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Abercrombie & Fitch Aims for $5 Billion Sales Target

by News Desk

For Abercrombie & Fitch Co., it’s been four years of rebuilding and differentiating its stable of brands, restructuring the retail footprint and striving to become inclusive and purpose-led.

Now on more solid footing, the youth-oriented company has a whole new set of goals, which were disclosed Tuesday at the retailer’s investors’ day conference — its first in four years.

Among the goals:

  • Attaining $4.1 billion to $4.3 billion in revenues and an operating margin of at least 8 percent by the end of 2025, compared to last year’s $3.7 billion in revenues, and operating margin of 5.75 percent at the end of this year’s first quarter.
  • Longer term, targeting $5 billion in annual revenues and at least 10 percent operating margin.
  • A minimum of $600 million of free cash flow in fiscal 2022 to 2025 to provide consistent shareholder returns.
  • Increasing shareholder value 3 to 5 percent through 2025.

In addition, executives see Abercrombie adults as the company’s biggest growth opportunity.

They also emphasized that the corporation has embarked on an “enterprise-wide digital revolution” centered on using data to inform decisions across a spectrum of areas, including where to open new stores, and operating more like a tech company than a traditional retailer.

Fran Horowitz, Abercrombie & Fitch CEO.
Courtesy of Fran Horowitz

“Abercrombie is back,” said Fran Horowitz, chief executive officer. “What the Abercrombie team has accomplished is truly phenomenal and rarely seen in retail.” Through it’s four-year transformation, it’s become focused on inclusivity and belonging, and “fundamentally different” from its image years ago, noted Horowitz.

She said Abecrombie generates the highest gross margin of any A&F brand, and caters to the highest income demographic of its brands; 30 percent of Abercrombie customers earn more than $150,000 per year.

Horowitz said the Abercrombie brand is aiming to add $300 million to $450 million in revenues by 2025, with key growth drivers being jeans, the “Best Dressed Guest” dress collection, and the YPB (Your Personal Best) performance collection launched last March.

Abercrombie’s brick-and-mortar strategy entails opening smaller, omni-enabled stores globally, rather than the oversize, costly flagships of the past, while continuing robust digital marketing and social selling. The Abercrombie & Fitch brand, including Abercrombie kids, targets 6 to 8 percent compounded annual growth rate over the three years ending in fiscal 2025.

Kristin Scott, president of global brands for the corporation, said, “Abercrombie adults is where we currently have the largest growth opportunity. This customer lives for the four-day weekend. Every day should feel as special as the start of a long weekend.”

The brand’s turnaround, she said, “has built momentum since. But there is still a perception that it’s just another U.S. mall-based teen retailer” with consumers unaware of the breadth of its assortment, the store changes, its laser focus on young Millennials, and that it’s become more relevant, inclusive and purpose-led, and that the women’s side of the business has grown about 40 percent globally and 60 percent in the U.S. since 2018.

“We believe we can more than double our market share in denim as brand awareness grows,” said Scott, adding that the company sees “a long runway of growth in active which is the fastest growing segment of the apparel market.”

She said Abercrombie has only 220 stores globally, including 170 in the U.S. “We have plenty of white space to grow this brand. We plan to open 30 to 40 new stores through 2025 with the potential for more longer-term.”

Carey Krug, head of brand marketing, said outsiders have been needed to tell the Abercrombie story, meaning influencers and social media channels. We’ve gone from the being the best kept secret to TikTok’s best fashion brand.” With its Millennial customer, “we do much more than just talk at them — we converse with them. We are ingrained into their lives of our customers and set up to deliver everything their life demands. Abercrombie is cool again.”

Meanwhile, Hollister, the Gen Z, California-inspired brand, is targeting a flat to 2 percent sales CAGR over the three years ending in fiscal 2025. Hollister’s plan is to open 30 to 40 stand-alone stores by 2025, and continue to open side-by-side shops where appropriate. The expansion is not limited to the U.S. Also, Hollister will be ramping up social media efforts.

Hollister is underpenetrated in key U.S. and western European markets, and has identified more than 100 locations in the U.S. that can support a Hollister, and other opportunities in western Europe, but is taking a disciplined approach to openings, executives emphasized. Through 2023, Hollister is expected to have 30 to 40 net store openings.

It is also believed that Hollister leaves 19- to 22-year-olds relatively untapped. Said Robert Zajac, head of marketing for A&F’s Hollister, Gilly Hicks and Social Tourist brands, “We have not overtly targeted this consumer yet.”

The Social Tourist is expected to more sharply target that group. Part of the plan is to bring the brand deeper into the world of gaming. Next month, Hollister is relaunching its loyalty program with “Hollister House Rewards,” which Zajac described as a modern membership program offering new benefits and services including early access to products.

The Gilly Hicks brand is targeting a 15 percent sales CAGR over the three years ending in fiscal 2025. “Twenty-twenty-one was a very important year,” said Horowitz. “We opened its first-of-its-kind stand-alone store and introduced a small assortment of men’s product. Gilly Hicks represents a significant brand opportunity. The product lives in all Hollister stores globally but we are expanding beyond the walls of Hollister.” She cited “a test-and-learn culture” to inform store growth through 2025. Active, lounge and men’s are the core categories going forward while underwear is seen growing but remaining a smaller piece of the business. Swimwear is expected to soon be introduced to the assortment.

Samir Desai, chief digital officer, said “the enterprise-wide digital revolution is touching every part of our organization. We are moving more to how a tech company operates, rather than a traditional retailer.”

“Planning teams are moving to automated algorithms and AI to drive decisions. Data is being used to know customers much better, anticipate customer needs and service highly personalized needs, and real estate teams are using data science to identify locations and store formats that will perform best.” In the last six months, Desai said, 75 people were hired in omni-customer experience, data science and software development.

In addition, the company is testing an app that figures out if a customer is inside a store or not, so the information conveyed on the app reflects that. The app will also enable shoppers to scan labels for product reviews. For someone using the app from home, a virtual try-on is being tested so if you scan your body you can virtually see how you look wearing the product.

“We are fundamentally different,” said Horowitz, giving an overview of the corporation she has led since 2017. “It’s a little over four years since our last investor day. During that time the world and our company have changed significantly…We have purpose-led brands today and a clear vision of who we are and who we want to be.

“Today, we have clearly defined positioning at each of our global brands with unique edit points, a smaller, modernized and more profitable omni-enabled store base, digital penetration and meaningful cash generation,” Horowitz said. “Our company and brands are purpose-led, and listening to and learning from our global customer is deeply ingrained in our thinking and culture in a way that it never has been before. We are committed to constantly adapting to meet and exceed their ever-changing needs, and I firmly believe that the changes we have made position us to deliver steady growth.”

In the last four years, A&F got rid of 25 percent, or 1.6 million square feet, of unproductive space, reducing occupancy costs by over $200 million while digital sales have grown to $1.7 billion, or about 47 percent of the business, from roughly one third, pre-pandemic.

She said the “Always Forward Plan” is guided by three key principles: execute focused brand growth plans; accelerate the enterprise-wide digital revolution; and operate with financial discipline.

Abercrombie came under criticism last quarter for having inventory up 45 percent. “That received significant press,” Horowitz said. “The headline is not the whole story. We are confident in our inventory and our strategy. Our inventory is current and balanced. While the inventory at the end of the first quarter was up 45 percent, it was still down from 2019 and 2020 levels.

“Ninety-three percent of our inventory units were current, either new product, seasonal product or long-life product. We remain confident with our current inventory position,” said Horowitz. “We will continuously track consumer behavior and leverage all of our tools in our tool kit to manage…We are resilient. We believe nothing is insurmountable.”


Abercrombie & Fitch Building Up Its Store Fleet Again, Differently

A&F Sustains Momentum Into Back-to-school, Gets Set for Holiday




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