Last summer (while in a Psychology of Leadership class) I read about Abercrombie & Fitch Co. (A&F) and its shrinking profits due to its refusal to offer discounts on its clothing line in this recession. A&F’s position was that the discounts would water down their image of a luxury brand, especially as they’re opening up stores overseas in Milan, London, and Tokyo. So if they were to slash prices here in the U.S., A&F wouldn’t be able to maintain that air of exclusivity.
While A&F was suffering, competitors like American Eagle benefited from its missteps. It seemed (and continues to seem) that the strategy of selling high-priced clothing to tween, teens, and young adults was (and is) not proving to be very effective in this down economy.
What’s more, Wall Street analysts argued that “the luxury image is failing to resonate with consumers amid the recession.”
As I read about A&F and their dwindling profits, I wondered about its top leaders and how they exerted power. Did these leaders exert coercive power (threats of punishments) or did they have expert power (leaders who are believed to know what’s best) and eventually became too authoritarian or was it some other combination of factors? Did the CEO and other C-suite execs not heed the warnings given to them by some within their own organization or might some of the top executives have even offered a different strategy but their suggestions were tossed out?
That was last year. Now it’s “next” year, as in 2010 next year. And it seems, based on a recent projection from Aol Money & Finance that it may not be A&F’s year.
Fresh off a terrible 2009, A&F is planning to shutter all of its RUEHL stores by the end of January 2010. Designed to target the after-college demographics with a Greenwich Village-inspired decor, RUEHL struggled in a down economy due to A&F’s failure to understand consumer spending behavior and its own arrogance in refusing to offer “sales” (similar to its philosophy for the Abercrombie & Fitch stores which are also struggling).
Aol Money & Finance (quoting 24/7 Wallstreet) recently stated:
Abercrombie & Fitch (ANF) posted the worst same-store sales results of any large retailer in America during 2009. Measured on this basis, volume was down between 15% and 17% in the fourth quarter. Caris & Co, the research firm, recently expressed strong doubt about how it might recover. The firm operates a number of brands including Abercrombie & Fitch, abercrombie, Hollister, and RUEHL. ANF sales dropped 15% to $765 million in the quarter ending October 31. Same-store sales were down 22% for that period. The company has 1,129 outlets and will have to retreat to its early 2007 store count of 950. In the mean time, it is hard to see how the management team at ANF keeps its jobs.
I’m no expert, but anytime you end up making anyone’s “Retailers Likely to Close Stores in 2010” and it’s only January, that is a clear sign that the people running the show need to go.
It’s simple, when millions of people are out of work and millions of others cutting back, and your store refuses to slash its overpriced clothes, all you’ll hear are crickets chirping and the sound of silence – death knell for a clothing retailer.
Aol Money & Finance (2010). Retailers likely to close stores in 2010. Retrieved January 24, 2010 from http://money.aol.com/investing/big-retailers-which-may-close-or-downsize
Holmes, E. (2009). Skimpy Profits Pressure Abercrombie’s Pricing Attitude. The Wall Street Journal. Retrieved January 24, 2010 from http://online.wsj.com/article/SB125020118719130371.html