Abercrombie & Fitch and Positioning in Milan - Case Study Example

 Abercrombie & Fitch and Positioning in Milan Introduction Abercrombie & Fitch (A&F), a retail organisation specialising in fashion, branded products targeted at the 16-25 year old consumer demographic, is notorious for its high priced merchandise. The pricing structure utilised in its UK, US and Canadian marketplaces is based on established brand reputation with the desired youth consumer segments looking for products which fit their lifestyle appeal in relation to exclusivity and youth beauty. The company provides fashion products and accessories, competing with companies such as The Gap, Old Navy, and other brands of this calibre in the fashion industry. Abercrombie & Fitch, in the last decade, has experienced considerable sales growth due to their positioning strategies which have strong appeal for the physical beauty of the youth body and exclusivity, something other competitors both domestically and internationally have been unable to accomplish successfully. This has, historically, given A&F considerable competitive edge and has brought high profit margins from consumers who are lured by this positioning and want branded products which link lifestyle with physical appearance. A&F has just recently launched a new flagship store in Milan, Italy as an effort to improve its international competitive position and improve profitability. However, Milan is well-known for its exclusive and upscale clothing designers such as Gucci, Versace, Valentino and Dolce & Gabbana, very reputable, international players in the fashion industry (languagemonitor.com, 2009). In order to compete successfully, Abercrombie & Fitch will require unique positioning in this region as part of differentiation and in order to capture the attention of a very different consumer segment. This report highlights the positioning strategies necessary to meet the demands of the Milan youth consumer segment to remain competitive and increase internationally-driven profit margins. A&F positioning strategies Up until 2009, A&F had experienced very high profitability based on rising consumer sales, which can be attributed to the innovative marketing principles the company was built upon. However, in the second quarter of 2009, sales dropped by a significant margin of 30 percent (Watson, 2009). The company attributes these losses to lowered consumer disposable income and rising competition in the domestic and international fashion marketplaces. However, there is evidence that the brand sentiment of Abercrombie & Fitch, at the international level, is not as high as it once was for this fashion businesses, making it necessary to adjust positioning strategies to meet with changing youth buyer needs and lifestyles. The focus of A&F marketing has always been appealing to youth and beauty. A quick glance at the company’s annual reports depicts shirtless men, with very developed and muscular bodies. These images are present throughout both the 2007 and 2008 annual reports, strongly reinforcing the company’s focus on beauty and exclusivity with this youth market. The business has always been able to deliver its self-branded merchandise with a very high price tag, more so than other competitors such as The Gap which provides similar fashion merchandise to youth segments. Until just recently, this strategy has brought A&F a positive brand reputation, despite a great deal of negative publicity the firm receives for its perceived unethical promotions and catalogues which depict youths in risqué, sexually-oriented scenarios. The business has used this publicity against those who criticise the business by essentially spinning the negative buzz in a way that makes youth buyers only pursue A&F even more because of their strong lifestyle connection with beauty and youth. While other competitors position their business in terms of quality or low pricing, A&F appeals directly to consumer preferences and lifestyle, thus giving them a competitive edge in US, UK, and Canadian marketplaces. However, the Italian consumer represents a different mindset and preference regarding how they connect personal image with fashion, which requires the business to adopt a different positioning strategy in a marketplace (Milan) which is saturated with fashion competitors of multiple varieties. The Italian consumer and competitor profiles “Fast-moving consumer goods, in Italy, are often purchased by the younger demographic” (Eghbal, 2007, p.1). These types of goods define the clothing offered by A&F, therefore this represents a considerable market opportunity in Milan for building relationships with the youth demographic who are likely to make up the majority of purchases at the business. However, Milan is often considered to be the fashion capital of the globe, home to well-known and reputable fashion designers such as Gucci, Valentino, Dolce & Gabbana, and even Versace. These designers have helped to improve the relationship between governmental leadership and the retail industry as a whole, improving opportunities for removing import barriers and improving the distribution infrastructure in Italy, therefore providing even further international competition as new entrants vie for market share in Milan (alibaba.com, 2008). This growth in competition, even from more well-known and upscale fashion manufacturers, represents tremendous risk to Abercrombie & Fitch as they will not be competing with other mid-priced, casual clothing retailers but a wide variety of high-priced, high-quality fashion merchandise in this region. Consumers in Milan are used to having high-quality fashion options from a variety of upscale competitors and youth consumers in Italy are known to have very strong brand loyalty for their favourite designers and fashion manufacturers. A recent survey of over 2,000 consumers in Italy indicated that 67 percent of these consumers are brand loyal at the domestic level (Pambiancoweek, 2008). Unlike the domestic marketplace for A&F, this Milan environment is going to represent a new set of challenges for differentiation amongst competition. Brand loyalty is a concept in marketing which usually takes businesses a considerable amount of time and financial investment to achieve and is often considered to be the pinnacle of marketing and promotional success in the fashion industry. In order to compete successfully, Abercrombie & Fitch is going to have to undo some of this consumer loyalty toward domestic fashion retailers in order to build a new interest in the A&F brand name. In terms of positioning against larger and more well-known fashion retailers, A&F might have to adjust its youth and beauty focus and reposition in terms of value. Why is this? Consumer confidence in all segments of the Italian marketplace dropped sharply in October 2009 due to the global recession occurring today (EIU ViewsWire, 2009). Even though the Italian youth market is experiencing higher disposable incomes, confidence has been eroded which only makes the process of setting an appropriate pricing model more difficult. Coupled with consumers who are already brand-loyal to famous designers and fashion retailers, this Milan marketplace poses considerable risks at the competitive and promotional levels. Many of the fashion designers in Italy are already focused on beauty and exclusivity, therefore positioning this lower-priced business against higher-priced, higher-quality manufacturers will not make much sense in the short- and long-term. The heavy concentration of fashion retailers which, by price and quality, are already well-established brand names will give A&F a considerable run for their proverbial money in terms of connecting with consumers in this Milan marketplace. Additionally, A&F has relied on its sexy and rather risqué catalogue to build higher sales volumes. These catalogues depict youths, with well-developed and lean bodies, posing with A&F fashion brands in sexually-explicit scenarios. However, a recent survey identified that zero percent (0%) of surveyed consumers make purchases based on exposure to catalogues in Italy (Pambiancoweek). Additionally, this same consumer segment does not make purchasing decisions based on direct-mail promotional materials of any form, rather 87 percent of those surveyed suggested that they are drawn to innovation and presentation in window displays (Pambiancoweek). This is because in Milan, many of the buildings are centuries old and have been redeveloped for modern fashion retailing. The high volume of competition and the tight marketplace areas in Milan give these fashion designers opportunities to display their upscale goods in traditional, in-house window displays. This appears to be a common marketing and merchandising strategy in Milan and consumers are used to this presentational style. A&F, as part of their positioning, has relied on catalogues and direct-mail advertisements to lure more youth consumers and built the business around this principle. This suggests that in order to reposition the business correctly in Milan, the company will have to take advantage of in-store promotion in order to build positive sentiment from the passer-by consumer group. Further, “the Italian economy is experiencing its worst recession of the post-war era” (Oxford Analytica, 2009, p.1). This has given many consumer segments, including the 16-25 year old group which is the desired segment for A&F, pause regarding whether to spend or wait out the recession before making large-scale fashion purchases. Again, in terms of positioning, the aforementioned drop in consumer confidence in Italy, along with recession-related changes to consumer behaviour, are very strong risks to finding success in Milan. This again reinforces that the business should reposition based on value in order to build a positive reputation in what appears to be a somewhat volatile and declining marketplace. By appealing to the value that Abercrombie & Fitch fashion merchandise can provide, against higher-priced fashion designers, the company can stand out as an alternative fashion-buying opportunity to save costs in a recessionary environment and still wear famous, international brands which are exclusive to youth markets and their lifestyle needs related to beauty. The company’s annual report also suggests that growth in the online sales sector has improved from just over seven percent to over 10 percent in one year (A&F, 2008). As part of the positioning efforts currently used in the UK, US and Canadian marketplaces, A&F has relied on Internet promotion to continue to appeal to this same lifestyle need in youth markets. However, the Italian consumer is not a heavy user of the Internet, especially women, with only 35 percent of surveyed consumers indicating that they use online promotional materials and websites to make a product purchase (Pambiancoweek). In many respects, this difference in Internet usage between domestic and Italian consumers removes some of the opportunity to reinforce a new value-focused positioning strategy and sales in this Milan marketplace could be less than in other markets based on low Internet usage as a lifestyle activity. In other market environments, direct-to-consumer sales experienced an explosive 45.2 percent growth rate due to catalogue and Internet sales and the methods by which A&F is positioned in these marketing mediums (A&F, 2008, p.9). In Milan, A&F will not have the luxury of these mediums, therefore positioning strategies and heavy investment into online and print promotional materials will not provide the return on investment the company might hope for in Milan. In Canada, a marketplace much like that of the UK with similar consumer values and lifestyles, A&F reported sales which outperformed the US businesses and UK stores by 300 percent (A&F, 2008, p.5). The reason for this success is that Abercrombie & Fitch, as part of unique Canadian positioning, launched its Canada flagship store with a focus on the Fifth Avenue experience where shopping for A&F products could be compared to a trip into the high-quality regions of New York where exclusivity and quality go hand-in-hand. Again, the positioning strategy even in the foreign, Canadian market environment is geared around beauty and exclusivity, concepts which likely will not have similar success factors in Milan due to high-priced competition and widely-different consumer behaviours and values. Of interest to A&F when considering positioning strategies for the Milan marketplace is the fact that Italian consumers are often big fans of sporting events which occur in the UK and US cultures (Kahle and Riley, 2004). Abercrombie & Fitch has not utilised sports in any of their promotional materials in the domestic marketplace or the US/Canadian environments and this could be an opportunity for the company to find new lifestyle connections with a volatile youth market in Milan. Offering sports-themed products, amid a shopping environment riddled with competitors who offer nothing but quality and high price, would give an incentive for Milan youth consumers to frequent A&F in order to find the lifestyle connection they might be looking for. It has been recommended for Abercrombie & Fitch to consider a value-focused positioning strategy in Milan, therefore the business can utilise sports to create connection with foreign A&F customers and appeal to their desire for international sporting events. For example, since brand loyal customer demographics in Milan are so strongly drawn toward window displays when making a purchase, A&F can provide customers with innovative, sports-themed window displays which are changed frequently to spotlight new sporting-related merchandise. This would represent a low-cost part of positioning in terms of value and still work within the fashion retail buying and promotional systems which exist in Italy today. In this case, the idea of when in Rome would seem to fit and using creativity in in-house displays could bring significant value to Abercrombie & Fitch and also give their brand more visibility and buzz for its ingenuity in marketing and promotion. Much to the advantage of A&F, youth consumer usage of mobile technologies is a cultural phenomenon in Italy and has become the most popular communication medium in this region (Postma, 1999). Mobile technologies, today, are equipped with a wide variety of different features and services, such as Internet and email, which gives A&F an opportunity to express its new value-focused positioning by sending direct mail promotions to users’ mobile phones. Since A&F is currently operating in a brand new market environment in Milan and does not have consumer data on the Milan consumer, offering discount coupons for merchandise for signing up for mobile communications from Abercrombie & Fitch could be the first step in removing some of the brand loyalty which consumers feel toward domestic fashion retailers and also expose their brand to multiple consumer demographics through incentives-based marketing. This would be an initial step in the new, recommended positioning strategy for A&F and, perhaps, give the Milan youth consumer a new incentive to explore Internet buying in the hopes of receiving a value-focused discount coupon or special offer. This is something which does not occur in the UK or US marketplaces because of the business’ strong positioning strategy for exclusivity, however in Milan it would appear to be a sound launching pad for building a positive brand reputation and renewing interesting in Internet consumption. Also, the desired youth demographic in Milan is not familiar with the Abercrombie & Fitch brand name as this is the first store launched in this foreign marketplace. Domestically, the brand has received recent negative publicity regarding a lawsuit brought on A&F from a former staffer with a prosthetic arm. This worker was paid £8,000 when she was forced to work in the business’ store room because she violated A&F’s “look policy” (Lee, 2009, p.17). This look policy describes areas of appearance which Abercrombie & Fitch considers to be acceptable from workers in order to improve or enhance the company’s brand image related to beauty, youth and exclusivity. These negative media releases about A&F do not exist in the Milan youth consumer segments, giving A&F an opportunity to start out fresh with a low brand image, but little reputational damage (if any) in Italy. Again, the new recommended value-focused positioning strategy can be served by the lack of brand damage experienced by A&F in this new Italian market environment. Domestically, A&F is now, for the first time in its history of operations, being forced to reconsider its pricing model to offer reductions and sales because of drops in sales volumes (Talley, 2009). “Consumer spending patterns continue to be dictated by cost and value propositions, and this is clearly a headwind for our premium brands”, said Michael Jeffries, Chief Executive at Abercrombie & Fitch (Talley, 2009, p.B5). Because the business is actively changing its premium pricing model domestically, this will give the business experience with sales scenarios and discounting of merchandise at the international level. From an internal perspective, related to value-focused positioning, A&F maintains the ability to continue working on pricing structures which best fit a recessionary consumer profile and adopt these lessons into the Milan environment. Human capital and marketing expertise, in relation to pricing objectives and models, can be used with the new value-focused positioning strategy in Milan where price is now a factor related to overall brand value. With sales falling by 68 percent at the end of 2008 (Casey and Talley, 2009), pricing is a considerable factor for improving sales volumes and premium pricing models simply will not be effective domestically or in Milan where consumers need options for clothing other than high-priced, high-quality retailers like Gucci, Valentino and Dolce & Gabbana. The idea is to position the business against other reputable, upscale retailers in this area (as no other lower cost businesses like The Gap are present in Milan), therefore expressing value against competitors at the price level. Consumers who are less-confident and worried about spending in a difficult recession would likely be lured by value-focused positioning and be willing to explore A&F merchandise as fashion alternatives. By establishing a positive brand reputation for value at a time when consumers in Milan need it most, post-recession A&F might have the brand sentiment necessary to remove some existing loyalty from competing fashion manufacturers and retailers, such as Gucci. Problems and opportunities with new positioning strategy Ritson (2008) identifies that Abercrombie & Fitch tends to anger youth consumers who do not fit the physical beauty guidelines necessary to sport A&F brand merchandise. Abercrombie & Fitch does not currently produce any of its merchandise in larger sizes, such as XL or XXL. The author is suggesting that A&F is limiting its promotional reach by not offering these sizes domestically and therefore cannot gain market share from the larger consumer. However, this works with the current domestic positioning strategy where buyers are expected to be lean and beautiful at the physical level. In a new, uncertain market environment, A&F could offer larger sized clothing for the less-endowed buyer with a less-lean physique to further appeal to the buyer sentiment related to A&F as a value-conscious organisation. Though this would likely be no more than a niche market, offering expanded sizes can illustrate the progressive changes being made to brand strategy in the Milan environment and cater to individuals in a way that is unique from other domestic store and promotional concepts. Because sales volumes and profitability, today, are a significant issue for determining whether Abercrombie & Fitch can maintain longevity against competition, using larger sized clothing options for the Milan consumer can bring higher sales and also appeal to value for the large consumer looking for value-priced clothing. In most upscale fashion design organisations, XXL-sized clothing simply is not an option due to fabric pricing and their own positioning strategies related to quality, aesthetics and exclusivity related to pricing. A new focus? In UK and US markets, A&F has recently launched a campaign to provide competition to lingerie companies such as Victoria’s Secret by providing female customers with branded underwear fashions (Talley, 2008). In Milan, high-priced, fashionable lingerie has been a dominant competitive retail force with many different companies selling upscale lingerie in this market environment. However, this lingerie is exclusive related to price, giving A&F an opportunity to further express its value-focused positioning by offering lower priced, high quality underwear merchandise to the recession-impacted consumer. Domestically, lingerie only represents a small portion of the total product offerings at A&F, however in Milan it would seem that consumers would appreciate having higher selections of lingerie at a reasonable price. If A&F can procure merchandise which is similar in style and fabric to more upscale underwear fashion retailers, A&F can expand its lingerie department or sales environment to appeal to the female, youth consumer segments. This would give the business a new competitive edge and a different variety of clothing options for the Milan consumer. Domestically, A&F usually depicts young men, who are shirtless and well-developed, more so than women (Sands, 2007). Expanding the same sexuality at the female level, through lingerie advertisements and in-store window displays, might represent significant value in the minds of the female youth consumer. Conclusion The research gathered on Abercrombie & Fitch and its current demographics in Milan illustrates a very competitive environment with changing consumer behaviours over that of domestic customers. The strong brand loyalty offered by consumers to various Milan fashion designers is a competitive risk and, currently, it does not appear that current positioning strategies related to youth and exclusivity are going to be key success factors for improving market share in the Italian marketplace. By repositioning the business in terms of value for strictly the Milan consumer, it will give the company more experience in dual marketing campaigns and build a positive reputation in this new market environment. References A&F. 2007. Abercrombie & Fitch Annual Report 2007. 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