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A&F’s Makeover Mode: Chain’s New Concept May Chase Older Crowd

Abercrombie & Fitch is launching a new chain aimed at an older shopper and will open four test stores in different parts of the country this year.

One specialty retail source questioned whether talent the caliber of Kerner should be used to start up another chain, or to fix the A&F business. The company’s poor comparable-store sales performance in recent months has been largely attributable to the core A&F concept. The trend was apparent in June with A&F experiencing an 8 percent decline in comps. Both men’s and women's clothing tracked in negative territory for the month. According to J.P. Morgan Securities analyst Brian Tunick, the number of transactions was down 18 percent at A&F stores.

Hollister, however, posted an 8 percent comp increase in June.

“I think we were able to move a little more quickly in the Hollister business than we were in the A&F business to be in the trending classifications,” said Mike Jeffries, chairman and chief executive of Abercrombie & Fitch, in a response to analysts’ questions during a conference call. “This business is moving faster than it ever has before, and we had to just get our team up to get to the right pace of business. It happened slowly during the quarter, but we really saw the impact of newness at the end of the first quarter.”

While Hollister has overshadowed A&F lately, and is even said to be cannibalizing sales from its sister A&F division, analysts are not deeply troubled by the company’s performance or future, expecting to see a rebound in July sales figures. “We look for steady comp improvements beginning in July as the company benefits from new merchandise initiatives including the introduction of the premium-price Ezra Fitch line,” said SG Cowen analyst Lauren Levitan. The line will include leather jackets, priced at $390, cashmere sweaters, $178, velvet blazers, $200, and washed denims, around $125.

Analysts have also acknowledged that promotional activity was intentionally kept low, a move that negatively impacted comps, but ultimately saved margins and earnings.

One retail consultant raised another concern: “There’s been no succession planning.” While Kerner is highly regarded for having a rare combination of skill sets, the analyst noted that she has never been singularly involved in running a $1 billion corporation.

Others also point out that Abercrombie has curiously never had “a flagship mentality” unlike other chains that fight to get retail space on high-profile streets like Madison or Fifth Avenues. In Manhattan, for example, there are no Hollister stores and only one A&F store, located in the South Street Seaport. According to the source close to the company, it’s possible A&F one day will reconsider its real estate.
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