Teen retailer Abercrombie & Fitch’s (NYSE: ANF) CEO is no stranger to making headlines. His often controversial comments certainly haven’t helped his image. But the departure of the long-time Abercrombie CEO probably has more to do with the company’s 11 straight quarters of declining same-store sales.
News broke yesterday that Mike Jeffries, Abercrombie’s CEO since 1992, would be retiring immediately. How did the market react? Shares rose 8% on the news, an especially strong move considering the current weakness in the broader markets.
Jeffries became the Abercrombie CEO in 1992 when sales were dismal. Within his first two years sales grew by nearly 100% to $165 million. Sales topped $1 billion just five years later.
But times have changed for the brand once associated with the “popular kids” in schools across America.
2014 hasn’t been kind to Abercrombie. For that matter, neither were the two years prior.
Even with the 8% surge yesterday, the stock is down 14% year-to-date and over 37% since the end of August. The company reported a 12% decline in the quarter that ended on Nov. 1, likely the final straw for the Abercrombie CEO.
To be fair, however, the dismal results don’t appear to be Jeffries’ fault alone.
Teen shopping trends are moving against the fashion retailers that cater to them. Mall traffic by teens has dropped by as much as 30% according to Piper Jaffray. As illustrated in the chart below, mall retailers such as American Eagle (NYSE: AEO) and Aeropostale (NYSE: ARO) have suffered a similar fate.
Though Jeffries is “retiring,” it hardly feels like it’s his choice. Until last year Jeffries had been CEO and chairman. Facing pressure from disgruntled investors, the board stripped Jeffries of his role as chairman. And considering that his departure as the Abercrombie CEO is “effective immediately,” it sure feels like he has been stripped of his CEO role as well.
Some analysts question Abercrombie’s ability to recover.
Eric Beder from Wunderlich Securities notes that “Abercrombie has already aggressively closed domestic locations, cut back on inventories, shifted away from logo products, and cut costs.”
Continuing these efforts appears to be part of the company’s latest rebranding efforts, along with reducing the amount of cologne sprayed in its stores, lowering the volume of the music and raising the amount of light on the retail floor.
I can’t help but feel like it is too little, too late for Abercrombie.
Teen purchasing behavior has changed considerably in the last few years. Between spending on the latest technology gadgets and restaurants, teens are now spending less and less on clothing.
Piper Jaffray reports that, for the first time in history, teens are spending as much on food as they are on clothing. The leading food retailer among the age group? None other than Starbucks (Nasdaq: SBUX).
Abercrombie’s struggles certainly can’t all be blamed on shifting teen purchase behavior. Indeed, other retailers have been thriving in recent years.
With their fast fashion and inexpensive offerings, retailers like Forever 21 and H&M have been stealing customers from the prominent brands with which they compete.
Abercrombie’s struggles certainly can’t all be blamed on its outgoing CEO. But the now-former Abercrombie CEO clearly wasn’t the right person to turn the company around. If he was, he would’ve already been successful in these efforts.
Time will tell whether the teens that Abercrombie, American Eagle and Aeropostale need will return to America’s shopping malls and again don these brands proudly. But I doubt it. I think the Abercrombie CEO’s departure is yet another chapter in the slow and painful death of this once-popular brand.
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