Abercrombie & Fitchs Corporate and Business-Level Strategies - Case Study Example

Abercrombie & Fitch and Aeropostale

Corporate and Business-Level Strategies

The main strategies for the Abercrombie & Fitch comprise of moderate diversification and market development. Abercrombie& Fitch has been known to generate more that 30 % of its sales revenues from just a single business unit, it is quite clear that the company has moderate level of diversification. In the year 2012, about 53 percent of the company’s revenues got generated from the Hollister Brand, 38 % by the Abercrombie & Fitch label and finally 8 percent by the Abercrombie kids (A & F Annual Report, 2014). Moreover, the main A & F business labels are usually related due to the fact that they usually get to share their products, technological and distribution links. The company has also been recently pursuing the market development strategy. It has managed to prioritize the international expansion with focus of nations like china and Japan.

Abercrombie & Fitch’s international strategy comprise of getting to achieve some standardization across all the markets. This particular standardization comprises of not only the Abercrombie & Fitch apparel, but also gets to extend to designs of the corporate stores. This particular high level standardization usually gets to provide some authenticity to the lifestyle that the company’s brand usually attempt to exemplify (Abercrombie, 2016). Abercrombie & Fitch also intend to pursue the franchising opportunities in order to enter the large and complex markets such as Russia and Brazil. Moreover, the company has been engaged in the vertical and horizontal complementary alliances.

On the other hand, the Aeropostale’s main corporate strategy comprise of store productivity. The company usually gets to generate the sales growth through the increase of the sales per square foot, which usually gets to increase the average unit retails while at the same time increasing the transactions. The company’s most significant initiative of getting to achieve the said growth comprise of integrating some fresh fashions into their assortments while at the same time keeping in mind the heritage of the Aeropostale brand (Aeropostale, 2016).

Aeropostale has also invested in technology with the aim of getting to enhance their supply chain including deliverance of the store productivity improvements. The company recently got to implement the latest phase of their workforce management system that would enable some more efficient store payroll planning. Aeropostale has also pursued opportunities of getting to increase its square footages in most of their highly productive store locations with expectations that the said locations would be able to generate some additional sales growths.

The Firm’s Business (Generic) Strategies

The Abercrombie & Fitch usually focuses on three main casual apparel lifestyle brands. These include the Hollister, Abercrombie & Fitch and the Abercrombie kids. The company further gets to differentiate itself from the rest of the companies through its ecommerce platform. The said platform usually allows customers to shop the A&F products online on top of their branded shops. All the three Abercrombie & Fitch labels are usually distinguished by the values and the ambition of a particular group or any culture during its different publicizing strategies. For instance, the Abercrombie & Fitch and the Abercrombie kids are together usually based on the lifestyle of the privileged East Coast American pupils that get to go to some exclusive schools and universities. The Abercrombie &Fitch l outlets usually get to support this particular brand image through the setting up of some luxurious store environment and also putting up some priced products that are about 30 percent higher than the prices of the competitors

Abercrombie & Fitch usually targets individuals of ages between 18- 22, while the Abercrombie kids target the consumer segment of individuals between 7- 14 years old. The Hollister brand on the other hand usually targets teenagers who are aged between 13 to 19 years old. The Hollister Brand usually represents the relaxed Southern California life with concentration on surfing or having some good time at the sea front. In order to be consistent with this particular brand, the Hollister stores are usually designed as a form of vintage surf shops while their products get priced about 10-15 percent below the average competitors (Abercrombie & Flitch, 2016).

Similarly Aeropostale has also managed to implement the differentiation strategy, by getting to offer some attractive designs at quite affordable prices to the young consumer segments. The said strategy has managed to help the company in positioning itself as among the fastest growing retail apparel companies in the U.S. The competitive pricing strategy of Aeropostale has managed to provide some great advantages over some other retailers as most consumers in America are usually value conscious.

What Is Each of the Firms Structure?

Fig. 1 below is the company structure of Abercrombie & Fitch.

When looking at the structure above, it is quite clear that the company uses the hierarchal structure. The organization is arranged along some various key business functions, and each of these is lead by the executive VP of the senior VP. The functions comprise of finance, planning and General Counsel and secretary.

With the functional arrangement, the organization usually gets to maintain the taller organizational structure. The company holds four main layers of the senior managerial level with the company’s CEO at the apex and the EVP/SVP on the second level. Many levels of the organizational structure usually allow the management of the company to have some narrow span of control, hence managing to concentrate the management of their individual lines of the functional spheres. It makes it much simpler for the firm’s management to perfect on their efficiency including the work quality within the particular business function. On the other hand, the organizational structure of Aeropostale comprises of different directors for every branch. Simply because the company does not franchise their apparels hence prefers to retail them.

Both of these firms’ strategies comprise of gaining some market share through differentiation of the brands by compelling their products. Through their merchandising strategies, both companies usually get to offer the customers some substantial choice of products with various exciting sub brands. Both of these companies also have some deliberate promotional pricing strategies.

Both companies’ strategies can be seen to be aligned with the structure because both companies comprise of a list of directors and managers in order to effective assign different roles and accountabilities. This kind of structure usually enables them to fully enhance the brand differentiation and customer insight.

Performance

The teens clothing industry has in the past 5 years managed to experience some drastic changes. Certainly due to the fact that the apparel tastes and preferences of young people keep changing. Furthermore, the consumer spending in the past 5 years have significantly increased leading to increase in sales. The feeling of need to belong has also influenced the sales of the young people apparels leading to the increase in sales for both the Abercrombie & Fitch and Aeropostale.

Various factors such as discount retailers and shift in customer demands have recently led to the decline in sales for both Abercrombie & Flitch and Aeropostale. This has led to the decline in the traffic of people frequenting the apparel shops which has led to some unfavorable financial performance. For instance Aeropostale got to incur some reducing comparable sales including some losses from the operations in the fiscal year of 2014 and also 2013. This eventually led to some cash outflow from the operations of about 55.7 million dollars in the fiscal of 2014 and 38.4 million dollars in the fiscal of the year 2013 (Aeropostale Annual Report, 2014).

Abercrombie & Flitch have also incurred some significant losses where they got to close more than 80 stores between 2012 and 2013 due to weak performances. However, Dealing with -3.37% annual sales declines in Abercrombie & Fitch reported slight decline than the clothing industry average with -4.57% but has underperformed the revenue growth of 6.01% in the industry. The industry experienced growth above the market average while the company presented underperformed results in the year 2016 that depicts the company indicated less growth than the overall market. Moreover, Aeropostale’s turnover in 2016 managed to remain above the overall industry’s average as compared to the A& F. However, the said corporation got to experience some steady decline of approximately 50 percent in the gross margin since 2010 (Aeropostale, 2016). Aeropostale’s gross profits also got to drop to about 17.7 percent in the year 2016 which was way below the industry’s average, leading the company to file for bankruptcy (Wahba, 2016)

Future Outlooks and Strategies

In order to ensure that both of these major firms get to succeed, then they would need to work together. The firms would be able to invest in their apparel business managing to become the leading platform. As more competitors keep entering the market with cheaper retailer apparels, brand marketing maybe the main solution. Ecommerce will also come in handy in promoting the sale of clothes through the online platforms. Ecommerce will get to reduce the need to visit the physical locations and also get rid of the expensive setting up costs.

As the designs and tastes in clothing keep changing, especially for the young generations, the companies should come up with ways of keeping their designs up to date in order to attract the youth. In the next 5 years the companies should also be able to keep up with the market trends to make sure that they don’t overprice or even under price their customers. Online marketing would also be an important part, as most youth spend their time on the internet. This will attract more customers to the store and also to the online platforms of the firms. As a result of the recommendations, the firms would attract more customers, leading to increased sales and hence more profits.

Appendix

Fig 1 Abercrombie & Flitch stock chart

Fig 2. Abercrombie financials

Fig 3. Abercrombie stock chart financials for the past 5 years

Fig 4. Aeropostale financials for the past 5 years

Fig 5. Aeropostale 5 years turnover chart http://markets.ft.com/research/Markets/Tearsheets/Summary?s=AROPQ:PKL