A racy catalog masks lousy sales.

Commentary about business and finance.
Dec. 8 2003 2:53 PM

Abercrombie & Fitch's Blue Christmas

The dirty little secret behind the racy catalog: lousy sales.

The 2003 Christmas shopping season may be only a few weeks old, but it's already pretty clear who the big loser is: Abercrombie & Fitch. In November, in the face of a boycott led by the  National Coalition for the Protection of Children & Families, the company recalled its racy catalog, the A&F Quarterly, which bears more resemblance to Playboy than to the Wilson Quarterly. The "Christmas Field Guide" featured cover language promising "group sex and more" and photos of wholesome-looking youths in not very wholesome poses. On Sunday night, 60 Minutes charged that Abercrombie is the apparel industry's version of Hooters, hiring hotties to work on the sales floor and relegating less bodacious associates to the stock room. The company also faces a class-action lawsuit filed by former Clinton Justice Department civil rights hand Bill Lann Lee, which claims the all-American retailer discriminates against nonwhite job applicants.

But all the controversy masks a problem much more basic than a cynical willingness to distribute borderline pornography in an effort to stimulate sales or a warped sense of what constitutes an all-American look. Abercrombie & Fitch has failed to master the essentials of Retailing 101. The untitillating truth is that the chain's numbers stink and its breakneck expansion efforts have been expensive flops.

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In retailing, the most important metric is same-store sales, or how much money shoppers have spent at outlets that have been open for a year. The figure highlights whether a retailing concept has staying power. Abercrombie & Fitch's monthly sales releases, visible here, spin a tale of economic decline. In November 2003, same-store sales were down 13 percent compared to the previous November's sales. That's bad. Worse, it was the fourth straight year of same-store sales declines in November—the leading edge of the Christmas season. In November 2002, same-store sales fell 13 percent, and in the previous two Novembers, they fell 5 percent and 8 percent, respectively. In other words, an Abercrombie store that tallied $1 million in business in November 1999 rang up $666,000 in November 2003. Full-year sales figures were not much better; they fell 7 percent in 2000, 8 percent in 2001, and 5 percent in 2002. That's troubling, especially given that costs like rent, labor, energy, and advertising tend to rise over time.

Abercrombie nonetheless maintains the illusion of growth by opening new stores at a furious pace. The company's total number of stores has risen from 275 in June 2000 to 694 in November 2003. Founded in 1892 as a purveyor of quality hunting and fishing gear, it counted clients ranging from Ernest Hemingway to President John F. Kennedy. In the hands of retailing conglomerate The Limited, which acquired Abercrombie in 1988, it grew into a national chain by pitching a casual, all-American look—a younger, more accessible version of Ralph Lauren. Abercrombie went public in October 1996 and spun off from The Limited in May 1998.

As an independent entity, it embarked on a classic strategy of segmenting a market. The flagship Abercrombie & Fitch stores targeted college-age kids. In 1997, it rolled out Abercrombie kids, for the 7-to-14 set. And in 2000, it introduced Hollister Co., geared toward high-school kids. Today there are 164 Hollister stores.

By investing heavily in Hollister, Abercrombie both increased its bets on a highly fickle audience—teenagers—and ran the risk of cannibalization. After all, many brands that explicitly define themselves as being geared at a particular demographic are really aiming in large part at the next-youngest group. (Think R-rated movies or beer.) Part of the allure of the product is the idea that you're not supposed to be using it. So, the racy Abercrombie & Fitch catalogs—you have to be 18 to buy them—are aimed as much at high-school seniors as college seniors.

The problem is that the teen audience, raised in a climate of highly accessible pornography and lewdness, requires an ever-higher level of raunchiness to be shocked into consumption. A&F's catalogs have been banking on illicit activities for years. In 1998, the Center for Science in the Public Interest slammed the back-to-school catalog's "Drinking 101" promotion. Here are some fun facts about the 2002 magalog. And this summer's back-to-school catalog was dubbed "The SEX ED Issue."

But people in the business of selling sex to teens face a law of diminishing returns. For Britney Spears, simply gyrating and groaning used to be enough to send teens into paroxysms of consumption. With each passing year, however, she's been forced to raise (or lower) the bar. And even though she audaciously sucked face with twice-her-age Madonna on national television, Britney has seen her album sales slide.

Every year Abercrombie & Fitch goes to greater lengths to appeal to teens' prurient interests, too, hoping hormones will translate into sales. It's not working. It may be that the firm has signally failed to understand its customer, which is the most fundamental rule of retailing. The catalogs titillate teens, but they're increasingly angering their parents. While 16-year-olds may be able to go to the mall by themselves, most still rely on their parents to pay for the clothes they buy.

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