests of preserving volume and market share. Abercrombie & Fitch, by and large, did not follow suit, sometimes provoking outspoken criticism"

    The Abercrombie & Fitch CIO spoke to one of my classes. One of the stories he mentioned was that IT  worked on a new POS system right before the economic recession and one of the questions they asked was do we want to have promotions in our system? Management firmly said no because they were a "casual luxury company." Then the recession hit and everyone was doing promotions. They then   apparently had to scramble to get their systems in line. Nowadays they do plenty of promotions and sales, at least compared to in the past.

  • Kristine

    Actually, if you go to any chain store (non-flagship) A&F, they almost always have some type of promotion going on. Last January, they had an uncharacteristic "70% off all clearance" sale. 

  • Ben Turner

    Not denying the core argument but interesting to not touch on the recent terrible PR and double digit drop in sales on the back of it. 

  • Jon Greener

    I also found it ironic that a CEO that physically unattractive would be so quick to pass judgement on others' looks.

  • Todd Bernhard

    "WHY AMBERCROMBIE & FITCH (ALMOST) NEVER PUTS ANYTHING ON SALE"

    Really? I get daily emails from Abercrombie & Fitch with discounts up to 50%.  They have redline clearance section in the back all the time.