Abercrombie is going cheap as it loses its cool.
After the company announced Wednesday that its quarterly profit plunged 58 percent, CEO Mike Jeffries said on a post-earnings conference call that Abercrombie would reduce prices next year as a way to compete with cheaper retailers. In addition, Abercrombie is focusing more on outlets; the retailer opened four last year and is also testing making clothes exclusively for outlets, a first for the company, according to Businessweek.
Abercrombie has been pursuing a price-cutting strategy for the past few years, according to Eric Beder, a retail analyst and managing director at investment bank Brean Capital, "but the truth is it's not a long-term business plan," he said.
"This was once the aspirational teen retailer, and that's gone," Beder said. "The question is, how do you survive with a store layout and in some respects the infrastructure of an aspirational retailer, when you’re not aspirational anymore?"
Despite the company’s troubles, Abercrombie’s stock is climbing today, likely on the news that the retailer will buy back $150 million worth of shares. Abercrombie also reported a 2014 profit outlook that was better than expected.
This chart from Google finance shows Abercrombie's stock performance today:
Abercrombie's weak profit caps off several months of scandal, board room fights and just plain old bad news for the retailer. As Jeffries noted in a statement released with the company’s earnings, Abercrombie is facing a “challenging” environment for teen retailers. Once a staple in high school hallways and college dorm rooms, brands like Abercrombie and American Eagle are being replaced by “fast-fashion” retailers like H&M and Forever 21.
And Abercrombie's price cutting may only make things worse for the teen apparel sector, Beder said. That's because when Abercrombie sets a price, other classic teen retailers like American Eagle have little choice but to go below it.
"There is kind of a secular change in teens. Teens don't want to be billboards, they don't see the benefit as much of their predecessors in using clothing to present a certain level of affluence or style. It's more about what phone do you have," he said. "You can argue that Abercrombie, because it’s the highest-price player, kind of destroys the economics for everyone when they reduce their pricing."
Abercrombie has been plagued by a string of unique troubles. Investors have accused the company of poor management over the past year, with one particularly furious investor -- Glenn Welling, the founder of Engaged Capital -- insisting that “it is time for new leadership at Abercrombie.” The retailer ultimately stripped Jeffries of his chairman title in January, a role he’s held since 1996. The company is also in the midst of a boardroom battle with Engaged over who should fill seats on Abercrombie’s board, according to BuzzFeed.
But Abercrombie isn’t only fighting in the boardroom, it has faced criticism from customers as well. Teen activists slammed the retailer last year after Salon dragged up a 2006 quote from Jeffries, explaining that “a lot of people don’t belong [in our clothes], and they can’t belong. Are we exclusionary? Absolutely.” Jeffries ultimately apologized for the comment and Abercrombie committed to an anti-bullying campaign, but that wasn’t enough for many of its critics.
Abercrombie also came under fire for its controversial “Look Policy,” which strictly dictates the dress code of Abercrombie employees, after two Muslim women sued the retailer, claiming the company discriminated against them for wearing a hijab, a traditional Muslim head covering. The retailer ultimately changed its policy to allow exceptions for hijabs as part of a settlement with the women.