Abercrombie & Fitch (NYSE: ANF) sells its own brand of fashion-conscious clothing and accessories to a customer base that is primarily under 30 years old. Abercrombie sells the vast majority of its wares in American malls through its four different store brands (Abercrombie & Fitch, abercrombie, Hollister, and Gilly Hicks), each of which caters to different age groups. ANF generated $3.47 billion in net sales in 2010, up from $2.9 billion in 2009. ANF top competitors are Gap (GPS), Aeropostale (ARO) and American Eagle Outfitters (AEO).
Abercrombie & Fitch opened its first Asian flagship in Japan in December 2009, meaning it can take advantage of the Asian market, which has been a focus for the retail industry. However, as a fashion retailer, ANF is also susceptible to changing fashion trends and increasing commodity prices.
ANF sells premium-priced apparel and accessories and through its four independently-branded stores: Abercrombie & Fitch; abercrombie; Hollister Co.; and its newest concept Gilly Hicks. As of Apr 4, 2010 ANF operated 1098 total stores across its four brands in the U.S., Canada and the U.K. ANF manufactures and distributes its own private label clothing under each of its four in-house brands. Each of ANF's brands also sells products to customers directly via catalogs and e-commerce operations.
ANF operates in one aggregate business segment.
New wealth has been developing in Asia, specifically in China and India. The retail industry has sought to get in on the ground floor of the rapid development of the area by establishing a presence in Asia. Establishing a brand in Asia, especially when spending power in the area is increasing, can have repercussions in the future.
Because the overwhelming majority of the customers of ANF's brands range from 7 to 22 years old, many are students at some level of education. As a result, ANF traditionally experiences a significant boost in sales in August as students shop in preparation for school. The back-to-school shopping season also boosts sales for ANF's competitors such as American Eagle Outfitters (AEO), Aeropostale (ARO) and Pacific Sunwear of California (PSUN). In addition, the holiday season (November and December) is a big time for retail industries as customers begin to buy Christmas presents. Many of ANF's aforementioned competitors have incorporated sales into their business models at those specific times, meaning they want to take advantage of times when shopping is at its highest and make sure their customers are inclined to spend money at their stores. Until recently, however, ANF did not incorporate sales into its pricing strategy out of the belief that doing so would tarnish the "luxury" label the brand has cultivated. When a recession hit the American economy in the end of 2008, however, ANF began to place seasonal goods on clearance to get rid of excess inventory. In addition it is currently seeking to introduce new, lower-priced items into its Hollister and kids lines.  ANF's decision to reassess its pricing strategy can help ANF to retain its customers who are feeling the pinch of the recession.
Cotton consumption exceeded cotton production for the fifth year in the row, making cotton prices increase by 80.5% from last year.  Natural disasters also severely damaged crops in many large cotton producer countries, such as China, India, and Pakistan. This led to decreases in cotton exports from these countries and increases in cotton imports as these countries sought to supplement their supply of cotton.  With limited cotton supplies and rising prices, retailers will either have to absorb these higher material costs, restructure the composition of their clothing to have less cotton, or pass these higher costs to its consumers. Higher clothing prices or lower quality clothing could discourage consumer spending, resulting in decreased net sales. However, adult or teen clothing retailers may not be too adversely affected as their clothing (which is usually 30-40% cotton based) has more flexibility in their composition and thus, costs. In addition, raising commodity prices in other areas will also raise costs for retailers. While premium price and established brands may be able to pass their higher costs to their consumers, value based companies may not fare as well and may suffer from lower profit margins.
ANF competes with a bevy of apparel and accessory retailers competing for the 14-30 year old demographic. ANF has consistently been at the top of its sector in terms of profitability and sales. As a point of reference, the approximate average price for a pair of men's jeans at Abercrombie & Fitch is $80 compared with $45 at American Eagle, $25 at Aeropostale and $50 at Gap.
Abercrombie & Fitch's competitors include: