Abercrombie’s plans to start sourcing for lower original retail price points

Comps clearly benefited. The recent slowdown in new store openings combined with steep price cuts to clear inventory weighs against Abercrombie accomplishing stellar margins in the near term.
Furthermore, Abercrombie’s plans to start sourcing for lower original retail price points, expected in stores by the end of the year and more completely next spring, may not be the panacea envisioned. Lower original prices will significantly diminish Abercrombie’s ability to oversize margins, a requirement for strong earnings in the face of tepid comps.
And lower prices, alone, won’t help Abercrombie regain its former glory. Hollister, its lower price chain, has toted up deeply negative comps, as well.
Abercrombie’s new hangtags feature both US and Canadian prices. The vast majority of its young customers may not know Canada’s "loonie" buys only about 84 US pennies. To them, a cotton cardigan might seem a relative bargain at US $70 compared to Canadian $90 but for Abercrombie to see any positive psychological impact, it will need to attract customers into its stores.
That’s been a major stumbling block this year when mall traffic, overall, has been down significantly and Abercrombie’s down even more, some of it brought on by its own missteps.
Meanwhile, lower prices, on their own, can pressure comps if the number of units sold don’t rise dramatically. And Abercrombie needs stronger sales to gain store occupancy leverage since rent, electricity, and other costs are more sticky.
As a former New York retail store owner, and since May 1987, a retail writer, researcher and analyst, I’ve seen many myths of greatness come and go, few more durable and widely held than the myth of Abercrombie & Fitch. Aeropostale (ARO), selling to the same age range of customers, posted positive annual comps every year from 2001 through the present (ARO, public since 2002, didn’t report older comps).