Abercrombie and Fitch Internal Analysis - Essay Example

Abercrombie & Fitch Internal Analysis Table of Contents Table of Contents 2 Introduction 3 I. History of Abercrombie & Fitch 3 II. Operational Policy 3 III. Key Resources and Capabilities 4 IV. Performance Analysis 6 Findings and Recommendations 7 References 9 Introduction According to Bender (2008), internal analysis is one of the strategic development tools for the organizations. It is the most significant part of developing organizational strategies as this process outlines strengths and weakness of the firm. Thus, in the current research report, an internal analysis of Abercrombie & Fitch will be done in order to investigate company’s strategies. Moreover, this study will be outlining different findings and develop potential recommendations on the operational policy of the firm (Bradway, 2006). I. History of Abercrombie & Fitch Abercrombie & Fitch is one of the major American based casual clothing retailers. They are also dealing with different types of accessories products like cologne and perfume. They are offering their products to different segments like youth men and women targeting the student demographics like the post graduates, graduates and college students (Graakjaer, 2012). The firm was set up in the 1892 by David Abercrombie. In the initial days, it was popular with the name David T. Abercrombie Co. It started as a waterfront shop and established for the factory in New York City area. Gradually, it gained popularity as dealers of rough, outdoor kits and accessories. The Limited Inc. acquired it during 1988 (Walters, 2008). Henceforth, from 1992, they started to provide effective fashion-attire. The casual apparel business was converted into public limited organization in the fiscal year 1996. In that time, The Limited Inc. reserved 84 percent share of business. However, in the year 1998, the parent company sold their remainder of shares among the general shareholders (Engel, 2004). II. Operational Policy In the year 1892, Abercrombie & Fitch began to produce fashion products. Recently, they are operating through the huge channel of the lifestyle and retail segment having nearly 300 stores. Product diversification strategies are being used the firms in order to attract the customers rapidly. The firm promoted "Abercrombie" stores for selling apparel products for children and teenagers. They are publishing some magazine and catalogues for disseminating features of various attire products (Bradway, 2006). The firm is producing different stylist apparel, accessories, personal care and footwear ranges in the worldwide segment. Abercrombie & Fitch is operating in more than 1000 locations with more than 13000 fulltime and 66000 part-time employees. Organizational structure of the firm can be stated with the following diagram (Lambertini, 2009). Figure 1: Organizational structure of Abercrombie & Fitch (Source: Bradway, 2006) III. Key Resources and Capabilities Abercrombie & Fitch Company is one of the major USA based apparel and accessories producers. They are developing different types of the lifestyle and retail products motivated by the casual luxury concept. Their unique selling proposition is highly fashioned and designed casual wear, targeting the stylist and adventurous youth peoples (Lee & Karpova, 2011). Mainly, the firm is segmenting the market as per the sportswear, comfort, stylish and sensational appearance of the products. Abercrombie & Fitch is targeting the group of customers who are having moderate or high purchasing power. Moreover, such groups are making various trials with the appearance. Positioning strategy of the firm is outlining that they are going to select the people who wants to use trendy outfits. Internal analysis of the firm is outlining various resources that are affecting value chain of the Abercrombie & Fitch Company. Mainly, different type of raw materials like cotton, color, rubber, chemicals and many stitching machinery are used by the organization (Walters, 2008). Employees are the major resources for the organizations. Such resources are responsible to maintain the quality of the products like, accessories, personal care and footwear. Abercrombie & Fitch are using international human resource management policies in order to recruit people from various parts of the world. Such policies are helping the firm in mitigating cross cultural conflicts related challenges. The firm is using sustainable energy policy in order to develop sustainable business norms (Mehrjoo & Pasek, 2014). Abercrombie & Fitch organization is using high commitment HR team policy in order to increase the capability of the teams and operational members. They are able to minimize diversity challenge among the human resource. The management is developing proper policy for mitigating culture challenge and diversity. This strategy helped the marketing personnel in obtaining expectation and perception of the customers. In addition, talent management policy is helping the firm in developing and training the workforce. These policies are creating high-end operational strength for the firm. The firm is having huge presence in different parts of the United States. They are also using globalised strategies that are inclusive of more than 1100 stores. Four different clothing and apparel brands along with the Hollister are helping the firm to increase compatibility (Lee & Karpova, 2011). Brand name of Abercrombie & Fitch is also an additional advantage for the global sustainability. They are also using the huge employee base of almost 9000 employees. They are working very much efficiently to produce fashionable and high quality clothing products and accessories. In addition, brand-advertising policies of the firm are helping them in attracting the customers in the worldwide segment (Lambertini, 2009). Huge structure of the retail set up helps the firm in meeting customers with their requirements of casual clothing. Vast numbers of auxiliary brands are attracting the global customers. In addition, Abercrombie & Fitch is using innovative stores designs in order to attract customers of different ages. Such store formats are using attractive colors, entertaining music or videos as the background environment. Lucrative interiors and perfume sprays are on the customers. Management of the firm developed exclusive sales and marketing strategy in order to attract the customers and create high brand recognition in the global segment (Engel, 2004). However, Abercrombie & Fitch are facing certain limitations in their operational policy. They are facing strong competition from the Urban Outfitters, American Eagle and Tommy Hilfiger that are limiting the market share. In addition, counterfeiting issues are faced by the firm in developing countries. Multinational set up also facing issues like racial or cultural discrimination among the employees (Bradway, 2006). IV. Performance Analysis During the last 3 years, the firm reported proper trend of financial performance in comparison to their competitor’s performance. Mainly, the competitors like Urban Outfitters, American Eagle and Tommy Hilfiger are creating stiffing market share (Bradway, 2006). Revenue generation: Revenue USD Mil 2013 2014 2015 Abercrombie & Fitch 4,511 4,117 3,744 American Eagle Outfitters 3,476 3,306 3,283 Urban Outfitters Inc 2,795 3,087 3,323 Gross profit ratio: Gross Margin % 2013 2014 2015 Abercrombie & Fitch 62.4 62.6 61.8 American Eagle Outfitters 40 33.7 35.2 Urban Outfitters Inc 36.9 37.6 35.4 Net income generation: Net Income USD Mil 2013 2014 2015 Abercrombie & Fitch 237 55 52 American Eagle Outfitters 232 83 80 Urban Outfitters Inc 237 282 232 Revenue generation segment is showing that Abercrombie & Fitch is earning higher profitability than their competitors. However, they have faced declining trend of the revenues generation during the three years 2013, 2014 and 2015 (Abercrombie.com, 2015). Urban Outfitters also faced such declining trend but American Eagle enjoyed increasing trend in the profit earning condition. Gross profit ratio on the other hand reported that, Abercrombie & Fitch is leading the segment of USA based fashion market. Net income generation reported that during year 2014 -2015 organizations are facing huge challenge as Abercrombie & Fitch and American Eagle reported with high decline of net profit. However, Urban Outfitters managed to report increased profitability (Abercrombie.com, 2015). Findings and Recommendations From the study it is obtained that the firm Abercrombie & Fitch is holding high position in the USA based fashion and apparel market. They are having the high brand value and profitability in the market share. The firm is earning high revenues than its competitors. However, during the year 2015, Abercrombie & Fitch faced huge fall down in revenue. American Eagle Outfitters and Urban Outfitters Inc. are closely encountering the firm. They are also facing the challenge of increased operational cost. Gradually, they are losing out in competition and market share development. Abercrombie & Fitch can be suggested with various remedies in order to manage the market share development and revenue generation. Online retailing or E-commerce websites must be developed by the firm in order to meet more customers. It will create higher brand recognition among the global customers. Developing global markets will provide the firm with higher opportunity of sales and revenue generation. Developing economies are least affected by financial crisis. They can use the franchising and takeover techniques to meet the competition of their closest competitors. They can introduce attractive offers for increasing expenditure in the fashion clothing segment. Complex and encrypted brand logo can be used to avoid the counterfeiting problems. They are also recommended with effective logistic and value chain system in order to meet increased operational issues. References Abercrombie.com. (2015). Investors | Abercrombie.com. Retrieved from Bender, S. (2008). The analysis of firms and employees. Chicago: University of Chicago Press. Bradway, T. (2006). Why I Hate Abercrombie & Fitch: Essays on Race and Sexuality (review). College Literature, 33(4), 223-225. Engel, S. (2004). Marketing Everyday Life: The Postmodern Commodity Aesthetic of Abercrombie & Fitch. Advertising &Amp; Society Review, 5(3), 117-124. Graakjaer, N. (2012). Dance in the store: on the use and production of music in Abercrombie & Fitch. Critical Discourse Studies, 9(4), 393-406. Lambertini, L. (2009). Firms objectives and internal organisation in a global economy. New York: Palgrave Macmillan. Lee, J., & Karpova, E. (2011). The US and Japanese apparel demand conditions: implications for industry competitiveness. Journal of Fashion Marketing and Management: An International Journal, 15(1), 76-90. Mehrjoo, M., & Pasek, Z. (2014). Impact of Product Variety on Supply Chain in Fast Fashion Apparel Industry. Procedia CIRP, 17, 296-301. Walters, B. (2008). Unamused at Abercrombie & Fitch. Film Quarterly, 61(4), 70-71. Read More