Service Quality of Abercrombie & Fitch Company - Case Study Example

Applying the Gaps Model of service quality to Abercrombie & Fitch Introduction Abercrombie & Fitch (A&F) is a multi-national company specialising in apparel for the exclusive-minded and fashion-forward young adult. The core business is upscale fashions, strongly branded with visible representations of the A&F family of brands all over their in-store merchandise. Clever and witty phrases combined with overt messages of youth sexuality pervade Abercrombie’s marketing strategy, through which the store’s executive leadership appears to believe that this marketing focus is the key to building youth buyer loyalty and increasing profitability. However, sudden and unexpected drops in sales volumes and total company profitability leave questions as to whether Abercrombie & Fitch actually maintains sizeable gaps in both service quality and service delivery. The Gaps Model of service quality is used in this paper to fully understand aspects of service at Abercrombie & Fitch and critically appraise whether or not the company truly understands its customers and maintains the internal systems necessary to deliver superior service to its customer base. Research evidence suggests that there are significant gaps in both internal knowledge and support as well as deficiencies in the current level of understanding of what drives the firm’s customers’ behaviours in buying A&F branded merchandise. A significant volume of service gaps For most of the 1990’s and 2000’s, Abercrombie & Fitch seems to have experienced significant sales growth stemming from customers who found strong connection with the company’s focus on youth, beauty and exclusivity. These positive changes have allowed the company to expand from its North American base into foreign markets such as the United Kingdom, where a large flagship store was recently opened in London. Most of this success appears to have been largely developed through correct strategic policies and marketing strategies. The delivery of service involves youthful and model-type staff members with above-average physical characteristics. Coupled with an in-store experience consisting of loud music and heavy social interaction with sales staff, Abercrombie & Fitch maintained positive consumer reaction until only recently when sales began to decline by tremendous margins. Is this due to gaps in service delivery? According to the company’s 2006 Annual Report Abercrombie & Fitch remains focused on its core customer (the 18-22 year old) by reinforcing the company’s connection with Ivy League traditions and heavy brand positioning1. This tried-and-true method of building a brand has worked, however there is no mention of whether the firm remains devoted to superior service delivery as part of the company’s marketing focus. In 2008, the company launched a new concept store named Gilly Hicks which offers bras, personal care products, sleepwear and underwear to create emotional connection with female customers in the same age range as its traditional core business.2 This is the first evidence of a significant gap in service delivery as the company does not seem to understand their 21st Century customers in a fashion which brings profitability. Customers of A&F appear to have relied on fashion-conscious salespersons and in-store experiences of exclusivity and beauty as a means to drive forward growth and profit. Customers appear to expect these beauty and sexuality-oriented pieces of merchandise, as well as finding similar connection with attractive salespersons, as a means to justify their position amongst the youth elite in the firm’s core age bracket. Creating the new Gilly Hicks organisation focused on intimate apparel and sleepwear products only serve to reduce customer perceptions of sexuality by introducing a new selling strategy and merchandise category. Under the Gaps Model of service quality, Abercrombie & Fitch just does not seem, anymore, to understand what the youth-oriented buyer is looking for, which could be attributed to the recent sales declines of over 46 percent since 2007.3 These sharp declines are being experienced by Abercrombie & Fitch for the first time in the firm’s operating history. The reason that this customer-related gap exists is due to several principles: The company has not conducted adequate research to understand what is driving buying behaviours in today’s difficult global economy, there appears to be too many layers of management, and insufficient market segmentation and targeting strategies. For example, prior to launching new concept stores which are completely incongruent with traditional merchandising and selling strategies, the firm experienced high customer loyalty and brand preference from their target buying audiences. The question can then be asked as to whether the company fully understands its customers as it expands the business into completely unrelated brands and non-beauty-oriented sales strategies. These new concept stores and new brands may very well be the catalyst for the significant drop in profitability just since 2006. Additionally, top-level management consistently reinforces the brand’s powerful image and exclusivity as the top priority for quality service delivery and meeting consumer expectations, however the firm appears to continuously abandon these tested service and selling principles in favour of conceptual marketing and merchandise variety which no longer fits with exclusivity, youth and beauty. This represents a tremendous gap in understanding what the consumer really desires. Additionally, there appears to be vague and undefined service designs at Abercrombie & Fitch which leads to inferior service delivery for customers. Where the firm was once devoted to all things beautiful and youth-oriented, with staff training emphasis on maintaining and promoting these characteristics, today the A&F appears to have lost this focus as it continues to build new conceptual brands and stores which do not fit with the image which has bought A&F superior sales results. There is no mention in any of the firm’s annual reports (or other research evidence) which suggests that the company remains focused on providing sales staff with the selling and service skills necessary to keep loyal consumers who trust in A&F exclusivity. Instead, the firm appears to be developing new brands and concept stores which provide merchandise similar to other lower-end retailers, thus somewhat destroying decades of positive marketing positioning which brought the firm superior sales through service delivery and quality. This also ties into a third gap, as part of the Gaps Model, focusing around deficiencies in human resource policy formation. Many large-scale organisations such as Abercrombie & Fitch fail to provide research literature regarding their own internal failures related to staff and human resources, thus finding research evidence in these matters is quite difficult. However, previous efforts at building human resources policy strongly promoted the sales staff to provide superior perceptions of youth and beauty and making the service delivery experience one which is similar to college or high-school cliques. Abercrombie & Fitch has always publicly proclaimed that only certain people should wear the company’s brands, somewhat ousting the heavy-set consumer or the lower-income consumer, as simply a matter of good business and service delivery. Today, however, there is a considerable volume of social outcry regarding the methodology by which A&F promotes its brands, such as using scantily-clad models in provocative sexual situations, which has driven advocacy groups to call for boycotts of A&F merchandise. Perhaps it is this pressure from groups which are outside of the firm’s traditional targeted segments which is driving more compliance to socially-acceptable selling and marketing strategies. In any event, the firm appears to have lost this connection with its target customers and has adjusted the methodology by which service delivery is achieved and promoted. This represents a significant gap in recruitment and training (geared toward traditional exclusivity and beauty) leading to inferior service delivery in-store as the company is not delivering on what its target customers really want. According to several marketing and service delivery professionals, “knowing what customers expect is critical in a service business”.4 It does not seem that A&F, for a variety of reasons, no longer truly understands what customers want and, due to this, the firm is experiencing its first sharp decline in sales. Breaking away from service concepts which have found success for decades in favour of a newly-developed business model is a significant gap in service quality which can be corrected with new marketing strategies and a renewed focus on the firm’s core customer. Overpromising, additionally, appears to be another significant gap in service quality at A&F, which could also be contributing to the firm’s sharp sales declines. The company appears to create unrealistic expectations of what A&F brands can accomplish for the target consumer. One author describes the selling environment at A&F as a “secret den of consumer pleasure shielded from the outside world by blind and shutters” and as a “loud, dark and smelly” dungeon “permeated by an odour not unlike that of a broken bottle of cologne”.5 The in-store design, as previously described, is intended to portray the image of total exclusivity where, by entering the store, the consumer is marked as one of the youth elite. The very nature of in-store advertising, catalogue delivery, and the model variety staff members overpromise that buyers will be able to attain similar physical beauty and raw sexuality simply by adorning an A&F garment. In many respects, when young buyers are lured to A&F for these perceptions, however they do not achieve the somewhat haughty exclusivity promised by advertising, they are likely to abandon the store in pursuit of another retailer which can deliver on its promises. This is a significant gap in service quality as the very design of exclusive brands and exclusive sales environments actually can serve to alienate potential customers who might be loyal (long-term) to the company’s brands. This may also be another contributing element to the sharp sales declines at the company witnessed for the first time in its operating history. Overpromising results is not a good business or service delivery strategy, however it is abundant within A&F in-store environments and marketing literature. Pricing issues, as well, represents yet another gap in service quality at the company. Traditionally, the company has been able to justify high price tags for their merchandise simply through innovative marketing strategies which link A&F merchandise to exclusive and high-quality products. This is also a dimension of understanding buyer needs. One author describes a first-hand scenario within an A&F store in the U.S. where, at 1pm in the afternoon, there are only four customers in the entire store with two of them leaving empty-handed. One potential buyer, age 20, gripes audibly “you can buy two pairs of jeans elsewhere for the $60 you pay here for one”.6 In previous years, A&F had maintained high sales volumes by simply focusing on its core, targeted customers who actively believed that sporting A&F merchandise was a sound investment, even if the basic T-shirt pullover was priced at £75 (as one example). Today, however, buyers are pressed by the economic realities of the existing global financial crisis and are simply unable to purchase high dollar items to fit budget expectations. However, despite this, the firm does not appear to have any intention of reducing prices on items which further leads to sales declines. It was highly important to discuss pricing issues as part of the gap in service delivery and quality which exists at A&F as a great brand is not only built on marketing strategy and positioning tactics but also comes from providing merchandise pricing which is congruent to actual product quality and consumer needs. The firm’s high profit margin experienced over the last 15-20 years was built on a high pricing model which was justified only by the in-store experience and the perceptions of youth elitism provided by A&F marketing tactics. Today, however, these pricing models are unrealistic and it is driving potential buyers away from the company in favour of competitors. Under the Gaps Model, there is insufficient relationship focus with the company’s core buyers with no attempts being made, it seems, to illustrate to loyal customers that the company is willing to provide flexible pricing to stay in-line with youth consumer needs. The firm’s lack of flexibility regarding pricing is a tremendous gap in service quality and requires readjustment before the firm loses its core customer base and loyalty in the process. Also related to relationship focus is Abercrombie & Fitch’s problem with identifying and luring new customers to the A&F brands. One professional suggests that the company does not carry any larger sizes which cater to the heavier-set consumer. There appears to be significant animosity with non-core customers who cannot fit into the smaller A&F merchandise commonly found in-store and in catalogues. The author describes the in-store experience, for the larger buyer, quite negatively: “When you arrive, you meet a perfectly toned 20-something male model who stands nonchalantly in the doorway wearing only his underwear”.7 Now, this aspect of service quality and service delivery has made significant gains for A&F up until only recently. However, can the company afford to anger or create animosity among non-loyal consumers who carry a few extra pounds or do not have above-average facial features? It is a likely assessment that the majority of European and North American buyers do not fit this exclusive beauty profile, however at the same time this group makes up a much larger percentage of the buying population than does the model-variety youth. Abercrombie & Fitch, by design, appears to isolate any future buyers by carrying only smaller sized clothing, thus not providing options to willing buyers in the X-sized category, and is therefore reducing potential profitability long-term. Perhaps the secret of financial success at A&F, and reducing this sizeable gap in service quality and delivery, is to promote new varieties of merchandise which befits the plus-sized buyer. This, too, might eliminate the many external opponents of A&F who consistently chastise the firm for its sexuality, provocativeness and exclusivity. Interestingly, Abercrombie & Fitch’s nearly 30 percent drop in sales volume is significantly higher than other, similar retailers in today’s economy. For example, Macy’s department store experienced only 13.3 percent sales declines whilst the Gap was down only 10 percent.8 Additionally, U.S. based J.C. Penney was down only 11.9 percent.9 These other retailers have a much more diversified service philosophy and merchandise selection catering to many different consumer demographics. This could be a significant call to action for Abercrombie & Fitch which has experienced sales declines more than double that of other American and European retailers. It seems that A&F really no longer understands what is driving the buying behaviours of its core customers and by being inflexible in a multitude of service dimensions has lost connection with this niche market. At the same time, providing no in-store selling support or merchandise for other buyers outside of the exclusive and beauty-oriented niche market appears to be cutting their own proverbial throat in terms of profitability. This gap is measurable simply by comparing competitor revenues to A&F revenues and noticing the massive difference in sales losses which are not in favour of long-term growth for the firm. Conclusion Providing superior customer service and having the management tools necessary to support quality service is a key success factor for any clothing retailer in Europe and abroad. Unfortunately, Abercrombie & Fitch does not actively promote its internal failures and specific service delivery policies, leading to inferior research evidence as to where the largest internal failures exist. However, clearly there are many varieties of gaps in service quality at the firm which begins with a contemporary lack of understanding about its core and loyal customers. Coupled with these problems are insufficient emphasis on pricing models, a breakdown in marketing strategy, failure to provide adequate human resources development and training for in-store sales support, and many others. Clearly, Abercrombie & Fitch requires a significant readjustment to existing service delivery strategy before the firm’s profitability is eroded to the point where the firm must begin closing stores to save operating cash. The largest defects, based on the Gaps Model, are in the company’s lack of flexibility and inability to provide a more diversified marketing strategy. The company has lost connection with its core customers, which is likely not difficult to do when the niche market consists of only 18-22 year old buyers. In only a few years, the desired, target audience moves out of this niche and is, by company standards, no longer a desired customer befitting the youth and exclusive-oriented business strategy. It seems that Abercrombie & Fitch believes that each 18-22 year old generation believes and thinks in the same fashion as other generations before them, leading to the same marketing concepts being created and delivered over and over again. This exclusive-minded philosophy of business which permeates all levels of management and staff seems to be creating, in today’s economy, more animosity than positive perceptions of superior A&F service quality and service delivery. A once loyal 18-year old customer in 2000 becomes obsolete by 2005 and is no longer considered a viable market opportunity at this point. A once cherished and loyal customer, given the superior in-store service treatment, is soon rejected in favour of another consumer who comes along who has the youth and the body desired for display of A&F brands. This does not seem to represent a service strategy which can exist in the long-term and the firm’s dismal sales volumes would seem to justify this critical assessment. It does appear that there are many more gaps in the A&F fashion design than there are positive aspects which leads to a firm that cannot seem to stand on its traditional selling tactics and requires immediate redesign if the company hopes to compete and satisfy customers. References Annual Report. Abercrombie & Fitch Annual Report, 2006, Retrieved 18 January 2009, Annual Report. Abercrombie & Fitch Annual Report, 2007, Retrieved 18 January 2009, Berner, Robert. No longer big brand on campus: Are Abercrombie & Fitch’s prices too rich for kids’ blood?, Business Week, New York, 29 Sep 2003, Iss.3851. Retrieved 17 January 2009, Birchall, Jonathan. US stores suffer sharp fall in sales, Financial Times, London, 5 Dec 2008, p.20. Cheng, Andria. Corporate News: Penney, Abercrombie Scale Back Expectations as Profits Tumble, The Wall Street Journal, New York, 17 Nov 2008, p.B.3. Haksever, C., R. Cook and R. Chaganti. Service Quality for Small Firms: Can the Gaps Model Help?, Rider University, 1999. Retrieved 17 January 2009, Kohler, Nicholas. Abercrombie and Fitch: Come shop in our dungeon, Maclean’s, Toronto, 13 Nov 2006, 119(45), p.125. Retrieved 18 January 2009, Ritson, Mark. Abercrombie has XXL-sized problem. Marketing, London. 9 Jul 2008, p.21. San Francisco State University. The Gaps Model of Service Quality, Powerpoint Presentation, 2008, Retrieved 18 January 2009, Appendix A: Abercrombie & Fitch Home Page Representation of Beauty-Oriented Marketing Literature Source: http://www.abercrombie.com/anf/index.html Read More