Blog: Teen dream falters
Leonie Barrie | 19 May 2008
International sales and strong demand from its teen audience have helped Abercrombie & Fitch to a 3.4% rise in first quarter profit amid a 7.8% hike in sales. But there are fears that behind this surface gloss all is not as good as it seems.
The retailer has undoubtedly been boosted by a “recession-proof” core customer – teens who are less affected than other demographics by the housing downturn, credit crunch, job uncertainty and rising food and fuel costs.
Of its five formats, this is borne out by the fact that the Abercrombie & Fitch teen apparel chain was the only unit to see a sales gain in stores open at least a year.
But while comps at A&F rose 3% in the quarter, the story wasn’t as positive at the group’s other formats. Same-store sales fell 8% at surfwear chain Hollister, 7% at the Abercrombie children's nameplate and 17% at Ruehl, which is geared toward young adults – suggesting they are failing to resonate with customers who are choosing to spend their money elsewhere.
Individually, these chains are small compared to the A&F flagship. But in aggregate, they account for more than half of the group’s total sales. And as it is relying on an aggressive – and expensive – roll-out of its Abercrombie & Fitch chain, especially overseas, to offset slowing sales at home, a same-store slowdown is not good news.
Last year an Abercrombie & Fitch flagship was opened in London, and there are now plans to add new locations in Denmark, Japan and the UK this year. In fact, 50% of the company’s business could come from international sales in the next 7 to 10 years.
There are also fears that while teen spending holds up longer, it too can eventually fold. If the economy continues to falter, not only are teens likely to get less money from their parents, but their earning capacity will go down as hiring drops.
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