Abercrombie & Fitch and Next: Fashion Management Examination - Case Study Example

 Abercrombie & Fitch and Next: Fashion Management Examination Responses Expectation Exam Question #1 Abercrombie & Fitch have experienced consecutively-increasing sales volumes every year since at least 2002 (A&F Briefing, 2008: 41). This would tend to suggest that macro trends are not necessarily impacting sales in a negative fashion, at least not to the degree where the company is witnessing sales losses leading to financial problems for the firm. However, there are four specific macro trends which, in some capacity, affect the performance of A & F: Rising costs of foreign labour, global perspectives on corporate social responsibility (CSR), international pricing expectations and consumer behaviour patterns for the young target markets. The rising labour costs are due to the increase in middle class consumers in Asia who, either by foreign governmental mandates or increasing skills development, are demanding higher wages. In addition, the lack of raw materials (likely due to high competition manufacturing in other foreign countries) pushes up these operating costs. Though A&F has been able to establish low-cost overseas manufacturing, total costs of payroll have risen consecutively 2003-2005. Obviously, the cost of raw materials and labour impact the pricing structure of their merchandise as well as their total annual profit figures. Black & Forrester (2004) also suggest that as developing nations increase their total available labour, wage increases are becoming of more concern, especially to American companies who are receiving less profit due to a weakening dollar (in relation to funds conversion). Differing foreign opinions about social responsibility also greatly impact their total profitability. Because A&F tries to hire only good-looking, young men and women to work in their stores, many cultures find these practices to be against anti-discrimination laws, which have cost them finances through lawsuits and other disruptive social protests. Religious protestors who proclaimed A&F to be promoting homosexuality managed to have the company’s 2003 Christmas catalogue removed from circulation because of the homo-erotic images. Working against individuals who are concerned enough about their advertising to protest likely, in some fashion, impacts total sales revenues where these protests occur. It appears that initial pricing policies in the new UK store also sparked controversy, especially when comparing the exchange rate of currencies from British pounds to the American dollar. The higher prices attached to the European fashion line reflects scrutiny on behalf of some European consumers who believe that A&F is gouging UK customers with unfair and inflated prices to satisfy any profitability concerns in the European expansion initiative. This is accomplished to offset the operational costs associated with international operations. However, there are likely individuals who are not willing to pay prices that are considerably higher than what is sold domestically (in the U.S.). This may spark A&F to reexamine its pricing policies associated with UK merchandise in the event of diminished sales volumes in this country. The aforementioned is tied into consumer behaviour patterns in Europe which may not be as similar to that of the U.S. consumer as they originally believed. Boone & Kurtz (2007) identify a concept known as the VALS2 psychographic segmentation strategy which identifies youths in the target segment at A&F as being Strivers, or those who are image-conscious, carry high credit balances and spend excessively on clothing and fashion merchandise. Though the company’s research has shown a high approval rating for the Abercrombie & Fitch brand of merchandise in the UK, if sales volumes decrease they may wish to examine how to best target the Striver mentality in Europe to link image with price as a measure of quality. However, since A&F has only been in the UK for a short period of time, and their sales are strong, this would be a contingency plan in the event of repositioning products or creating marketing efforts geared toward those willing to pay high prices for the projection of personal image provided by A&F. Expectation Exam Question 2 It is clear that A&F is a company worthy of benchmarking for utilising minimal external advertising and still managing to create a powerful brand image. The company uses the public relations angle to create promotion of the A & F brand by linking attractiveness and achievement with the brand in order to satisfy consumer needs for personal affluence and indulgence. Using sexy male and female models for the majority of its in-store concepts and print literature always appears to create some sort of public backlash, but the company utilises this PR to emerge victorious. It is a likely assessment that individual consumers of their target segments value beauty and image as primary goals for lifestyle. Thus, each time these semi-clothed, attractive men and women create controversy, it puts the image of A&F as a sophisticated and sexy brand into the minds of consumers who hear about the controversial PR. In fact, it would seem that the media attention that their efforts receive are more powerful than any advertising or promotional literature they could generate. Their marketing communications take the form of slogans, such as the T-shirt which reads Who needs a brain when you have these? (in reference to the physical attributes of the female clientelle). These risque and sexually-charged merchandise statements create the word-of-mouth advertising they require, but seem to always manage to create media frenzy. Hence, all of the aforementioned would seem to illustrate that A&F delights in creating the image of rebellion and teenage angst, apply this methodology to their merchandise and minimal promotional efforts, and essentially wait until their desired markets are lured by the controversy. It would seem that the company has used the public relations machine to make the clothing synonymous with teenager and young adult psychology, as these are the developmental years in which youths begin to seek out their own identity and break free of parental values (Morris & Maisto, 2005). One need only engage in conversation with today’s youths in the segments desired by A&F to realise that they value body and looks. A&F capitalises on this by using select in-store attractive people, creates controversial slogans on their A&F merchandise and basically wait until the media (or consumer protests) bring A&F into the public consciousness, likely appealing to youth desires to break free from conformity and the values of older individuals. As a multi-channel retailer, two specific messages tailored for each target group and the methodology behind promoting them can be created. The A&F brand is targeted at the consumer aged 18-22, positioned at lifestyle and attitude (A&F Briefing, 2008: 5). Having previously identified that the period of 18-22 represents a time of independence and original thought on behalf of this demographic, a custom-message used in print advertising stating simply, Break Away, could be developed utilising an attractive male or female model sporting an A&F top. This individual could be depicted as tearing away from an older person in desperation (of course utilising an attractive model and a bold A&F logo, with computer-generated distortion following them to represent speed and the relentless pursuit of finding oneself outside of parental influence. This particular message could be utilised in print advertising or in-store visuals. This would further create the perception of A&F as a rebellious, lifestyle enhancement tool which represents the pursuit of individuality and the redefinition of moral values. Utilising their well-developed website as a tool for delivering an appropriate message would also be viable. A simple statement such as You want it, could be attached to photographic visuals of attractive male and female models and associating it with particular merchandise that is either not selling well or for which A&F requires higher sales volumes. Such a campaign would appeal to beauty and lifestyle, which could be delivered solely online to reduce any external promotional costs. This statement would identify attractive youths with the A&F brand name whilst staying in proportion to their time-tested methods of boost sales through marketing. If the company noticed that its online merchandise associated with the You want it campaign was successful, production efforts to have this slogan printed on various tops could utilise in-store marketing to give the A&F brand even more solid identity and brand preference for youths attracted to this multi-channel marketing effort. Expectation Exam Question 3 Market saturation is represented by the notion that a particular product either maintains high competition or individuals in a certain region will not buy a product at its current price due to any number of economic conditions (Boone & Kurtz, 2006). For instance, if the UK consumer had a pre-existing loyalty to a different brand name and continuously shopped at a particular store, this would be a saturated market, making it difficult for A&F to effectively reach their desired target segments. A&F, fortunately, has created an international brand with a rather unique identity that appeals to a particular group of 18-22-year-olds. Yes, the local region maintains many clothiers where individuals can buy less-expensive sweatshirts or jeans, which might suggest that the UK market is already saturated in this type of merchandise. However, A&F has utilised its strong brand identity and its growing consumer loyalty for its merchandise to avoid being out-performed by other youth-oriented clothiers. Clearly, there is a high demand for A&F branded products in the UK, due to their ability to create a positive consumer image based on lifestyle and attitude, which is something other fashion merchandisers have likely not been able to accomplish. Hence, they are less-affected by what might be considered a saturated European market because they have already established a consumer perception of quality through price and reputation. It does not appear that, in the short-term, A&F brand will begin to worry about a saturated market, that is, unless another aggressive clothier creates their own unique marketing efforts which create a new lifestyle brand that outperforms A&F. It appears that customers in the UK are willing and able to purchase A&F products at their current price point, despite any initial opposition. However, if the company were to discover a saturated market in the UK specifically, the firm could attempt a multi-level marketing scheme. Such a marketing effort would involve hiring external distributors (or individuals) who can attend A&F trade shows or other public forums where the desired market segments would frequent. This type of marketing can be uniquely tailored, using a variety of external groups, who can market directly to the consumer rather than through costly print/visual advertisements. Spin the proverbial wheel to win a quality A&F top would be part of a multi-level marketing campaign. This would allow individual target consumers to touch the merchandise, experience the excitement of external agents, and become further interested in A&F when the market is a highly saturated environment. A second strategy would be to deploy a window of opportunity analysis. A.T. Kearney (2007) suggest that this analysis is appropriate for saturated markets by identifying contingency opportunities to move into a less-saturated environment with relative ease. This opportunity analysis identifies all of the known countries, according to their current rate of development and consumer-related economic stability, providing new expansion challenges for less-developed markets. The window of opportunity analysis illustrates which markets are more mature for retailing and which countries would be best suited (on a point scale) for a new retail entity. Hence, if Bolivia (as one example) maintained a high volume of consumers looking for new fashion apparel, A&F could strategically place a number of its catalogues and other print advertisement prior to market entry. A&F is meeting the challenge of potential market saturation very well. They have been lucky, in some respects, as what might have been considered negative PR actually put the firm on the map as a quality lifestyle brand for the young adult consumer. Their constant revenues increases highlighted in the case study brief (year to year) supports this assumption. It seems that the company is constantly evolving its marketing efforts based on consumer preferences and consumer behaviours, which further suggests the existence of A&F as an adaptable brand. Assuming that their target segments are also flexible in their pursuit of finding personal identity, this evolving mentality at A&F fits with the needs of their markets. By clearing old stock and constantly re-inventing the display methodology in-store, the company prevents consumers from finding A&F as a stale or “has-been” brand that keeps up with their busy lifestyles and preferences. Because of this adaptability they are able to thrive even in highly saturated markets like the United States. Expectation Exam Question 4 Multi-channel retailing is utilising different methods by which to offer merchandise to consumers. In-store merchandise, catalogue ordering, and website ordering represent multi-channel efforts. A&F has found considerable growth both in the creation of their colourful and innovative website and by creating sensory experiences in-store. Now that A&F has moved into international markets, the multi-channel retailing is quite important to the firm because each channel brings in different levels of revenue based on how they choose to market their merchandise offerings. If the company only used in-store methodology as their singular channel, they would likely not be able to appeal to the wider demographic, thus losing sales revenues. Their multi-channel efforts offer flexibility to busy consumers (such as through catalogues and website ordering), offering incentives for convenience to these customers. As the firm has experienced high sales increases every year, it is clear that multi-channel marketing is working effectively at A&F. The only exception to this is that supply strategies are affected somewhat negatively. When you have a broader method by which to offer merchandise, this requires maintaining higher volumes of inventory for website delivery as opposed to in-store stock. The case study illustrated higher costs associated with raw materials unavailability, which impacts their ability to maintain high levels of stock for each retail channel. This pushes up the operating costs of doing business, however it would appear that A&F offsets these costs through the higher sales volumes their multi-channel efforts bring. Expectation Exam Question 5 Relationship marketing might be a quality effort at A&F in an environment where waning consumer confidence and other personal costs are high. Relationship marketing builds long-term relationships with customers by increased customer service, quality and responsiveness (Boone & Kurtz, 2006). Customer-relationship software, which maintains information about customers, could be utilised to create a direct marketing approach via consumer mail services. In addition, because they spend so much on their website, they could create an interactive virtual model on the site which can be utilised to “try on” virtual merchandise to ensure a proper fit, which many companies are now doing today (Siegel, 2006). These plans would provide customers with enhanced levels of perceived customer service and boost confidence in consumers who might be concerned about online purchasing. The direct mailings would promote individuals as specialty or preferred customers, entitling them to small discounts for visiting the store. By further highlighting the importance of having a total relationship with A&F, sales revenues would likely increase by appealing to the target consumers’ need for image (preferred customer). The push for virtual mannequins online could also affect the strategic position of A&F as it would keep distribution costs lower for in-store merchandise by making the website’s high customer service and convenience a primary outlet for ordering products. This would likely reduce some of the logistics costs of moving in-store merchandise heavily on a regular basis. Expectation Exam Question 6 The case study does not identify issues of security and building consumer confidence in the virtual sales environment. However, the firm has established several technological changes which give them greater control over accounting for inventories and merchandising expectations. These efforts likely give A&F higher efficiency in ensuring adequate stock levels, to avoid consumer backlash in the event of online stock shortages. Their tracking technologies, such as the SKU scanner, would report immediate inventory quantities at their distribution centres and in-store. This would likely give the customer a snapshot of availability, preventing any delays in the receipt of their desired merchandise. However, other than these tools, it would be impossible to speculate on consumer-oriented technologies which exist as they are not highlighted in the case brief. It does appear, however, that A&F is working toward a more coherent system of supply chain management which will directly impact the end user: The customer. Increasing supply chain efficiency in relation to merchandise quantities would likely eliminate some payroll associated with manual staff inventory counting processes. HR- A&F has a very strict recruitment strategy: Attracting and recruiting nice-looking men and women in order to fit their brand positioning strategy. A&F maintains its brand image and brand loyalty by appealing to the youthful obsession with sex appeal, independence and attitude. The workers selected are generally fit and in-shape, which the firm believes would undermine their brand if they were to select less-attractive youths. These in-store staff members are part of their marketing campaign, since they have no external advertising strategy currently. Human Capital – Unlike other industries which work to develop staff capabilities, A&F considers the model-like characteristics of their staff members to be their primary contribution as human capital. Capitalising on good looks and youth. Retail- Flagship store – The flagship store in London is smaller than the American flagships (A&F Briefing, 2008). In order to keep with the brand’s image, it was opened in a historic building with a rich history, reflecting the company’s core values. Inside the environment is filled with loud, youthful music – accompanied by large-scale photos of beautiful people adorning the walls. Murals are painted of nice-looking youths in a variety of activities to reflect the company’s corporate values. Multi-channel retailing – The company utilises a catalogue, a highly-developed website, and bricks-and-mortar retail facilities; both flagship stores and mall concepts. Because UK customers are believed to discover and relate with the brand’s image via the Web, the UK website was developed to fit the demographic profiles of young adults in the UK. Distribution strategy – High raw materials prices and increasing labour costs on foreign manufacturing facilities drive up the prices for its new international (UK) customers. A&F maintains a higher profit margin due to their many clothing manufacturers in foreign nations. However, their supply chain costs have risen each year due to various issues of labour and the cost of materials due to competition demand. Marketing- SWOT – Their significant strength is in their ability to use word-of-mouth and in-store marketing to create a strong youth loyalty to the brand. They also achieve a significantly-high profit margin and ability to raise clothing prices due to their reputation of quality and youth attitude. Their major weakness comes in the form of media and social protest to their “sexy” marketing and recruitment efforts. In addition, a strength comes in the form of their marketing using slogans that best befit their brand’s attitude which is printed on their constantly-revolving merchandising strategy. Significant opportunities have opened for further expansion into other nations, as the company realises that their website and reputation maintain the ability to draw additional customers from overseas. Their largest threat is from other fashion clothing brands which are starting to saturate their desired international markets. PEST – A&F has issues with political forces both domestic (U.S.) and international. Various international laws regarding labour requirements cause them financial crises. They are also served with lawsuits regarding their questionable recruitment (discrimination) policies. Positive economic issues include quality infrastructures in all of their locations, including U.S., UK, and Canada. Negative social issues include protesting groups who believe they are exploiting youths and discriminating against youths who are not in top condition or beautiful. Their positive social issues include a strong loyalty based on the desire for beauty and attractiveness by most international demographics of their desired market segments. Retail merchandising systems, visual merchandising systems, and scanning devices add to the positive aspects of how technology improves their total profitability and creates a system by which to effectively manage new and old merchandise volumes. GLOBAL MARKETING – A&F maintains the same marketing strategy domestically and abroad: No external advertising. They focus on brand image and their core values for attitude and sex appeal to all customers worldwide. International Development – Their recent expansion into Canada and the UK illustrate their focus toward growth and profitability. They rely on their multiple websites to attract and retain many of their desired markets. They are new to international operations, which might suggest they will take lessons from the performance and profit of the UK before opening their store in Japan in 2008. Design- There is nothing to discuss in design as it is not mentioned at all in A&F case study. However, their positioning strategies have not been redeveloped for international or domestic customers as they always reflect their core values regarding sex appeal, youth and quality. IS- Their e-commerce strategy relies on a heavily developed website that is exclusive for each market environment. The UK website was separated from domestic .com sites because of media backlash regarding pricing differences between U.S. and UK customers. To avoid transparent pricing objectives, they developed separate websites. (They raise all prices for UK customers due to their supply chain costs and demographic demand for their A&F brand). PR- A&F maintains a significant strength over that of competition: They are able to create positive public relations simply by allowing the media and society to protest their brand strategies. For instance, when society protests about their unfair or discriminatory recruitment policies, the end result is capturing media attention by youths who are delighted by the in-store model-type associates and sex appeal. By offering the image of rebellion against social values regarding corporate social responsibility, they are using PR to establish a connection with youths who value these same motivations. A&F, as part of the six-point model for public relations, identifies their stakeholders (society and staff) to create a positive connection with public value systems and those of their desired target markets. Recommendations: A&F could utilise its public relations “machine” much better if the company were willing to perform low-cost, external marketing and promotion. Their profit margin each year (increases) tends to illustrate that if an area becomes saturated, they would be able to utilise trade shows or other venues in which hired, attractive youths allow potential customers (in their desired market segments) to touch, feel, and experience the merchandise of A&F. They could make their recruited male staff members parade shirtless in these external venues in the event that they wish to expand their target markets to a different demographic. A&F might have a difficult time positioning their brand in Japan and China, due to the professional acknowledgement that many young consumers in these regions are not sophisticated in relation to luxury clothing merchandise. It is recommended that they perform considerable market research and analyse consumer data prior to market entry. A&F maintains much flexibility in relation to marketing. They have established A&F brand as a quality and rather innovative brand which appeals to the youth demographic. However, evidence suggests that older individuals are looking toward youth and sex appeal as a lifestyle decision. Thus, in the event of saturated markets or profit slippage, A&F could appeal to this older demographic (30-45), utilising in-store model-type associates of an older category to reflect their diversity. This potential initiative could also reduce their lawsuits and social outcry regarding their recruitment strategies. Bibliography A&F Briefing. (2008). ‘Stage 3 Case Study Examination – Briefing”. The London College of Fashion. 28 January 2008. A.T. Kearney. (2007). ‘Growth Opportunities for Global Retailers’. The A.T. Kearney 2007 Global Retail Development Index. Retrieved 14 January 2008 from http://www.atkearney.com/shared_res/pdf/GRDI_2007.pdf Black, J. & Forrester, A. (2004). International Marketing Strategy. Blackwell Publishing. Boone, L. & Kurtz, D. (2006). Contemporary Marketing. 12th ed. United Kingdom, Thomson South-Western. Boone, L. & Kurtz, D. (2007). Contemporary Marketing. 13th ed. United Kingdom, Thomson South-Western. Morris, C. & Maisto, A. (2005). Psychology: An Introduction. 12th ed. Prentice Hall. Read More