As investors become more short-sighted, some businesses respond by focusing on boosting immediate results at the expense of long-term prospects. Abercrombie & Fitch is one such example.
The firm was founded by David T. Abercrombie and Ezra Fitch in 1892. The company was later sold to L Brands and began to position itself as an elite outfitter of sporting and excursion goods for middle-income young adults.
The brand started to gain popularity in Hong Kong in the 1990s thanks to fans like local star Lai-ming.
In recent years, Abercrombie & Fitch has been grappling with declining sales with the advent of low-cost, fast-fashion retailers.
The retailer has encountered intensifying competition from fast fashion brands like Forever 21, H&M and Zara. These brands are able to move styles from the runway to stores within weeks. Fast fashion brands are almost as appealing as mid-range brands but sell at far more affordable prices.
Consumers would rather spend the same amount to buy several pieces of fast fashion clothing, rather than buying one from mid-range brands, even though the latter may be of better quality.
Abercrombie & Fitch’s problem was compounded by the financial crisis, marked by plunging sales and stock prices.
To fight back, the brand began using aggressive promotion campaigns and sometimes rather extreme publicity stunts to draw attention, such as using semi-naked models.
Sales costs climbed rapidly as the firm spent more on hiring famous actors as brand ambassadors.
The firm’s administration cost accounted for 13.6 percent of sales revenue last year compared with 10.2 percent in 2007.
Sales did recover for a while, but publicity failed to give a sustained boost to its sales while overreliance on gimmicks began to confuse its brand image.
Eventually, sales fell back, hitting US$3.3 billion last year compared to US$3.7 billion in 2007.
Closure of several flagship stores in Hong Kong and South Korea added to the trouble signs.
Abercrombie & Fitch is reported to be in talks with several interested buyers, including American Eagle and Express, both of which were once much smaller rivals.
This article appeared in the Hong Kong Economic Journal on May 12
Translation by Julie Zhu
[Chinese version 中文版]
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