Retail Marketing and Logistics at Abercrombie & Fitch - Case Study Example

 Retail Marketing and Logistics Introduction Abercrombie & Fitch, an upscale clothing company appealing to a specific, youth demographic, is currently facing a variety of internal and external situations which serve to enhance competitive advantage and strengthen the return on investment for the firm’s marketing campaigns. Though a U.S.-based corporation, Abercrombie & Fitch (A&F) has expanded its product line into the international marketplace, establishing a reputation as a quality clothes producer in the United Kingdom and abroad. As of March of 2007, the company maintained over 530 stores, appealing to the youth aged 17 to 22 as a primary target audience. This report identifies the current positioning strategy of A&F, explores the competitive environment facing A&F, describes the logistics methodology of the company and proposes recommendations for future improvements for the company. Company positioning strategies Abercrombie & Fitch targets the youth demographic who are actively able and willing to purchase the company’s merchandise. A&F considers itself an aspirational brand (Kaufman, Casey & Saranow, 2008) with a wide variety of clothing designed for the well-fit and beautiful, youth-focused customer. Abercrombie’s positioning strategy includes exclusivity, utilising promotion, word-of-mouth advertising and creating perceptions of quality and sexy products. A&F capitalises on the aspects of product exclusivity by actively admitting that only a particular type of client should or deserves to be fitted in their clothing. In terms of pricing, as an element of the retail marketing mix, A&F has a superior competitive advantage as the company is able to market its products at a much higher per-unit price tag than other competitors in similar market environments. Their largest competitors, the Gap and American Eagle, provide similar merchandise at, generally, half the price (A&F Annual Report, 2006). How is this accomplished? It is all marketing focus and understanding the needs of the company’s target consumers, something that most of the firm’s competitors have been unable to achieve. The firm’s casual luxury philosophy creates clothing with phrases such as Life is Easy when You’re Good Looking Like Me designed to appeal to consumer vanity and personal decadence. In fact, the company essentially sells the entire as a product, utilising attractive male and female models with perfectly-toned bodies as greeters to welcome customers. When in-store, the business turns the lights down and the music up to make the in-store experience a total fashion and cultural experience (A&F Case Study, 2007). This entire concept of product delivery, as a successful element of the marketing mix, provides the youth perception that buying from the retailer adds a stamp of approval to their unique, youth-focused lifestyles, granting consumer perceptions of the utmost quality. This, above all reasons including distribution strategy (which will be identified further in this report) is the justification for high sales volumes leading to rapid international expansion. There is very little spending in terms of promotion, as the company allows its recognisable brand name clothing and consumer attitudes to do most of the promotion for the company. However, the positioning strategies of quality and youth luxury utilise a wide variety of visuals in-store and in other print media. Generally, the advertisements depict shirtless young men and well-groomed, attractive young women in a variety of pictures scattered about the business like gigantic mural artwork. In the London flagship store, a 30 foot by 100 foot mural was adorned to the front of the building, illustrating pictures of teenage boys wearing nothing but a provocative pair of blue jeans. This sends off the consumer perception of not only quality, but a company that stands out in terms of competition with its larger than life promotional billboards and signage. Through in-store visual merchandising and promotion utilising beauty and youth, the company achieves superior sales volumes and multiple opportunities for growth. A&F leadership utilises perceptual mapping to maintain an understanding of their customer’s preferences so as to pinpoint where competitors lie in similar markets. The company considers itself well-suited to be considered urban cool, mapped into the high price luxury retail category at the same time (A&F Case Study, 2007). This also puts them into competition with the likes of Tommy Hilfiger and Ralph Lauren, two very high-priced fashion outfitters. Despite the many challengers to dominating this clothing market, A&F has managed to emerge a leader in consumer understanding and product positioning, creating well-established and highly-recognised brand names and brand recognition the world over. The focus on exclusivity as positioning strategy should not be undervalued for A&F as it is likely contributed to the majority of the company’s successes. It is important to understand its leadership philosophy to further understand how the company is able to maintain quality relationships with customers. Even its leadership is somewhat daring and provocative in their publicised statements with one leader indicating that Abercrombie creates an in-crowd feeling and that only some people deserve to wear the company’s brands (A&F Case Study). This attitude which is reflected from the highest levels of the company leadership hierarchy create a unified vision as a brand which wishes to remain exclusive and should only be experienced by the beautiful and well-developed. This is likely a tactic to further reinforce the company’s philosophy of luxury positioning and attitude by illustrating that Abercrombie & Fitch will work to satisfy the in-crowd only. A&F is an exclusive brand, carried only in their wholly-owned in-store locations across the world. By not distributing products to mass retailers as a means to expand the brand, the company is able to maintain its exclusive appeal and avoid excess costs for extended distribution to remote sales locations. This is highly important in an economic climate which is currently experiencing negative growth and the future of sales is always in question (Davison, 2008). The company’s overall focus on exclusivity is, in many respects, the whole of their competitive advantage which is attributed to brilliant marketing strategy and a well-developed, thoroughly-researched map on consumer attitudes and perceptions. The competitive environment As previously mentioned, the largest competitors for A&F are the Gap and American Eagle. Hotter, youth brands such as Hollister and Eddie Bauer, also serve to potentially erode the firm’s market share (A&F Case Study). There is little evidence, likely based on Abercrombie’s devotion to exclusivity, that relationship marketing is utilised by leadership to build competitive advantage. The company does not appear one which takes on partnerships or dual-promotional activities, which might well send the message to other competitors that it does not need this as a means to succeed or benchmark internal processes. The aforementioned does not mean that A&F does not understand its competitive environment, as the firm does recognise various opportunities and threats proposed by competitor activities. However, again, it does not appear that any competitors have been able to position their products in a method that is superior to A&F, allowing Abercrombie to capitalise on their price position and reputation as a clothing leader. It is highly appropriate for this analysis to recognise that marketing is the most crucial competitive advantage for A&F, one which has brought on noticeable growth in the company in the last five years when other retailers have faltered in troubled economies. In terms of supply chain, A&F works with contractual agreements with overseas clothing producers in Asia, with a system of distribution whereby the clothing is manufactured in these facilities, delivered by seafaring vessels and distributed by land at the point of destination. This is a relatively common model by which retailers operate, giving A&F no noticeable strategic advantage in terms of distribution. The lack of external retail sales environments minimises the physical movement of materials, pushing down distribution costs. However, A&F acknowledges issues arising from an overseas production philosophy such as rising labour costs in Asia, raw materials price increases and rising foreign demand for A&F products (A&F Case Study). These are not costs which would be felt exclusively by Abercrombie, but would also be passed on to other competitors utilising an overseas manufacturing model. One superior advantage for A&F, likely contributed to their superior marketing strategies, is the company’s ability to perform in a market where changes in consumer shopping patterns have not negatively impacted the company’s sales volumes. It is an essential role for retailers to routinely scan the internal environment to witness patterns in consumer spending, either by analysing financial data or observing the sales environment. A&F acknowledges same store growth year-by-year, making consumer growth in spending a strength for the company. Again, utilising luxury-based positioning and exclusivity as the main company focus, the firm’s marketing strategy draws new customers routinely which compensates for any lost sales (A&F Annual Report, 2006). The company’s marketing focus involves company logos and sassy, sexy phrases on its clothing lines and this philosophy receives no alterations in total company position which has not driven sales volumes downward. In essence, Abercrombie & Fitch has found the perfect consumer message and is able to ride out the economic storm without being impacted negatively by changing consumer spending. There is, however, an existing threat to A&F in terms of potential sales slumps which involves the image being portrayed in a variety of media. Special interest groups and ethnic groups alike have called for boycotts of A&F merchandise due to perceptions of the company degrading young women or producing politically incorrect merchandise (A&F Case Study). Their focus on youth and beauty has also angered less-developed youths by not producing clothing in X sizes for the fashionably plump (Ritson, 2008). The company has faced both litigation for their marketing visuals and risque catalog pictures, allowing the company to erode future sales potential in the larger-sized consumer. It is a common understanding that basic human psychology is an element to understanding the customer appropriately, thus reactions from the less-endowed youth or special interest group will likely lash out as the firm’s focus on exclusivity. However, there is evidence that the company has been able to weather this controversial storm without experiencing any noticeable changes in consumer spending for A&F merchandise. It is highly crucial to recognise A&F superiority in most aspects of merchandise strategy, marketing strategy and overall selling strategies as they have made the company a leader in innovative marketing principles and sales volume for similar clothing varieties. Relationship marketing as a function of good business practices is the fundamental principle on which A&F operates. From the greeter to the sales floor, the company recruits only individuals with an appealing exterior who add to the in-crowd appeal of A&F stores. The in-store visual merchandising campaign and the lure toward beauty and sass is the foundation of their relationship marketing campaign making the organisation appear to be more of a club where cool people hang out than a retail outlet. The notion that A&F understands its clients is the only noticeable element of relationship-building which has worked to provide A&F with longevity in retail sales. Logistical strengths and challenges Abercrombie & Fitch spent nearly $25 million (U.S. dollars) in 2006 and more in 2007 for improvements to technology as a means of running a more efficient business (A&F Case Study). These new technologies updated merchandise planning, sourcing and physical distribution as a long-term cost-savings strategy. Purchase order generation and store replenishment systems were also implemented to streamline the process of buying and manufacturing efforts. All of these improvements were integrated into an entire Business Intelligence System whereby floor display models and inventory are coordinated in a singular software system (A&F Case Study). The improvements in lead time from manufacturer to the selling floor were measurable as well as coordinating merchandise when in-store. Additionally, the company is now utilising hand-held scanner, SKU technology to track materials movement in real-time, starting at the manufacturer (A&F Case Study). This electronic bar-coding system gives the company instant tracking data, allowing purchasing and other divisions of the business to work together to create a workable and comprehensive plan of distribution. The outcomes to all of the aforementioned system upgrades are more satisfied customers who can be ensured of a well-stocked in-store experience and the recognition that the business is equipped to change its product line efficiently in the event of new styles and fashion seasons. Because the business maintains a much higher price position than other competitors, the capital produced by higher sales volumes and profit per-unit allow the business to streamline using advanced and quality technologies for business improvement. Interestingly, two European competitors appear to be creating risk to Abercrombie & Fitch: H&M and Zara (A&F Case Study). These two competitors have a fast-fashion method of product movement which rapidly change the scope of inventory availability, likely delighting the customer who is looking for new fashions routinely. This pressure in the European markets has forced A&F to consider rapid replenishment issues and distribution to keep pace with fast-fashion clothiers. This risk is being overcome by technology improvements which ensure a more efficient logistical system however if fast-fashion becomes the hottest consumer trend which begins to erode sales, replenishment will be an issue in more than just the European market and will require adjustments, likely, to distribution strategy. In terms of threats posed in the logistical aspects of A&F, they are few and far between and there is little evidence that the company is concerned about large-scale adjustments to logistics strategy. The company utilises a four-step model by which the material is entered into inventory electronically at the point of manufacture, scanned en route, scanned as delivered to distribution land vehicles and finally documented at the point of drop-off (the A&F outlet). Perhaps as demand in Asia increases and competitors begin to overload the overseas manufacturing chain with large-scale purchasing requirements A&F would see a threat to logistics, however overseas appears to be keeping pace with A&F demand, causing no noticeable deficiencies in the entire supply chain. The most tangible in-store benefit of the company’s logistics products is adequate inventory and the latest A&F fashions available without delay or interruption to business. Maintaining the software necessary to satisfy in-store demand is a superior benefit to A&F and its short- and long-term value is measurable in company financial reports year after year. Recommendations for future strategies A&F is clearly a leader on multiple levels of business marketing, operations, customer-focus and overall merchandising strategy. However, there are several opportunities for the company to experience more sizeable growth and remain a leader in the fashion retail marketplace. One recommendation involves the potential expansion of the existing target market to attract a different clientelle who are less-endowed than that of their existing customer base. Ritson (2008) describes the frustrations of X-sized consumers in their attempts to experience the in-crowd sensation by buying A&F clothing lines. A&F produces no such sizes. However, in today’s difficult economic climate, the company should be prepared with contingency plans for market expansion in the event of sales declines. The XL patron or the XXL consumer has the ability to and strongly desires to buy A&F merchandise to be a part of the in-crowd. This represents significant sales opportunity for the firm. Additionally, Henslin (2005) indicates that obesity rates are rising at the strongest pace on record in Westernised countries, with 1 in 4 young adults being technically obese in the United States and the United Kingdom. These are alarming statistics, however they do point to the growing obesity market as being a viable growth strategy for the firm, without undermining the firm’s commitment to exclusivity and fit youth lifestyles. As expansion is a key strategy for A&F, the development of the X store concept and an A&F experience where consumers can buy larger sizes of the product is a worthwhile concept. This would still segregate X customers from their base target market audience, creating a form of social competition which could rival any competitor. As an in-store bonus promotion for the X concept stores, a 40% the entire purchase certificate can be given to those X-sized consumers who sign up for the promotion and prove significant weight loss. This promotion would involve an evolution-based philosophy where X patrons can transform themselves to the A&F family by having the physique to shop in the core stores appealing to sexy and sassy lifestyles. Creating the X store would serve two distinct purposes: Creating larger market share by expanding the target audience and further empowering its core customers to perceive themselves as exclusive by creating rivalry however still attracting all desired demographics to Abercrombie & Fitch regardless of their physical condition. This would require very little change to current marketing strategy and would serve the corporate goal of company expansion and growth. A further recommendation for A&F involves contingency plans for gaining and holding existing competitive advantage. In terms of the consumer, despite the progressive and innovative marketing efforts of existing A&F strategy, it is a likely assessment that customers will eventually require new strategy to remain interesting in the company’s brands. Boone & Kurtz (2007) identify that customers often go through cycles, which can sometimes be measured using appropriate identification and marketing tools, which are predictable and not reliant on the environment. For instance, A&F could witness a shift to competitor products due to an incorrect media message (or distorted message) which erodes the positive image currently held by its target audiences. An offensive statement (unintentional) offered in press release or any number of situations can, potentially, act as the catalyst for consumer shifts. Though this is reliant on environmental conditions, it still poses a threat to A&F in the event of a consumer sentiment change. In the situation mentioned previously, A&F requires a contingency plan for repositioning in the event of consumer changes. This is just an element of good business and there is no evidence that the company has considered or is currently speculating on potential repositioning strategies. A competitor-focus positioning plan in which the company focuses on the real or essential elements of the A&F family of brands, which would not require sizeable marketing budget increases, only a shift in philosophy. For instance, an attack (within corporate reason) against competitors and the pretender type of competitor-focused positioning can give the same exclusive-minded customer a new reason to shop at A&F to avoid a non-essential experience at the competition. This recommendation is not proposing that A&F currently alter their existing marketing strategies, but to have a back-up plan ready in the event of changing consumer principles or viewpoints regarding the company. There would be, in this proposed scenario, no reason to change products, only a lean toward a different image. Having a repositioning strategy available is part of strategic planning and preparedness in situations involving the customer. However, a further recommendation, in terms of competitive advantage, is the consideration of a broader relationship-marketing campaign which moves beyond the consumer and into the competitor business environment. Willams, McHugh & McHugh (2005) describe relationship-building as a fundamental aspect of cooperative competition and, perhaps, this is something that A&F has yet to capitalise on. Exclusive retail contracts which promote the A&F brand names and the name of the new, exclusive retail partner could extend the reach of A&F without drastic changes to the supply chain. Finding the right partner for promotion and sales will create a beneficial relationship for both entities and give the business some leverage in maintaining good corporate relationships. Together, the two marketing partners can participate in fundamental CSR activities (ribbon cutting, etc) to build positive public relations momentum for the firms and allow A&F to maintain its leader position in competitive advantage. For instance, partnering with a luxury retailer in the United Kingdom would send European consumers the message that A&F has evolved further and should be respected for its commitment to becoming a superior clothing brand. It is clear that marketing is the most successful aspect of Abercrombie & Fitch successes and there are many opportunities available for the company to be successful using these same tools well into the future. An adjusted logo as part of visual and psychological marketing is just the window-dressing needed for A&F in the event of changes in consumer spending and preference. Social and political changes in the consumer living environment could alter perception about clothing, perhaps with a shift from the exclusive to the humane, allowing A&F to capitalise on green elements of their corporate philosophy as sexy and sassy environmentalists. Clearly, the consumer is a vital risk and opportunity to the business and to maintain competitive advantage, the company must remain focused on the external business environment (through comprehensive SWOT analyses) and have improvement plans under consideration to sustain competitive advantage. Finally, product placement in television advertising is a considerable improvement in total A&F visibility. There is no evidence that Abercrombie is involved with this method of advertising and it is recommended that the company consider it. Finding the right show with the same attitude that A&F wishes to convey could be key to making the brand more fascinating and visible. Boone & Kurtz (2006) offer that brand recognition and awareness are often enhanced through product placement agreements in visual media, giving the company both the endorsement of celebrity and sending the message that exclusivity is vital to Abercrombie’s commitment to its customers. Public relations efforts, when properly coordinated, can serve to make the company’s brands a sensation instead of an experience, yet another positioning strategy should the company require one. Product placement is a viable recommendation for further strategic consideration. Conclusion The recommendations for improvement do not intend to negate any of A&F’s current successes in the fashion marketplace. The business has a sound logistics strategy, a firm understanding of its competitors and their business activities, as well as a marketing philosophy which has served to create significant value for both the customer and the business leadership. Sales volumes are within expectations of growth and the company has managed to, somewhat, build a brand which is moving into the iconic. Its strong support from the youth community is evident throughout most investor-related information released from A&F. The recommendations serve to identify potential opportunities for the business and an option for preparedness in the event of changes to the internal or external business environment. Environmental scanning on a comprehensive level appears to be the biggest success tool as the majority of risks come from the customer and the potential moves of its most significant competitors. Under all other appropriate models of retail, Abercrombie & Fitch appears to understand how to run a successful business from an operational standpoint. Changes in technology have improved these internal functions each year. No recommendations to operational strategy have been proposed. The company’s logistical systems are in-line with norms for this type of business and the company is not experiencing any significant distribution-related issues outside of what might be expected in a system of overseas manufacture. Other competitors in this type of retail selling environment have not been able to capitalise the same as Abercrombie has managed in a variety of situations, which give the firm strong strategic and competitive advantage. Exclusivity as an extension of the customer experience is working well for A&F and it is producing consumers who are proud to wear the company’s clothing brands. For any business, this is a significant accomplishment and Abercrombie & Fitch could be benchmarked for its focus on continuous improvement and marketing excellence. Bibliography A&F Annual Report. (2006). “Abercrombie & Fitch”. Retrieved 28 Oct 2008 from http://library.corporateir.net/library/61/617/61701/items/246067/2006_ Annual_Report.pdf A&F Case Study. (2008). “Stage 3 Case Study Examination – A&F”. London College of Fashion. Retrieved 6 Jul 2008 from http://fashionforward.com/recruitfile/ aberfit/article/50678. Boone, L. & Kurtz, D. (2006). Contemporary Marketing. 12th ed. Thomson South-Western. Boone, L. & Kurtz, D. (2007). Contemporary Marketing. 13th ed. Thomson South-Western. Davison, A.L. (2008). Modern Logistics and the Retail Machine. Hamish Hamilton Publishers, Oxford: 98-99. Henslin, James M. (2005). Sociology: A Down-to-Earth Approach. 7th ed. A&B Publishing, London: 287-289. Kaufman, A., Casey, N. & Saranow, J. (2008). Wall Street Journal. New York, NY: B1. Ritson, Mark. (2008). “Abercrombie has XXL-sized problems”. Marketing, London: 21. Williams, W., McHugh, J. & McHugh S. (2005). Understanding Business. 10th ed. Prentice Hall: 48. Read More