Commentary

Abercrombie Admits It's Talking To Suitors

After rumors of talks surfaced from Reuters and in the Wall Street Journal, Abercrombie & Fitch issued a brief statement last evening to confirm that it is talking with “with several parties regarding a potential transaction with the company.” Express and American Eagle Outfitters are said to be among the interested parties.

The A&F release says that the discussions are “preliminary,” cautioning “there can be no assurance these discussions will lead to a definitive agreement or that a transaction will be consummated.” Excited investors, however, sent the stock soaring as much as 10% higher from a 17-year low after the Reuters report that it had “hired investment bank Perella Weinberg Partners to handle the takeover approaches” hit the digital wires Tuesday night.

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“While Abercrombie made its mark in the 1990s with its risqué advertising and its large logo on apparel, Millennial shoppers have more recently eschewed such heavy branding in favor of more independent style. It redesigned its logo in 2014 to renew its image,” Reuters’ Lauren Hirsch and Greg Roumeliotis write.

“Abercrombie has been pinning much of its turnaround hopes on its surfwear-inspired brand Hollister. While the company's overall sales are down, the Hollister brand has recorded two years of flat same-store sales performance,” they continue.

When flat looks good, you know you have problems. 

“Abercrombie has reported same-store sales declines for the past four quarters, and for at least 19 of the past 20 quarters, according to available data from FactSet,” Tomi Kilgore reports for MarketWatch

“The company's operating income shrunk from $72.8 million in 2015 to $15.2 million last year, as fast-fashion competitors and competition from online retailers weighed on its profitability,” write Mack Hogan and Lauren Thomas for CNBC.com.

Not that they are alone in their misery, of course.

“Apparel retailers, especially those catering to teens, have been hit hard by declining mall traffic, changing tastes and competition from fast-fashion players. Several Abercrombie rivals, including Aéropostale Inc., Wet Seal LLC and American Apparel LLC, have filed for chapter 11 bankruptcy protection in the past year,” observe Dana Mattioli and Khadeeja Safdar for the Wall Street Journal. “Abercrombie has been closing stores, lowering prices and revamping its marketing to win back shoppers….” 

What’s the appeal here then, you ask?

“For one thing, it's a bargain,” points out Shelly Banjo for Bloomberg Gadfly, with its market value plummeting from as high as $4 billion to well below $1 billion. “More importantly, a private equity buyer or a strategic buyer such as L Brands Inc. could snag Abercrombie's crown jewel — Hollister — on the cheap, while getting the rest of the company essentially for free.”

Mark Jeffries, who led A&F’s transformation from a sleepy retailer for the tweedy-and-sporty set to a hot purveyor of hot apparel for younger consumers, left the company in December 2014 after a tumultuous year that saw him stripped of his chairman’s title the previous January.

A&F’s head merchandiser, Fran Horowitz, was named CEO this past February. She earlier had been an executive with Hollister. Executive chairman Arthur Martinez had led day-to-day operations at the company after A&F suspended a search for a replacement for Jeffries in 2015. 

The company has “struggled to reinvent itself” after Jeffries’ departure, and before that it “had more recently been blamed for alienating customers through a variety of scandals,” Michael J. de la Merced and Rachel Abrams report for the New York Times.

“In 2004, Abercrombie paid $40 million to settle a class-action discrimination lawsuit, and Mr. Jeffries came under fire for derogatory remarks about customers, including saying that the brand did not make clothes for fat people,” they continue. He also famously said he only wanted “cool, good-looking people” donning the Abercrombie brand. That ruled out, for one, Mike (The Situation) Sorrentino, of the reality show “Jersey Shore,”

“A&F was also criticized by many parents for hyper-sexual imagery in its marketing, with models that appeared to be very young, wearing suggestive (and little) clothing in its catalog and stores,” Paul R. La Monica writes for CNN Money

Lest you have any doubt about that, Charles Manning compiled the “55 Nakedest Abercrombie & Fitch Ads of All Time (NSFW)” for Cosmopolitan a few years ago. Not known for priggishness, Cosmo’s subhed reads: “What are they selling exactly? It can't be clothes. There are no clothes. None. Not even a little.”

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