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Abercrombie & Fitch Holds Firm

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The November comps reported by large corporate retailers were brutal for the second month in a row. Once again, the only significant player to report an increase was Wal-Mart. Most everybody else reported drops of between 10 and 15 percent. To be fair, the late Thanksgiving this year moved almost a week of post-Thanksgiving selling days from last year up to before the holiday this year.

That said, business in November was pretty tough. The sales declines were despite unprecedented levels of promotional activity. Seemingly, nobody is focused on margins or profitability right now. They're focused on liquidating inventory and generating cash. They'll do what they have to do today in order to get to tomorrow.

And then there's Abercrombie & Fitch. They really took it on the chin in November, reporting comp sales down almost 28 percent. In a sea of markdowns across all retail sectors, A&F has decided to hold firm on its pricing. They're going to sail right into the storm.

A&F Chairman and Chief Executive Michael Jeffries was quoted as saying that "promotions are a short-term solution with dreadful long-term effects." And that tradeoff, in a nutshell, is the position many smaller retailers find themselves in.

Most smaller retailers stand firm on price integrity, running few if any promotions or events, and only breaking price during clearance periods. They don't compete on price, rather they differentiate themselves by carving out a distinctive niche characterized by carefully selected assortments of high quality products, exceptional customer service and a warm, engaging shopping experience. Price integrity is critical to their competitive positioning.

But in an environment like were in now, cash flow is the key. Obviously, the stronger you are, the more pain you can tolerate. But for many of you cash flow is a major concern right now. Given the inventory you currently own, you have to balance between the short term goal of raising cash now (that inventory will generate a lot more cash in December than it will in January and February), and the long-term goal of maintaining price integrity. I'm advising my clients now to do what they have to do now to bring end-of-December inventories into line.

Abercrombie & Fitch will break price. They may wait until January and clearance season to do it, and take their lumps then, but they're going to break price. They're going to be stuck with a lot of fall and winter goods if they don't.

Last updated: Dec 9, 2008




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