Abercrombie & Fitch: Industry, Strategic Options, and Analysis

This report provides a comprehensive strategic analysis of Abercrombie & Fitch, examining its internal strengths and weaknesses, external opportunities and threats using SWOT and PESTEL frameworks. It also evaluates the industry structure using Porter's Five Forces model, highlighting competitive dynamics. The report then discusses potential strategic options for the company, considering both qualitative and quantitative models, and recommends a suitable strategy for future growth and sustainability in the competitive retail clothing market. The analysis covers the brand's evolution, target market, and challenges in the digital age, including online presence and international expansion. The report also assesses the impact of political, economic, social, technological, environmental, and legal forces on the company's operations.

Question 1 (Internal Analysis)
Drawing on strategic capabilities models, conduct an internal analysis on Abercrombie Fitch. In
your view, are any of the core resources and core capabilities under threat? Justify your answer
(400 words)
Abercrombie and Fitch Company have roots back in 1892, when the founder members David
and Ezra started the company in New York. The company began its journey as a supplier of
camping equipment, guns, excursion goods and sports tools along with fishing rods. After a lot
of changes in the products of the company, Abercrombie and Fitch Company finally got
established in the market as retail clothing brand. By 2012, Abercrombie and Fitch Company
have grown as one of the most popular clothing brands. The philosophy of the company is
focused towards creating a unique brand experience for the customers (Kumar and Kim, 2014).
Recently the company has introduced the concept of direct-to-consumer operations and looking
forward for expansion in international market. It is important to look at the internal capabilities
and weakness of the company before making a strategy for expansion. Here is a SWOT analysis
of Abercrombie and Fitch Company:
Strengths: The strength of the company includes its vast experience in the domain of retail. It
has a clear, segmented and established target market along with a stable base of loyal customers.
The brand image of the company is well-known for providing unique store experience to the
customer. The company has successfully maintained its position as a luxury brand in the market
and customers are willing to pay premium cost to buy products of Abercrombie and Fitch. The
expansion plans of the company till date are proven successful especially the recent expansion in
England as quite profitable. The company is running 84 international stores located in Spain,
Germany, Belgium, China and Ireland since 2012.
Weaknesses: The branding and positioning of the company are quite out-dated in the digital
retail market. Due to changes in the retail shopping, the company launched the store on an online
platform which has hampered its business in the retail store and the core strategy of the company
about providing ‘shopping experience’ seems to be failed. The company has to shut down more
than 180 stores based in the US due to underperformance. The lawsuit against the Abercrombie
and Fitch in 2003, regarding discrimination during the hiring process, has developed its bad
image in the market (Koehler, 2017). The gross profit rate of Abercrombie and Fitch was
recorded to be going down in 2011. As the company missed the projected estimates of Wall
Street, the shares of Abercrombie and Fitch saw a major price decline.
Opportunities: The Abercrombie and Fitch can boost its online presence and can save the
expenditure of maintaining huge numbers of retail outlets. The expansion of the company in the
narrow and segmented market is likely to improve the sales revenues. Abercrombie and Fitch
can utilize the opportunity of celebrity endorsement and other online marketing technique to
establish a strong brand image among online customers (McCormick and Livett, 2012). The

online presence of Abercrombie and Fitch improves its functioning in the international market.
Although various online retail companies are trying to attract customers based on the discount
strategy, Abercrombie and Fitch have successfully maintained its image of the luxury brand in
the market.
Threats: The closing of the retail outlets is a threat for the company as it is conflicting to its
motto of providing ‘unique shopping experience’ to the customers. The competitors which are
operating online with seamless apps are a real threat for the company as it is quite new on the
online platform. The increasing options for online shopping for the customer may have a
negative impact on the loyal customer base of the company.
Question 2 (External Analysis)
Using the PESTEL framework, critically discuss the impact of external forces on the company.
(400 words)
The external environment of the company has a significant impact on its profitability. In the case
of overseas expansion, it is important to consider the external factors such as political aspects,
economic background of the country, technological changes, social aspects, legal formalities and
environmental forces. Here is the PESTEL analysis which discusses the external forces which
are affecting the working of Abercrombie and Fitch Company.
Political forces: The stable government of US supports the interrupted functioning of the
company. The expansion of Abercrombie and Fitch Company in the countries like Spain,
Germany, Belgium, China, and Ireland has considered the stable political situations in the host
countries. The governments in these host countries are supporting the global business strategy
and thus inviting the companies to do business on their land. While focusing the other Asian
countries Abercrombie and Fitch Company has to consider the politically stable countries like
India to ensure the secure business situation.
Economic forces: The economic growth of developing countries has supported the expansion
strategy of Abercrombie and Fitch Company. The increase in spending capacity of the people
living in developing and Asian countries has now made the Abercrombie and Fitch Company
luxury products affordable for them. During the recession period Abercrombie and Fitch
Company sustained the brand of luxury products and thus it has loyal customers who are
interested to spend more for a quality product. The changes in the economic environment,
however, affect the sales figures of the company as not every customer is interested to buy
luxury products during an economic slowdown. Thus, Abercrombie and Fitch Company will not
be able to attract new customers and it will difficult for the company to retain the existing
customers during economic slowdown due to high product prices.
Social forces: The advertisement and marketing of Abercrombie and Fitch Company are mainly
focused on sexually explicit images. These advertisements can hurt the beliefs and religious

values of some Asian countries as naked and sexual picture of women is not preferred to be
displayed on public platform (Rainer, 2016). For example- The countries with major Muslim
population often oppose the sexual content in the advertisement. If Abercrombie and Fitch
Company continue to use the same advertisement strategy among all Asian countries then it can
negatively affect their brand image. Company has to be careful about their marketing campaign
as the successful advertisement strategy in west might not work in the eastern countries
(Gennaro, 2010). The demographic dimension is rapidly changing in the world; the future is of
young people. However, due to increasing life expectancy there are many countries which have
more aging population which can be Abercrombie and Fitch’s potential customers. While doing
a rapid international expansion the Abercrombie and Fitch should consider the taste and
preferences of different customers belonging to different cultures and countries.
Technological forces: The popularity of online shopping as made it mandatory for Abercrombie
and Fitch to open an online store. The company has to improve their online advertisement to
reach more customers and make them aware about their products (Tong, 2010). The companies
which discount strategies are highly available on the online platform thus Abercrombie and Fitch
have to explore the online advertisement to grab the attention of online customers.
Environment forces: The changes in the climate have an impact on the supply chain
management of the company. The weather changes also affect the buying behavior of the
customers, for example, people are likely to buy clothes based on the seasonal changes. The
climate of the host country affects the taste and preferences of the customers and further affects
the demand and sale of the product as well.
Legal forces: The import duty and employment law of the host country are the factors which
affect the functioning of Abercrombie and Fitch in the international market. The strict law to stop
discrimination majorly affected the hiring strategy of the company and Abercrombie and Fitch
has to face the law suit due to their ‘look policy’ for the employees (Marques, 2010).
Question 3 (Industry Analysis)
Critically evaluate the structure of the industry in which the company is operating. (400 words)
The environment of the retail industry is competitive like never before. The multichannel
retailers are dominating the retail sector and due to a wide spread of Internet and popularity of
online shopping, the retail sector is totally transformed. In order to increase the profitability more
and more, retailers are moving online. However, the fashion industry, apparel stores or cloth
retailers find it difficult to provide in-store shopping experience to the consumer on an online
platform. Here is the detailed analysis of the cloth retail industry of which Abercrombie and
Fitch is a leading anchor based on Porter’s five forces model (Parnell, 2010).
Rivalry among existing players: The competition among the existing players in retail clothing
sector is quite high. The major competitors of Abercrombie and Fitch includes: American Eagle

Outfitters, Gap Inc., Aéropostale. Inc and Victoria’s Secret. The competitor companies had
captured the market in US and also rapidly expanding in the international market. The
competitors however are affecting the sales of Abercrombie and Fitch in different product line.
For example- Victoria’s Secret is a lingerie giant which has improved its business in specific
women cloth product with the help of celebrity endorsement. Gap Inc is providing high
competition to Abercrombie and Fitch in the international market.
The threat of new entrant: The threat of new entrant was low during the traditional retail set-
up. However, due to the facility of online business, the threat of new entrant is quit high in the
industry. Customers prefer the products of Abercrombie and Fitch due to its brand image, quality
of product and placement of product. But the new companies entering the market which provide
selective customized apparels to the customer are rapidly attracting the customers
(Clarke, Perry and Denson, 2012). The online platform has made it easy for the small players to
compete with the retail giant like Abercrombie and Fitch.
The threat of Substitute product: The variety and long range of apparels are available in the
market. The cost of switching from one brand to another is very low and thus the threat of
substitute is very high in the clothing retail sector. Huge numbers of companies are offering
similar kind of products to the customer at relatively low price. Thus, the customer can easily
substitute the products of Abercrombie and Fitch with some other brand.
Bargaining power of consumer: The customers have high bargaining power in the current cloth
retail sector. The numbers of options available in the market are huge, the customers can easily
get what they want in some other store (Liu et al., 2013). The online shopping options made it
easier for the customer to search for the product available across the world in a convenient way.
The customers become sensitive to the discounts and lower price. They can bargain to get a
quality product at cheap price.
Bargaining power of suppliers: The suppliers have low bargaining power due to strong supply
management system of Abercrombie and Fitch. Also, as the retail clothing industry has a larger
number of suppliers available, their bargaining power is a low level.
Question 4 (Strategy Formation)
(a) In the light of your analysis, discuss the possible strategic options open to the company.
Evaluate these options within the frameworks of qualitative and quantitative models, and
recommend a suitable strategy option to the company.
It is significant for a company to reform and revisit the business strategies periodically to sustain
in the rapidly changing environment. Abercrombie and Fitch are not an exception to this rule.
The company is working on the strategy of ‘clothes for good-looking people’ and ‘unique in-
store shopping experience from a long time. Thus, now it is essential for the company to look
forward to new business strategy to match the competition level in the retail clothing sector.

The great shop environment in the store, direct-to-consumer strategy, target to a younger
consumer, sexual marketing of the product and international expansion are some of the ways
using which the company has created a separate brand identity in the market. However, the
luxury brand of Abercrombie and Fitch has faced a drop in the share in 2011 despite
implementation of successful strategies. Due to the introduction of the concept of online
shopping now Abercrombie and Fitch should change their brand positioning and target customer
strategy to attract new customers. Based on Porter's Generic Strategies, there are three ways in
which the companies can compete in the market namely using cost leadership, product
differentiation and focus segmentation (Collins and Winrow, 2010).
The cost leadership is a strategy under which the company can sell the product at the lowest
price to attract and retain the customers. The discount stores and online purchase offers in the
cloth retail sector makes it difficult for Abercrombie and Fitch to adopt the cost leadership
strategy in the market. Also, the Abercrombie and Fitch have established the brand image of
luxury products in the market thus cost leadership strategy is not suitable for the company.
Abercrombie and Fitch Company is currently executing the focus strategy. The company has
focused target customers who are young, fit and look attractive, fit and young. The marketing
strategy of the company is aligned with this business strategy. The in-store advertisement of the
company includes the seductive women and muscular men indicating that the clothes of this
brand belong to good-looking people (Darley et al., 2010). The CEO of the company Mike
Jefferies, justify this marketing based on the term that ‘good-looking people attract other good-
looking people’ and confirm that the focus of the company is to attract the young and attractive
looking customers (Temin, 2013).
The focus strategy of Abercrombie and Fitch is quite out-dated and so as the marketing strategy.
The company has already hampered its brand image due to cases of discrimination (Punj, 2011).
In the world were people now focus on the ‘beautiful mind’ rather than looks it is better to
change the focus strategy of the company. The product differentiation strategy seems to be
perfect for the company in the current market situation. Rather than just focusing on the young
and good-looking customers, Abercrombie and Fitch should launch a product which targets the
adults. The product should be positioned in the market in a way that customer will get identified
with it. The marketing campaign should convey that using this apparel the adult consumer can
bridge the generation gap with their children and still feel young and energetic.
Another tool to decide the marketing strategy for the company is using Bowman’s strategy clock.
The Bowman’s model claim that a company can perform well then their competitors either by
providing customer satisfaction, better price or more value. The model provides eight strategies
which company can use to gain competitive advantage namely- Low Price / Low Added Value,
Low Price, Hybrid, Differentiation, Focused differentiation, Increased Price and Standard
Product, High Price / Low Value, Low Value / Standard Price (Shakhshir, 2014).

The focused differentiation strategy is found to be suitable for Abercrombie and Fitch. Under
this strategy the company can still target the consumers who are ready to pay premium price for
the product and offer a high perceived value associated with the product. The brand of
Abercrombie and Fitch is already established as luxury brand, thus it can continue to focus on
the consumer who have high income and spending capacity. The adult population in the
international market will be a suitable target customer for this strategy (Mann and Byun, 2011).
The brand is currently focused on young customer, however in the international market
especially in the developing countries the spending capacity and buying decision-making power
of adult is more than the young customer (McCann, 2011). Due to popularity and wide spread of
internet the adult customers and also available on online platform and can shop easily (Andreti et
al., 2013). Thus, Abercrombie and Fitch can establish their brand in the international market for
adult who want to feel young and energetic all the time. The adult population has become health
conscious and thus they are now getting involved in many sports activity as well as regular
exercise (Dix et al., 2010). The company can initial launch the sportswear and exercise wear for
adult in the international market to give a message of creating ‘healthy old generation’.
The next option of advertisement strategy for Abercrombie and Fitch includes the celebrity
endorsement. The literature of advertisement has highlighted the significant impact of celebrity
endorsement on brand positioning and recognition (Dix et al., 2010). While penetrating in the
Asian countries the Abercrombie and Fitch can use the strategy of celebrity endorsement to
attract new customers. The fan following of the celebrity is likely to provide attention to the
brand they are promoting which can help the Abercrombie and Fitch to establish their brand in
the new country.
As Abercrombie and Fitch have often got criticized for the sexual content of advertisement and
discrimination, the company should now focus on showing diversity through advertisement
campaign. The promotion of the product in the Asian countries should be done while considering
their culture and values. The company can use ‘real size’ model instead of ‘skinny’ or
‘objectified women’ in their advertisement to convey that beauty comes in different size and
shape (Lutz, 2013).
(b) Prepare a strategy statement that the Board of Abercrombie Fitch may find useful.
(1300 words)
Abercrombie and Fitch can use the following strategy statements while penetrating their business
in the international market.
Mission: To provide the customer with a high quality product which enhances their personality at
a competitive price.
Vision: To establish the brand as a leading adult clothing brand in the international market.

Values: Narrow down the discrimination and gain the customer satisfaction through the
promotion of brand and creating awareness about how to maintain health and stay fit in the adult
life.
Competitive Advantage: The focus differential of product and introduction of new range of
product for the adults who are health conscious and want to look young and fit.
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