Abercrombie & Fitch CEO Mike Jeffries is out after a controversial two decades with the brand. Jeffries retired after already being stripped of his chairman title. Activist investors felt his ideas about what it meant to be "cool"—which allegedly excluded large people and minorities—hurt the brand.
Now that Jeffries is out, Abercrombie & Fitch has some big problems to solve. Sales fell 12 percent in the third quarter, which ended Nov. 1, while the company cut its profit outlook for the year. Jeffries cited turmoil in the teen apparel market as reasons for the company's performance. "It is very clear that the young apparel sector in which we operate is going through a period of disruption and turmoil," he said. "We expect conditions to remain difficult" for the rest of the year.
Abercrombie & Fitch has said it plans to offset declining sales by phasing out visible logos on its clothing and offering trendier items. But Eric Beder, specialty apparel analyst at Wunderlich Securities, said he thought Abercrombie was running out of options. "What is going to turn the tide?" Beder asked in a note to clients. "Frankly, we have no idea." Beder notes that Abercrombie has already exhausted numerous turnaround strategies, to no avail. "Abercrombie has already aggressively closed domestic locations, cut back on inventories, shifted away from logo products, and cut costs," Beder writes.
The once-leading teen retailer has struggled to stay relevant since the surge in demand for fast-fashion brands like Forever 21 and H&M.
Abercrombie has also been criticized for excluding plus-size customers and minorities in its stores.
For several months, Abercrombie has been touting a rebrand that apparently includes scaling back on logos and spraying less of its Fierce cologne in its stores. But when Business Insider recently went shopping at the store, it was clear that little had changed since its heyday.
Beder says a fundamental shift in teen customers is hurting Abercrombie, as well as competitors Aeropostale and American Eagle. The mentality of teenage consumers is changing rapidly, according to Piper Jaffray's recent Taking Stock With Teens survey. Researchers found that teens were increasingly spending on technology and food over clothing. For the first time in history, teens are spending as much on food as they are on clothing, according to the analysts at Piper Jaffray. This is fueled by trendy coffee drinks at Starbucks, the top food-and-drink retailer among the demographic.