Fix A&F's Problem University Bocconi - MSc in International Management

2. Abercrombie&Fitch
Founded in 1892, in the US
In 1992, Mike Jeffries became CEO, revolutionizing style and culture
of the firm
Hollister Sales
US Sales
E-Commerce Sales
55%
63%
26%

3. Symptoms
237
4 0
50
100
150
200
250
300
350
400
0
1,000
2,000
3,000
4,000
5,000
2012 2013 2014 2015 2016
Net sales, Operating profit and Net profit in millions
42.75
12.12
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
Monthly Share Price in $ from 2011 to 2017
Since 2012 the company has been
struggling to maintain its position
in the market
Net Profit
Operating Profit
Net Sales
-26%
-96%
-98% 4$ million in 2016
15$ million in 2016
3,326$ million in 2016

4. Fast Fashion
Youth tastes
E-commerce
Problem Statement

5. Organization
&
Leadership
Mike Jeffries, CEO
Self-centered & top-down leadership
Concentration of Power
Narrow Span of Control
Hierarchical Organization
The Roots 1/2

6. He shaped Abecrombie image and organization on itself. In particular, he targeted:
Idealized, flawless, all-american college youth Too cool for school perfect-body youth
«We go after cool kid, attractive, all-american kids.
A lot of people don’t belong in our clothes and they can’t belong.»
Mike Jeffries
He entered the company in 1988 and left it in 2014
He revived the company reinventing:
The culture Communication Expansion
Abercrombie has changed CEO in 2014 and 2017.
NOT JUST LEADERSHIP!

7. The Organization: Functional?
Too Hierarchical Chaotic Unclear Structure Low Responsiveness
CEO
CFO/COO
STORE &
BRAND
HR SOURCING
WOMEN’S
DESIGN
LEGAL
Hollister
President
A&F
President
Marketing
2nd managerial layer
1st managerial layer
Talent
Acquisition
…

8. Overlap and
Cannibalization
Brand
Management
OVERLAP
DESIGN
POSITIONING
The company failed in repositioning its brands
in the light of the new characteristics of the
market. In particular, they failed in:
Low-end positioning
Outdated design
Ineffective
communication and
distribution channels
Adapt to change in
consumer behavior
The Roots 2/2

9. HOW TO FIX THIS
Firm’s
R&C
Understand
External
Environment
Change
Organization
Reposition
the brands

10. Industry Analysis
Supply Customer
Rivarly
New EntrantsSubstitute

11. Rivarly HIGH
MARKET SHARE (US)MARKET SHARE (WORLD)
Highly fragmented market Strong differentiation Marketing investments
Adidas 1,8% Nike 2,9% Private Labels 3,2% Others 71,9% GAP 3,1% Nike 6,2% Private Labels 3,1% Others 53,4%

12. Classic Avantgarde
PRICE
Based on the Bocconi fashion pyramid’s framework
Couture
RTW
Premium
Mass
Market
Although highly fragmented,
the market can be divided in
sub segments according to
price level and style
Cluster Analysis

13. Retail: flagship ad self-standing stores
Wholesale: department stores
E-commerce: virtual flagship store vs
multibrand e-tailers
Costumers: Distribution

14. Costumers: End Customers
No (or low) price sensitivity High Loyalty
High WTP Quality and fashion are critical
Huge variety of brand
Low Loyalty
High price sensitivity
Some attention to quality and fashion
Accessories represent the linkage:
high-end firms sell to mass markets
MEDIUM

15. Supplier
Manufacturers and
textile wholesalers
Increased
International
competition
Low switching cost
&
Quality risk
MEDIUM

16. New entrants
Medium power of
supplier
Online Sales
Low capital
requirement
HIGH

17. Substitute products
Real Substitutes do
not exist
Online low cost
products
Second-hand and
charity shop
LOW

18. New Strategy: Fast Fashion
Originated in Western Europe over the last 10 years
Quick reactivity to fashion trands
Shift of demand from traditional mass market to fast fashion
H&M’s market share grew by 80% from 2011 to 2016
High control over supply chain
Low prices
Short life cycle of products
Collections updated on a weekly basis

19. Social Trends: Youth Preferences
2016 was a black year for “teen companies”:
Pacific Sunwear, Aeropostale and Quicksilver went bankrupt.
Different spending priorities (technology on top)
Generational Change: Z and 2nd half of Y are entering the market.
Digital Natives: no distinction between online and offline purchase
Different values from those teen fashion retailers are built on
More price conscious
Overall “poorer” than baby boomers and Generation X

20. 0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
2011 2012 2013 2014 2015 2016
% of internet retailing in apparel and footwear
World North America
Social Trends: Digitalization
Boom of Internet retailing
Customization of contents
Showroomming
Pick-up at stores
Omnichannel Strategy
Seamless experience through all the
channel the firm operates in
In-store Experience
Digital content in-store
Virtual Try-on
Spreading among mass market

21. Resource Base View
Brand
Design
Supply Chain
Physical Stores
Internet
V R I N

22. TO SUM UP
STRENGHTS
Recognizable Brand
Physical Distribution Network
WEAKNESSES
Design Capability
Communication
OPPORTUNITIES
New fashion trends
Omnichannel Strategy
THREATS
New fashion trends
Fast Fashion

23. Re-Positioning
Classic Avantgarde
PRICE
Couture
RTW
Premium
Mass
Market

24. Re-Positioning: Abecrombie&Fitch
Current Positioning: Open warfare with fast fashion
Price lowered by 30% over the last 5 years Aggressive discount policies
Low inventory clearing Overlapping segment
New Positioning: Enter the Premium Segment
Target older audience (25+), higher WTP KSF: Price/Quality ratio
Higher price Leverage on in-store experience
Omnichannel strategy Shift towards fashionable

25. Re-Positioning: Hollister
Current Positioning: Competing with fast fashion
Lifeline of the company for many years Grew until 2016
-2% growth in 2016 Overlapping segment
New Positioning: Differentiate from fast fashion
Avoid fast fashion strategy Social Media marketing
Pick-ups and Returns through lockers Leverage on in-store experience
Omnichannel strategy Less capillarity of physical stores

26. Resource Pathway: Borrowing
Abercrombie by hiring
new designers
from Premium and
RTW Segments
Hollister by partnership
with fashion blogger and
influencer
Supply chain
Efficiency and cutting costs,
but it takes huge efforts/time
Design
It plays a big role in re-
positioning of both brands
WHICH GAP
High Clarity: improve design.
Hiring a top designer as Head of
the Department would help to set
an identity
Partnership has clear scope
(capsule collection) and limited
time frame (few months)
Exclusive contract to protect
this resource
Compatible, non-conflicting goals.
Both benefits in terms of image and
visibility
K K
GG
CONTRACT ALLIANCES

27. Re-Organization: Divisional Form
CEO
CFO/COO
HOLLISTER ABERCROMBIE
LEGAL
Marketing
Store
Management
SourcingMarketing Omnichannel Sourcing
Dedicated Distribution Dedicated Marketing Dedicated Design Dedicated Sourcing

28. Re-Organization: Pros&Cons
Consistency with new positioning
Clear decision making process
Responsiveness
Autonomy fosters engagement
Focus on specific functions
Lower integration = no shared
know-how
Hollister not anymore under
Abercrombie “umbrella”
Feasibility: informal structure
and possible reluctance
Duplication cost

29. TO SUM UP
Environment
has changed
Inability to adapt
2 Roots
Resource gap Re-Positioning
Re-Organization
Resource
Pathways

30. Luigi Mastromauro Riccardo Rosato
Siddharth Kumar Axel De Geer
Guillherme Teixeira
Andrea Valenti