Speed underlines future strategy at A&F
A&F hopes speed and accuracy will revitalise its fortunes
Teen apparel retailer Abercrombie & Fitch is making changes to its assortment, sourcing and inventory planning strategies as part of a raft of new initiatives to try to win back customers.
The retailer, which operates more than 1,000 Abercrombie & Fitch, Abercrombie Kids and Hollister Co stores, yesterday (6 November) admitted its third-quarter comparable sales have tumbled 14% and warned of a tough holiday season.
It also said it will shutter all of its standalone Gilly Hicks stores.
Blaming weak overall spending among younger consumers, company executives believe a new emphasis on greater speed and more rapid testing and reacting will resonate with teen customers who have deserted its stores.
"We are confident this approach will position us well," CEO Mike Jeffries told analysts at a briefing.
While Leslee Herro, head of planning and allocation, added: "We believe we have significant opportunities to win back share in core categories and also expand into adjacent categories."
The retailer admits it has been "disrupted" by fast fashion retailers like H&M and Forever 21, as well as pure-play e-commerce competitors such as Asos, whose on-trend, up-to-the-minute and styles contrast with A&F's more pricey yet basic lines.
Outlining the company's plans across assortment, sourcing and inventory planning, Herro said the changes have the potential to drive higher market share, higher average unit retail (AUR) price, lower average unit cost (AUC), lower redline unit mix, improve speed to market and even reduce store operating expenses.
As far as assortment is concerned, the retailer highlights the need to improve speed and accuracy. New test and react calendars will allow it to get test reads on all products before committing to bulk production, and enable it to react more quickly from time of conception to in-store.
A&F is also moving towards fabric platforming by consolidating the number of fabrics used across brands and categories, with a test underway "in one of our key categories to better understand how we would execute this at a tactical level before jumping in."
As well as a faster reaction time, platforming fabrics will help drive down costs through greater production scale.
Another key move will be to strategically supplement vendor-designed and private label products. "We are working with select vendors on a small-scale test," Herro explains, "and expect to roll this out on some of out key female categories for back-to-school 2014."
Not only will this tactic help the company react more quickly to key trends, but it will ensure "a more trend appropriate assortment," she adds.
Also key on the assortment front is increasing fashion relevance across the entire assortment, with Herro describing the ability to better differentiate existing styles from one another as "a must-do as we reduce in-store SKU count."
She adds: "We must ensure that each style we deliver is clearly differentiated from what is on the floor at the same time and what we recently had on the floor."
Testing will also "ensure we get more products into the store faster and that we get proven winners more connected to our customer."
Other attempts to revitalise the brand will include expanding its women's tops collection, as well as offering more sizes, colours, washes and fits to existing customers.
"Strategically pursuing adjacent categories" such as shoes and teaming with best-in-class brands relevant to its customers "will increase our share of wallet," Herro believes.
The retailer also recognises the need to evolve its logo business to make it more relevant to today's customer.
"We cannot walk away from the logo business, but what we also understand is that today's customer is not as interested in displaying brands as they have been in the past. Updating our logo strategy is critical and this should include finding the right balance of logo product on minimally marketed and non-marketed styles."
Sourcing and inventory
Key strategies in sourcing are focused on building strategic sourcing alliances with its most important sourcing vendors - a mindset that should bring benefits ranging from faster response times to better AUCs, and "even a reduction in work at the home office."
Reserving factory capacity in advance will also help the retailer to lock in more favourable costs.
Planning and managing inventory more efficiently is another area that should lead to improved margins. Initiatives are already being put in place for Christmas 2013 and spring 2014 that will see more strategically planned SKU counts.
Starting at the planning stage, "we are taking a longer-term view of assortment planning, looking across several seasons at once rather than taking a more seasonal-centric view," explains Herro.
"This new view will allow us to more appropriately plan the number of styles we have on the floor at any one time, as well as the cadence of when we flow these styles into the store.
"The result of this should be a reduced in-store SKU count, but we believe we are doing this in a way that will be invisible to the customer."
Other ploys to improve inventory visibility and accuracy involve testing RFID and "adjusting the frequency and cadence with which we conduct our in-store cycle count."
Stores will also be given more autonomy to sell down on items prior to marking them down, which "will allow us to improve regular price sell-through and margins."
Herro adds: "An outcome of these strategies will be to increase inventory turns, which we believe is a critical measure."
While the moves will be too late to impact the critical upcoming holiday shopping season, Jeffries believes "we now have a clear roadmap for sustainable growth in sales [and] profitability."
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