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Abercrombie & Fitch CEO Ousted: A Stock Analysis

By Madisen Siegel - Deerfield Academy

With the help of an outspoken CEO and poor planning for the future of the company, Abercrombie & Fitch has experienced steep decline in past years. We investigate why the brand rapidly loss popularity with its customers.I recall from my middle school days the name Abercrombie & Fitch carrying an air of casual coolness and popularity. Fast forward to today, and the brand previously coveted by pre-teens, teenagers, and young college kids, is now looked down upon for its discriminatory practices and selling poor quality, overpriced clothes. I decided to take a closer look at the clothing brand and the rise and fall of the company.

From the Beginning: A Hunting & Fishing Store Turned Sexy

Established by David T. Abercrombie in 1892, A&F’s original audience was the classic outdoor adventurer, selling sporting and hiking gear. The company continued selling these goods with mediocre profits, until it went bankrupt. Soon after, in 1988, Limited Brands purchased A&F and hired Mike Jeffries in 1992 to reinvent the brand. Jeffries aimed to appeal to the upper-middle class customers, and created the ideal A&F customer: a frat boy dressed in a seemingly effortless preppy and hip fashion.

Fresh Start With a New Brand Vision & CEO 

Limited Brands gave A&F a fresh start by moving its headquarters to Ohio and clearing out its entire inventory. Jeffries transformed the aura of the company so that it ‘sizzled with sex,’ while trying to incorporate some of the brand’s original ties to the outdoors. The brand became very popular as the go to "All American" clothing company during the mid-2000s, with stock prices reaching new highs. The company owed much of its success to Jeffries, and rewarded him with a $12 million bonus and a $24 million salary in 2004.

A&F on the Rise: Initial Public Offering 

A&F became a public company on September 26, 1996 with an opening price of $16.00, rising to $23 on opening day. The stock price peaked in 1999 ($48.00), 2001 ($44.52), 2005 ($72.05), 2007 ($84.23), and 2011 ($77.14). Significant decreases in stock price occurred in 2000 ($9.81), later 2001 ($17.89), 2008 ($17.85), and 2012 ($30.58). Some of these drops were due to economic events, such as the dotcom crash and the Great Recession, and may not directly correspond to poor management.

I Don’t Care About My Reputation

Mike Jeffries fixated on continuing the brand’s image in-store and maintained those same standards in the company’s hiring practices. A&F paid millions of dollars to settle lawsuits claiming age discrimination, failure to hire and promote minorities, as well as having to recall t-shirts with sexist and racist slogans. In an interview with Salon Magazine, Jeffries remarked:

"In every school there are the cool and popular kids, and there are the not-so-cool kids… Candidly, we go after the cool kids. We go after the attractive all-American kid with a great attitude and a lot of friends. A lot of people don’t belong [in our clothes], and they can’t belong."

A Risqué Image That Backfires 

With their racy and controversial catalogs, which promoted underage drinking and sex, A&F also managed to upset organizations like Mothers Against Drunk Driving and the American Decency Association. As of today, the stock price has fallen 16.06% within the last fifty-two weeks, and its market capital has decreased from $7.26 billion in 2007, to $1.96 billion in 2014.

Ousting a CEO Proves Positive for A&F 

Due to declines in sales, stock price, and market capital, as well as his flagrantly unprofessional manner in dealings with the media, which damaged the brand name, Jeffries was dismissed on December 9th, 2014. Arthur Martinez, previously Chairman of the Board at the Home Shopping Network since 2008, will assume his position as the new executive chairman.Interestingly, the day Jeffries’ dismissal was announced, A&F’s stock prices jumped up by 8%.  Though this is a promising sign, there are still many underlying flaws given the transition from higher end retail to fast-fashion. Brands such as Aeropostale, American Eagle, and Hollister are also being replaced by trendy fast-fashion brands such as H&M, Forever 21, and Zara.  Where do you think fashion trends will head next? 

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