International Expansion Strategy at Abercrombie and Fitch - Essay Example

? Critical examination of the international expansion strategy at Abercrombie & Fitch BY YOU YOUR SCHOOL INFO HERE HERE Critical examination of the international expansion strategy at Abercrombie & Fitch Introduction Abercrombie & Fitch (A&F) is a well-established retailer specializing in youth-oriented clothing and accessories. The company was launched in the United States, but has recently expanded its products into the United Kingdom and Italy in the form of large-scale flagship stores that carry the same Westernised merchandise found in American stores. Traditionally, Abercrombie & Fitch has been dedicated to exclusive marketing and product development that is designed to appeal to youth vanity and physical beauty. The clothing and accessories offered often depict young male and female models with aesthetic facial and body features in order to gain marketing interest in their target market of 18-35 year old buyers. This exclusive mentality positions them differently from main competition, such as the Gap and H&M, allowing them to retain considerably high market share among the competitive environment both in its home country of the U.S. and its new expansion locations internationally. This essay describes the current strategic management functions and principles at A&F related to their current, ongoing expansion strategy. A&F statistics and sales At the end of 2010, Abercrombie & Fitch operated 1,069 stores. These included 316 A&F stores, 502 Hollister Co. stores, and 181 Abercrombie stores dedicated to children and adolescent youths (euroinvestor.co.uk, 2011). The company has adopted many different strategies in an effort to gain more customer interest and improve market share. However, it has never lost focus on its core competencies and core products, which are often provocative and always exclusive fashions that are heavily branded with the Abercrombie & Fitch name and/or logo in order to help customers identify with their name and reputation. In previous years, from 2007 to 2009, A&F experienced considerable losses in profitability that came from a variety of factors, including economic downturns in the international economies and changing buyer behaviours. However, through aggressive advertising and downsizing of underperforming stores, Abercrombie & Fitch has managed to regain its competitive edge and just recently experienced a 7.6 percent increase in sales for the last quarter of 2010 (Stothard, 2011). Again, this is due to a strategic focus on remaining dedicated to the core brand philosophy of exclusivity, a series of short-term pricing reductions and the closing of non-performing stores internationally (especially in the United States where the economy has been poor). Strategic focus and intention In order to fully understand the international expansion strategy of Abercrombie & Fitch, it is necessary to identify with the concept of strategic management and leadership. “Strategic management is based on the belief that an organisation should continually monitor internal and external events so that timely changes can be made as needed” (Aluko, Odugbesan, Gbadamosi & Osuagwu, 2004, p.44). There is a need to be adaptable to change and be trend-focused so that their product offerings and values can shift along with changing environmental, economic and consumer behaviour trends related to retail buying. Strategic management, then, is a “continuous process of administering operations with an emphasis on overall corporate purpose and future opportunities” (Stone, 2010, p.S215). Abercrombie & Fitch is a very strategic-focused business that is always operationally-adaptable in the face of these conditions, however it never loses focus of its core mission and core competencies related to marketing and branding which are their most priority revenue-building strategies. Abercrombie & Fitch is currently closing underperforming stores in the United States and abroad, based on same-store sales and economic conditions in their current operating environment. However, these closings offer the company more capital availability for international expansion that has led to their current expansion strategy. In 2011, the company plans to open Abercrombie & Fitch flagship retail stores in Brussels, Germany, Dublin, Singapore, Paris, Madrid and Dusseldorf due to same-store sales increases of 13 percent (tradingmarkets.com, 2011). The business takes a quality strategic management approach through this closing and then expanding strategy as it recognises performance gaps and attempts to close them through cost controls. At the same time, business process improvements in pricing, marketing and leadership are part of the expansion focus. But, what are the core competencies of this brand that are leading to this new expansion effort? Offered Chief Executive Mike Jeffries, in relation to their core competency and brand focus, “We go after the cool kids. A lot of people don’t belong in our clothes and they can’t belong. Are we exclusionary? Absolutely” (Handley, 2011, p.16). In essence, Abercrombie & Fitch prides itself in its youth-focused, vanity-inspired and exclusionary marketing focus and considers this to be its core principles for gaining market interest and improved market share. They are taking this strategic focus overseas and do not plan on changing these values that drive every attitude within the organisational culture from the lower-level sales associate to the senior executive team. By focusing on their core values, they continue to gain loyalty domestically and internationally without having to change their brand reputation in the process. This focus on vanity and youth-orientation has given the business considerable media and social backlash, however. The company’s pride in its exclusionary offerings and principles developed their look policy that indicates only certain types of individuals should be hired as salespersons and they should continue with this attitude associated with their vanity-inspired principles. In 2008, a former salesperson who maintained a prosthetic arm resigned after she was forced to work in the store room under violation of this look policy and was paid ?8000 for this discriminatory practice (Lee, 2009). The company is continuously being targeted by different social advocacy groups for their discriminatory marketing and hiring principles. However, this does not seem to impact their expansion strategy and remaining dedicated to the look policy for fear that it might erode the long-standing marketing effectiveness of these strategies. In many ways, the vanity-minded culture and advertising is part of their core competencies in the minds of executive leadership despite the social outcry for these efforts. All of the flagship stores have the same theme and look that continue to attract the youthful and trendy buyer. However, one older consumer describes the store environment as “dark, noisy and faintly threatening – sending the signal that these clothes were specifically intended for the young” (Appleyard, 2011, p.48). Again, this is another example of the outcry coming from non-target customers in older age categories that do not necessarily fit the look criteria for wearing A&F branded clothing. However, despite this, the store continues to find success in sales and consumer interest giving them the capital necessary to expand internationally and rely on its current youth-focused culture and product offerings. Up until just recently, consumer spending patterns forced the company to discount some of its merchandise in an effort to remain competitive in the short-term (Talley, 2009). Traditionally, Abercrombie & Fitch has maintained a much higher profit margin than many of its main competitors through higher-priced merchandise that was in-line with their exclusive marketing strategy. Youthful buyers bought into this strategy and believed they were being quality merchandise that was worth the additional price tag. However, this is another example of how the business follows the strict definition of strategic management by being adaptable and recognising current trends that are driving sales interest or declines. It is an effort to drive off competitors by recognising performance gaps and then attempting to fill these gaps with short-term pricing strategies. Expansion critique Abercrombie & Fitch is seeking new markets and has decided to attempt to compete with very large-scale lingerie company Victoria’s Secret in order to gain market share (Talley, 2008). It is a quality expansion strategy for the business as it identifies opportunities for growth and develops new competencies and synergies in areas of marketing and supply chain, along with internal talent related to sales and customer service. Abercrombie & Fitch is continuously looking for new methods to gain new market interest or secure the long-standing loyalty of its current client base. They train employees to become knowledgeable about lingerie products so that salespersons can continue to use their exclusivity focus and people-centred values effectively on the sales floor. Under most strategic management models, this expansion strategy stays with core values and does not deviate from this cultural principle in all of its new product strategies. Abercrombie & Fitch utilises the irrational strategic management model, used in complex environments such as the one where this company operates. This model suggests that managers should be people-focused and operate on irrational concepts such as “faith, sentiment, will, mind-set and intuition” (Yongbo, 2009, p.93). The goal under this model is to align the organisational culture, as a whole, toward these concepts and achieve a harmonious alignment with long-term sales and marketing strategy. Emotional factors associated with buyers such as respect, dependability and group cohesion is marked under this model (Yongbo). This is necessary in an environment where the concept of the product branding is based on buyer behaviour and attitude when issues of vanity and beauty are the core focus of sales strategy. It is an effective strategy for its current international expansion goals and will carry the business’ main core principles overseas to new markets that value these same lifestyle concepts and attitudes. The business also utilises a strategic management model known as the Transactive Mode. This mode includes feedback, learning, maintaining a dialogue with important stakeholders, and cross-functional communication (Brown, 2005). This model also includes a total quality management focus and customer-service principle that is necessary for A&F to maintain competitive edge and market share in international marketplaces. In order to maintain this dialogue with customers, when vanity and youth are main selling factors over even the product itself, it is necessary to adopt a model for expansion that will serve core values and improve salesperson knowledge. Salespersons are the key resource for buyers when in-store and they must be effectively cross-trained and knowledgeable about buyer behaviours related to attitude and values in order to make effective sales. In many ways, the strategic models adopted by Abercrombie & Fitch are able to fend off competition and creates a sense of urgency when dealing with customers directly in-store. Additional strategies Also important to A&F success are the synergies and partnerships the business develops as it moves into international selling territories. The business realises that it does not maintain the core knowledge necessary to achieve sales results in unfamiliar foreign countries and has created synergistic partnerships with experts in multiple fields to assist in finding new sales opportunities abroad. The company has recently retained the expertise of PBS Real Estate as a consultant in the U.K and other European countries to assist in identifying locations that will be best suited for higher sales success associated with the A&F brand philosophy (fibre2fashion.com, 2007). Rather than conducting costly research that puts a strain on the corporate budget, the business uses a strategy-minded philosophy in an effort to utilise external talent instead. It is a part of relationship management that is built at the highest levels of corporate leadership and also part of cost control. These are important concepts for successful expansion when long-term goals are to improve the brand reputation of the A&F product line. Experts such as PBS Real Estate provide knowledge of demographic trends and socio-cultural factors in certain potential sales environments so that there are no limitations on sales success. These companies help A&F to locate prime locations for building their flagship or subsidiary stores without having to devote considerable labour costs to research efforts about buyer attitudes in a certain region. This is a quality long-term strategic focus that is in-line with most strategic management models related to cost recognition and risk identification. Abercrombie also recognises that the economic recession in some international locations is lessening over time and has begun a new strategy of seizing the opportunity for more revenue growth. The company plans to increase prices on some of its previously discounted merchandise as a means to regain their market share (Bhattacharjee, 2011). This is a form of competitive intelligence that is gaining new ground and new opportunities for capital growth to keep expanding the A&F brand internationally. They remain true to environmental scanning processes found in many strategic leadership and management models and identify buyer trends and economic conditions that can lead to short-term growth. By adding a marginal price increase to once discounted merchandise, the business does not sell its quality-focused positioning and can remain true to its long-standing exclusivity contracts with customers. The company is also looking to expand deeply into Asia, such as Hong Kong, but has recognised a trend related to counterfeiting in this area. The business’ senior managers are concerned that this could erode the brand quality of the A&F product line since it is a problem with large companies such as Coach. To prevent this from occurring as it expands internationally into Asia, the business has partnered with the Federal Bureau of Investigation who will act as an investigative and corrective advocate for A&F to prevent counterfeiting or report on its potential impact to sales and reputation (Eaton, 2011). Though this is unusual in most business models, it again shows that there is a dedication to maintain a strong strategic leadership presence by building synergies and allowing third party entities to assist in developing a more sound entry strategy into Asian territories. It recognises the risks associated with rip-off merchandise and acts proactively to ensure that the brand and its product line is protected from negative forces out of the control of the business. Under most strategic management models, risk identification is a sign that Abercrombie & Fitch understands the external environment in all of its new or inspired international sales territories and is willing to invest the effort and partnering strategies to ensure their interests are protected as they expand. One main strategy of the company especially related to marketing is their reliance on print catalogue advertising to gain buyer interest both domestically and abroad. These catalogues usually depict shirtless men or scantily-dressed young women in sexually-provocative poses as a means to sell the A&F branded merchandise successfully (cnn.com, 2011). However, the company recently came under social fire for this type of marketing (despite its sales successes) for promoting push-up tops to young girls on its website (cnn.com). Abercrombie & Fitch does not, to its advantage, ignore these criticisms and generally makes adjustments to product offerings or its merchandise that is found to be offensive by certain advocacy groups. For example, in 2002, the company pulled T-shirts from their racks when they were criticised in multimedia format for being racially insensitive. One shirt read, “Wong Brothers Laundry Service: Two Wongs Can Make it White” (cnn.com, 2011, p.1). Though this is not proactive leadership, it does indicate that the company is aware of their social influence in mainstream society and looks to close certain performance gaps when they are influenced or created by the public environment. It is a successful leadership style that continues to show the company’s focus toward corporate social responsibility and sales leadership. It also provides them with a more synergistic outcome in relation to public relations and maintaining a quality image with non-customers or non-targeted customer groups to avoid negative reputation. If the business maintains this same focus on environmental awareness, they will find considerable success in the international environment if A&F comes under fire for its advertising or product offering concepts. A&F also recognises that brand positioning is extremely important to their reputation and competitive standing so some of the closing of under-performing stores changes their focus and knowledge internally. For example, tourist stores have been very successful in generating revenue while older mall-based stores in the U.S. continue to under-perform (newyorkrealestate.citybizlist.com, 2010). This is a form of competitive intelligence that is proactive in identifying what areas are bringing the most value and then focusing on those that continue to outperform competitive efforts. By closing these low revenue-building stores they can add more training focus and higher labour investment in the tourist stores, which is part of a quality operational strategy that will serve the business well in its expansion efforts. Conclusion It is clear that A&F understands the importance of strategic management in all of its current expansion strategies. The business follows models of risk identification and mitigation, identifies the importance of building a unified culture that is focused on development and customer service, and works to partner with third party entities to assist in gaining knowledge about foreign buyer behaviours and demographics. Even though, as mentioned previously, this builds a cost control focus to avoid intensive research into buyer demographics, it is more effective at creating a synergy and relationship with multiple third party advocates that can assist the business in the future. Therefore, the company identifies appropriate opportunities and takes immediate action to improve their competitive position over the long-term. If Abercrombie & Fitch stays in-line with their core values and remains dedicated to their target audiences of 18-35 who maintain the physical or emotional characteristics that have helped build their brand, the business should be successful in the overseas marketplaces they select. Cost control is a significant strength for this business and they show superior strategic management and leadership by identifying stores that will, in the long-term, erode their competitive or financial effectiveness. By remaining dedicated to pushing and maintaining a quality public relations image, A&F will continue to gain new markets and keep the loyalty of current customers overseas and domestically. The models followed by Abercrombie & Fitch reinforce that the company is very in-line with modern strategic management and leadership theory that will continue to exploit their core knowledge and core competencies effectively to maintain its competitive edge. In all ways, this business is superior in its long-term strategic focus. References Aluko, M., Odugbesan, O., Gbadamosi, G. & Osuagwu, L. (2004). Business Policy and Strategy, 3rd ed. Nigeria: Longman. Appleyard, B. (2011). Creative destruction, New Statesman. 140(5045), pp.47-49. Brown, P. (2005). The evolving role of strategic management development, The Journal of Management Development. 24(3), pp.209-222. Cnn.com. (2011). [internet] Abercrombie criticized for selling push-up tops to little girls. [accessed March 29, 2011 at http://www.cnn.com/2011/BUSINESS/03/26/abercrombie.bikini.controversy/index.html] Eaton, D. (2011). [internet] Abercrombie taking cautious approach to Asian expansion. 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(2005). Strategic Planning for Public Relations, Mahwah: NJ Lawrence Erlbaum Associates, Inc. Read More