The Retail Failure case
Abercrombie and Fitch (A&F) was a top-ranked retail store for more than a century after the brand was converted under the leadership of Mike Jeffries, who became CEO in 1998. However, “the provocative marketing and reputation for exclusivity that once made the brand popular may have become its greatest liability” (Goldsmith, 2017). Customers’ perception of the company has changed as it became associated with personally offensive behaviours of its narcissistic CEO. Moreover, A&F has failed to sustain its leading position due to the rapid increase in competition and company’s unwillingness to adapt to social and economic shifts, which will further be evaluated throughout the essay.
Quotes: 1 and 2
“Wearing clothes made by a company that advertises their brand on all of their clothes and charges so much for it seems a bit obnoxious to me now” (Emily Evans, student; Dishman, 2015).
“Everything says Abercrombie all over it, and I don’t really like it,” said Friedman. “If the logos weren’t all over a lot of things, I would probably give it a try again” (Landsman, 2014).
Customers are no longer interested in advertising the brands they are wearing and don’t want pretentious and “an unwritten negative tag attached” to their clothes (Bonigala, 2015). A&F exercised symbolic manipulation through stupid management, by launching clothing with signature logos. Young generation of customers were persuaded to purchase products with ‘moose’ logo due to their economical representation. Ultimately, the company’s exclusionary customer policy and Jeffries controversies’, acted as free advertising and gained the brand greater awareness among young buyers who were able to identify with the brand, feeling like members of an exclusive group. Arguably, the logo that helped the retailer to command sky-high prices and acted as a status symbol among teenagers, is no longer viewed as elite leading to loss of customers (Maheshwari, 2014). Arguably, A&F clothing may become simply overpriced if the logo is removed. Furthermore, A&F’s classic polo t-shirts and logo clothing that once differentiated the company among other retailers, has failed to act disruptive in the long term as it went out of style. A&F has failed to realise that young buyers today are looking for clothing with more original styles and without logos.
Quote: 3 and 4
“I think that the history [Jeffries] has is kind of embedded into the company. Personally, I think it’s one of the challenges the brand faces. They now have cooler clothes, but I think for a lot of young people who know what Abercrombie stood for it’s a turnoff. They don’t want to be associated with that” (Mallory Schlossber, Business Insider retailer reporter; Dishman, 2015).
Jeffries stated, “In every school there are the cool and popular kids, and then there are the not-so-cool kids”. He further continues, “Candidly, we go after the cool kids. We go after the attractive all-American kid with a great attitude and a lot of friends. A lot of people don’t belong [in our clothes], and they can’t belong. Are we exclusionary? Absolutely” (Lutz, 2013).
Jeffries statements represent the idea of ‘functional stupidity’ within management (Alvesson and Spicer, 2012). A&F made its name by offering clothes aimed at the ‘cool kids’ and creating the brand image and culture, which reflects ‘marketing myopia’ by making it clear that their clothes were only for ‘slim’ and ‘attractive’ bodies (Bonigala, 2015). Consequently, the company has experienced decline in sales as it refused to make any large sizes to accommodate a broader customer base (Sanchez, 2016). A&F used to be ‘market driving’, enjoying rapid store growth (Hollensen and Opresnik, 2015). Now, arguably, A&F is ‘market driven’ due to an increase in competition within the industry and mismanagement within the company, Jeffries unwillingness to respond effectively to social shifts and make the necessary changes (Hollensen and Opresnik, 2015). Previous rapid increase in sales demonstrates Jeffries tremendous influence on the company’s success and his ability to encourage customers to align with being ‘cool’. However, A&F’s products and image that once served as company’s unique selling point, simply do not appeal anymore to its customers due to brand values losing touch with current ideology and ethical viewpoints, resulting in market saturation.
Quote: 5 and 6
“Teens and their parents are spending a lot more on electronics and “fast casual” restaurants, a step up from burger chains and pizza joints. Those expenses are taking a bite out of clothing budgets and making young adults – and their parents – even more careful about apparel choices” (Derek White, CEO of Refuel Agency; Dishman, 2015).
Whilst Jeffries attitude put the company “in the right retail place at the overconsuming time in the obscenely narcissistic nineties”, he failed to realise “that ‘invitation-only clique’ grew up and disbanded” (Farfan, 2017). Jeffries has failed to capture that consumers are spending more on cellphones and food and less on apparel (Harris and Abrams, 2014). Teens, now, define themselves through social media including Instagram, instead of clothing. A&F started to lose ‘cool’ brand image when the retail climate shifted as Jeffries “alienated his customer base by refusing to adjust prices” in response to the recession in 2008 (Farfan, 2017). During the recession, consumers were forced to change their shopping habits and look for cheaper competitors due to less disposable income. However, consumers were not ready to give up fashion, thus they looked for something that is trendy but also cheap. A&F suffered a sharp decline in sales due to the threat of substitution (Porter, 1979) by cheaper alternatives such as Forever 21 who dominated the market by acting accordingly in regards to changing trends (Vizard, 2014). However, A&F lowering price points or offering discounts in the short-term, could have ‘cheapen’ its prestigious image in the long run. On the other hand, A&F could have provided incentives in order to minimise losses while still maintaining their luxury image.
Leading on from the previous section, in the following section the functional stupidity, environmental evolution and retail life cycle theories (RLC) will be evaluated for contribution to analysis in section 3.
The concept of ‘functional stupidity’ has been defined “as inability or unwillingness to use cognitive and reflective capacities in anything other than narrow and circumspect ways” (Alvesson and Spicer, 2012). Alvesson and Spicer claim that functional stupidity is created by organisations using dynamics of stupidity to align perceptions through factors like corporate culture, identity building using symbols and images to manipulate sense of commitment to the organisation (Butler, 2016). Thus, the phenomenon of ‘stupidity management’ occurs when individuals in power “attempt to discourage critical reflection that call into question organisationally-sanctioned norms and values” (Butler, 2016). Arguably, Alvesson and Spicer do not draw on empirical evidence to support their statements, but rather generalise organisations using phrases including ‘in some cases’, thus the validity of the theory and its application to diverse organisations can be questioned (Butler, 2016). Moreover, the validity of the concept can further be argued due to the recognised comic intent of functional stupidity as Alvesson and Spicer speak about knowledge-intensive firms, and reveal them to be ‘stupidity intensive’ (Watson, 2015). The paper seeks to appeal to both organisations and scholars, thus arguably audience take away different messages from the paper, making it inconclusive and limiting empirical application (Butler, 2016).
The success or decline of retailers is frequently “attributed to the business environments” including customers and competitors (Pradhan, p 65). Thus, in consistence with “Darwinian approach of ‘survival of the fittest’, those retailers that most effectively adapt to economic and demographic changes are most likely to grow and prosper” (Pradhan, 65). Evolution theory is “based on the effects of the external, uncontrollable environment on the retail industry and the organisations operating within it” (Fernie et al, 2015, p. 67). However, it has been argued by many theorists and researchers that organisations ability to “adapt to their environments attributes” mostly to their flexibility and power “rather than the environment” (Morgan, 2006). Thus, the survival can be determined by the organisations understanding of environmental stability, resistance to change, and their development of mechanisms that support them during uncertainty.
Retailers emerge, develop, mature and decline in direct response to internal and external circumstances (Hall, Knapp et al 1961; Sun, 2002). The RLC provides a useful perspective to predict the business performance of retail institutions as it specifies the series of stages that every retailer goes through. However, the RLC has been criticised because of the “difficulty in defining the exact time when the organisation moves from one stage to another” (Fernie, J et al. 2015, p. 33). Thus, in order for the concept to be useful the retailer would want to know exactly when the growth or maturity phase has ended, in order to implement marketing objectives and strategies accordingly. Arguably, it may be difficult to detect the time spent at every stage as the lifespan of many companies becoming shorter with new retailers entering and exiting the markets rapidly (Fernie, J et al. 2015). “The theory assumes that retailers are passive victims of the market change and competitor action”, thus failing to recognise that they may achieve sustainability of their business through other aspects, for example, brand repositioning. Evidently, number of retailers have successfully “repositioned their organisations’ to grow their businesses to prove that the inevitable decline predicted by the RLC is not necessarily the case” (Moore, 2010).
Application of Theory
The following section aims to support the explanation of A&F failure by critically analysing the quotes identified in section 1 and expanding on the theories discussed in section 2. Throughout the section, emergence of competitors, change in consumer expectations, economic shift and functional stupid management, have been identified as the primary causes of failure.
Environmental Evolution Theory
A&F is positioned within “a dynamic and rapidly changing industry” (Akehurst and Alexander, 1995, p. 67) which creates an ambiguous environment due to the rate of change and innovation created by the external stakeholders (Male, 2003). With a large offer and low switching costs, consumers possess bargaining power (Porter, 1979) over apparel retailers and are consistently looking for the best quality and cheapest prices, unless they have loyalty to a particular brand (Perrier, 2013). Thus, due to the highly turbulent nature of the industry, firms having to constantly change and adapt to grow and survive (Male, 2003). The structural change of the industry and survival of retailers can be explained using Darwinian ‘natural selection’ theory. A&F has been disrupted by the new, ‘fittest’ species including Forever 21, who have managed to adapt, effectively respond and evolve in line with the changes in the marketplace (Findlay and Sparks, 2002).
During the Recession in 2008, “it was not uncommon for retailers to cut their prices in the interests of preserving volume and market share” (Raynor and Mumtaz, 2013). Consequently, all the retailers were forced to adapt to the changing market conditions by offering discounts, in order to sustain in the face of new entrants. A&F experienced a sharp decline during the recession that led to layoffs, and continuously decreasing sales due to their decision to hold onto their historic position against price promotions. Already “in its fiscal-fourth-quarter” of 2008, A&F reported a 68% drop in earnings (Rosenberg, 2012, p. 2), whilst closing dozens of underperforming stores. However, those firms that coped with the recession with price discounts, were finding it difficult to increase their prices back as customers realised that their T-shirts do not have to be expensive.
Functional Stupidity Theory
One could argue that A&F are not failing due to their labelled clothing or hiring good-looking people but rather due to their “management being out of touch” (Smith, 2016). A&F is an example of “cultural stagnation” (Bate, 1995) as for years, company’s key long term strategy, to advertise to cool and attractive young customers, worked, making A&F the leader in apparel industry. However, public perception of the brand has been eroded due to the company’s unethical incorrectness and offensive advertising. Jeffries and other board members demonstrated “macho mindset” (Pal, Medway, Warnaby, 2010) and “fostered ‘hubris” (de Vries and Engellau, 2004) by implementing discriminative pricing and hiring, focusing on customer exclusion and product exclusivity, leading to company’s short-term success and long term decline. A&F was resistant to change even after the several lawsuits, controversies and continuous drop in sales. Thus, the board members have failed to maintain “radical innovation” strategy that had previously differentiated the brand (Schumpeter, 1934) and implement “reactive changes” approach in response to uncertain industry environment (Nandeshwar and Jayasimha, 2010). The main reasons behind the company experiencing major losses is both due to the narcissism of the board members and their “structural inertia” (Hannan and Freeman, 1984), unwillingness to challenge existing status quo and fear to cannibalise ‘organisational identity’ (Rughase, 2006). Failure to maintain flexibility within the company has led to dramatic decrease in demand ultimately resulting in company having to introduce large discounts alongside with price share declining to as low as $8.89 in 2017 (Sutharson, 2017).
Retail Life Cycle Theory
A&F’s rapid success and ultimately decline correlates with Rogers (1962) bell curve model, which indicates that organisations need to “prepare to scale down just as quickly as they scaled up” (Downes and Nunes, 2014). The company experienced exponential growth, thus reaching the ‘accelerated development’ stage within RLC, through selling premium clothing and delivering a unique retail experience to young customers. However, the emergence of competitors and change in customer expectations, led the company into the ‘maturity stage’ as A&F failed to rethink its strategy and reposition itself within the market. Maturity stage “will last indefinitely as long as the retailer is customer and competition orientated” (Fernie et al, 2015, p.33). Evidently, rising competition accelerated the decline of the company by recognising the changing trends and acting accordingly by constantly evolving their assortments, thus capturing A&F’s customers and making their premium items obsolete. Consequently, the iconic teen retailer became the “laggard” (Leader and Kyritsis, 1994, p.101) within the industry as its customer exclusion, functional stupid management, overpriced and logo embroidered clothing pushed the company to the ‘decline stage’ of the cycle. The company scored the lowest on the American Customer Satisfaction Index for the retail industry (Vasel, 2016). Arguably, the company had the financial capability and high brand awareness to survive if listened to its consumers during the maturity stage and reinforced the introduction of new product and new campaigns to maintain the ‘coolness’ of the brand.
Reflection on Group Activity
Initially, the company represented a small firm on the high street, selling African styled house decorations. The group has chosen to implement scenario 2 and undertake the risk of changing the business and becoming a coffee shop whilst still retaining African style product focus.
Our mission was ‘to bring a taste of Africa to Brighton with an ethical stance, providing premium coffee at a good price’. Even though our product was competitive in contrast to the key incumbents within the industry including Starbucks, we have failed to identify whether there was a demand for the African products. The initial marketing plan lacked depth, thus a primary research such as survey should be carried out in order to determine customer appeal (Lussier, Corman and Kimball, 2014). On the other hand, the company successfully differentiated itself within the market by offering a unique experience of a premium quality African coffee and implementing “low-end disruption” to capture competitor’s customers (Christensen, 2013). The initial marketing proposal has also lacked an in-depth research into the existing suppliers within the market. Thus, the team has failed to have a detailed plan of where products will be supplied from and whether it fits into the company’s budget.
After carrying out a SWOT analysis, current cash flow has been recognised as a primary weakness with company having “not much cash in hand”. It can be considered risky for a small company, with limited tangible and intangible assets, to enter a new market driven by the established corporations (Nwankwo and Gbadamosi, 2010). Accordingly, prior to executing the marketing plan the company should draw out an accurate cash flow and consider the available budget in order to carry out the business transformation. Therefore, the corporate objective to ‘increase sales in the long term’ can be considered as unrealistic as there is an uncertainty whether the African coffee will be demanded in the competitive industry. The company should consider to seek financial support from external stakeholders such as banks, in order to compete with large established firms (Secrett. 2012).
The team has failed to identify specific short-term marketing objectives to support the long-term goals. Thus, an effective marketing plan requires an in-depth SMART analysis, which in turn may act as an employee motivator, focusing labour effort on achieve the key objectives, whilst improving efficiency and increasing sales due to clearer instructions (Marcouse and Bagley, 2010). Furthermore, the team should ensure to determine the 4P’s within the marketing plan in order to provide consumers with the right product, at the right price and place (Strydom, 2005).
Completing primary research, the company has identified people between 30 and 50 years old to be the key target market, reaching a large proportion of Brighton’s population (idcommunity, 2016). It has been recognised that chosen target segment tends to drink more coffee than if the company would have targeted younger segments (Lutz, 2015). However, in order to achieve the short-term strategy to ‘increase brand awareness’, the company should revise its promotion strategies as social media platforms may not be the most optimal option to reach targeted customers due to fewer people above 30 years old using social media.
Overall, even though the marketing plan identified key strategies to achieve business recovery and growth, our small business needs to be prepared to be agile in order to recognise and adapt to threats and sustain competitive advantage. Thus, the company should periodically assess the threats including new technologies and changes in customer preferences (Dobbs and Koller, 2005), whilst utilising “key performance indicators” in order to control and manage “financial measures such as sales growth” but also “nonfinancial measures including product quality” (Mauboussin, 2012).
...(download the rest of the essay above)