A&F’s turnaround strategy: Asia, low prices and more marketing

Following a bad run and having stripped chief executive officer Mike Jeffries of his chairman duties, the beleaguered Abercrombie & Fitch has outlined its turnaround strategy. (Read also: A&F: When sexy fails to sell)

In its latest earnings results announced in the last week, A&F said sales in the recent quarter declined 12% to US$1.3 billion and profit dropped 58% to US$66 million.

In a post-earnings conference call, Jeffries said the past year had been challenging for the brand, and blamed a “challenging retail environment in the teen space” for poor results, stating that the company had seen a significant decline in store traffic that began in July and “as yet, has shown no sign of abating.”

The solution for A&F lies in Asia, low prices and more aggressive marketing, remarked Jeffries.

Asia focus

A&F’s key markets of focus are China, Japan and the Middle East.

Growth in Asia is strong, said Jeffries, with the company seeing strong results from its new stores in China and Japan. It now has seven Hollister stores in Mainland China and will open a flagship store in April in Shanghai this year, as well as five more stores in the country in the year. Its China stores have already posted 35% increase in comparable store sales for the year.

In Japan it opened its second Hollister store at Lalaport Shin Misato in Tokyo during the quarter, and the company intends to “accelerate plans in Japan”. It also opened its first store in Dubai in the last quarter.

More marketing

The next priority is increasing brand engagement through “enhanced” marketing initiatives, said Jeffries. Ironically, the company’s critics have remarked that over-marketing may have led to its current slump.

“In recent years, Jeffries has taken its success to his head and started to over hype the brand with overpriced clothes, the dark night club look for the stores, and topless male models standing outside the stores.  All of those tactics attracted media attention but no doubt turned away many customers and therefore the inevitable decline for the brand,” said Shauna-Li Roolvink, founder of Brandhub, in an earlier interview with Marketing.

Jeffries revealed an incremental US$5million in marketing in the 4th quarter of last year, which he says, produced good results. 2014 will see an increase in marketing expense, which will include a global marketing campaign for Hollister and A&F. These will run on events, key offers and social media.

For A&F, it has been actively pushing to fashion bloggers and will aim to garner more customer targeting opportunities over the Black Friday and winter sale periods. Also a rising stars campaign which will feature seven new faces across movies, television and music will launch, for instance, Mexican singer and actor Diego Boneta has been engaged for the brand on Twitter.

Going cheaper

As for its prices, there will be lowered prices to compete with cheaper retailers. In addition, A&F is focusing more on outlets, and has opened four in the last year, making clothes exclusively for outlets for the first time, according to Bloomberg Businessweek.

Will the strategy be enough to move A&F out of its slump?

Obviously, its critics think not. Retail analyst and managing director at investment bank Brean Capital Eric Beder said the it has been pursuing a price-cutting strategy for several years, "but the truth is it's not a long-term business plan," Beder was quoted on the Huffington Post.

"The question is, how do you survive with a store layout and in some respects the infrastructure of an aspirational retailer, when you’re not aspirational anymore?" said Beder.