Comeback Kid: The Fall and Rise of Abercrombie & Fitch

Abercrombie Then

Ten years ago, walking into an Abercrombie & Fitch (ticker: ANF) store was an all-out sensory experience. You were hit with the scent of the brand’s signature fragrance, “Fierce,” and greeted by shirtless male models/sales associates. The lighting was dark and edgy, and the music was thumping.

Abercrombie described it as a “charged atmosphere that is confident and just a bit provocative.”¹ While iconic at the time, this in-store experience synonymous with the Abercrombie & Fitch brand reflected the roots of its downfall.

Signs of Trouble

In 2013, the Abercrombie brand was extremely popular. The company generated record sales of $4.5 billion in its 2012 fiscal year.² However, that same year ANF came under fire for various environmental, social and governance (ESG) issues, including discrimination against larger body types and people of color, sexual harassment in the workplace and poor environmental practices.

These problems had existed for some time. Back then, Abercrombie didn’t sell clothes bigger than a size Large, in contrast to competitors such as H&M, which had recently launched its first plus-sized line, and American Eagle, which carried sizes up to XXL.³

As depicted in the Netflix documentary White Hot: The Rise & Fall of Abercrombie & Fitch, the company was accused of racial discrimination as early as 2003, facing class action lawsuits that alleged discrimination against minorities who applied for sales positions and reduced hours for minority employees.⁴ Customer backlash led ANF to recall a line of T-shirts with offensive caricatures of Asian people.⁵

Abercrombie’s branding clearly showed that the company didn’t value diversity. In an analysis of ANF’s summer 2003 catalog, researchers found that 67 of 68 female models were white, and roughly 4% of the models in its back-to-school catalog were non-white.⁶ Abercrombie was also criticized for its environmentally harmful practice of burning unsold clothes rather than donating them.

Former CEO Michael Jeffries built Abercrombie’s brand around the concept of the “preppy, youthful All-American lifestyle.”⁷ It was clear this meant a primarily white customer base who wore standard clothing sizes XXS-L.

According to Business Insider, "CEO Mike Jeffries doesn't want larger people shopping in his stores; he wants thin, beautiful people.”⁸ In a Salon magazine interview, Jeffries said: “We want to market to cool, good-looking people. We don’t market to anyone other than that. A lot of people don’t belong [in our clothes], and they can’t belong. Are we exclusionary? Absolutely.”⁹

Investors Punished the Stock

By 2013, despite record-high revenues, Abercrombie’s stock price lost about a third of its value. (Source: FactSet.). A long string of negative publicity and inflammatory comments from the CEO sparked consumers’ ire. The company’s exclusionary brand was perceived as alienating, not aspirational, especially since its clothes were usually priced higher than competitors’ offerings.

Consumers began to flock to retailers such as Aeropostale and American Eagle, which promoted more accessible brands, and fast fashion stores such as Forever 21 and H&M, which offered style at a significantly lower price. Abercrombie’s revenue fell, declining by almost $1 billion between 2013 and 2016, and its stock price badly underperformed peers.

It became clear that Jeffries’ leadership style caused many of the company’s ESG-related problems. Analysts noted that Jeffries’ vision for the company and his comments about larger bodies and “ugly people” no longer resonated with the target customer base.

While the industry was moving toward fast fashion with its lower price point, Jeffries maintained ANF’s higher prices to indicate a degree of economic exclusivity. The emphasis on Abercrombie’s club-like shopping experience (including salespeople who fit the brand’s exclusionary criteria) supported the company’s image but resulted in a costly overinvestment in its brick-and-mortar retail spaces.

We find it interesting that mounting problems with the ANF brand coincided with the rise of social media. Did the increasing availability of information help bring the company’s negative practices to light? Did social media allow consumers who felt rejected by ANF’s exclusionary marketing and limited sizing to share their views about the company more widely? Or were the brand’s problems exacerbated by a combination of these social media influences in a self-reinforcing cycle?

A brand is an intangible asset that can significantly drive value. If that perceived value is damaged, a stock price can take a hit even if the company recently achieved record sales.

Furthermore, a negative work environment caused high turnover among rank-and-file employees and ANF executives. Relying on Jeffries to guide the company made it hard for Abercrombie to adapt to a changing market. His age (69 years old in 2013) and the absence of a clear successor contributed to the problem. Investors expressed dissatisfaction through say-on-pay proposals, as shareholder approval of executive compensation deteriorated — from an already low 56% in 2011 to 25% in 2012 and 20% in 2013.¹⁰ Jeffries resigned in 2014 amid escalating criticism from the media and shareholders.

Abercrombie & Fitch’s Rebranding and Comeback

Abercrombie realized it needed to turn its business around and started to make changes. In addition to a new focus on digital sales, the company made several improvements in the ESG arena, as described below. In 2021, the company’s Investor Day presentation focused on the “Abercrombie is back” theme.¹¹

Ethical, Sustainable, Accountable Sourcing

Abercrombie implemented more sustainable practices, including ethical sourcing, as part of its rebranding effort. The company publicized new sustainability goals, such as reducing water use in denim production by 30% and recycling 100% of hazardous waste from its U.S. stores by 2022.

It pledged to reduce total greenhouse gas emissions by 47% by 2030. We are encouraged that ANF joined several industry environmental groups, including the Textile Exchange, Sustainable Apparel Coalition and Better Cotton Initiative. It also became a signatory of the U.N. Global Compact.

Abercrombie has pledged to source 100% of linen, standard down and standard wool, and 25% of cotton and polyester from sustainable sources. As a part of this effort, the company implemented a robust supplier management program that includes:

• Regular supplier audits.

• A vendor code of conduct.

• Policies to prevent using child labor.

• A policy against using sandblasted denim.

• Policies against sourcing from Uzbekistan, Turkmenistan and the Xinjiang Uygur Autonomous Region of China.

• A monitoring and remediation process.

All ANF suppliers are now audited and graded using a vendor code of conduct with metrics for work hours, wages, safety and controversial sourcing. Factories with multiple failing scores undergo a remediation program, and the company will stop doing business with plants that fail to remedy violations.

We appreciate that Abercrombie works with its suppliers, particularly as it has first-hand experience with a turnaround effort. We believe these vendor policies will help to build a strong, stable supply chain and reduce headline risk. We also expect that using more environmentally friendly inputs for its clothes may resonate with today’s issue-driven Gen Z consumers.

Human Capital

Before embarking on its rebranding effort, Abercrombie was criticized for how it treated employees. The company has since adopted industry-standard practices in human capital management, including employee incentive bonuses and training programs.

In the early days of COVID-19, when many retailers shuttered stores and furloughed employees, ANF offered severance pay to affected staffers. Back in 2013, the company allegedly discriminated against people of color. Now it has a diversity and inclusion framework that encompasses employees, the Abercrombie & Fitch brand and its global community. As a testament to these efforts, Abercrombie was listed among Fortune’s Best Workplaces in Retail™ 2021.¹²

In keeping with our emphasis on the Just Transition, we believe evaluating labor relations across the supply chain is crucial. ANF requires factory workers to complete training on human rights, health and safety and trafficking. It is a Buyer Partner of Better Work, a partnership between the International Labor Organization and International Finance Corp., which brings together governments, employers, workers and international buyers to improve labor standard compliance and promote competitiveness in global supply chains. Abercrombie’s HERD (Helping Empower, Recognize and Develop) initiative is dedicated to developing female leaders in its supply chain.

In what may be the most significant change from its outdated image, Abercrombie now sells a plus-sized line and offers many of its staples in extended sizing. Pants range from 23W to 37W and include extra-short, short, regular and long inseams. Dresses and shirts can range from XXS to XXXL.

While some critics say there is still room for improvement, the company is working to make an intentional line of extended sizes rather than making standard sizes larger. Corey Robinson, ANF’s Head of Design and Merchandising, noted, “We’re deliberately taking time to study the unique concerns in each category, speak to our customers and associates who wear those sizes, and test the fits with multiple body types.”¹³

The brand has become famous for its Curve Love jeans made with a fabric designed to stretch and flatter a range of body types while retaining the structure of denim.¹⁴ The company has also invested in better quality fabrics, zippers and buttons generally.¹⁵

We note areas where we think Abercrombie’s ESG practices need further improvement. For example, even though the company advertises environmentally friendly products and reports on these initiatives on a case-by-case basis, we have found limited disclosures or product life cycle assessments of the sustainable products currently offered. But, as stated in its June 2022 Investor Day presentation, “integrating environmental, social and governance practices and standards throughout the organization” is an area of focus for 2022.

The company wants to repair its relationship with consumers. “We began truly building relationships with our customers and with those who felt they were not served by the brand in the past. Developing any relationship is reliant upon two-way communication, so we started with listening,” Robinson said.

Current CEO Fran Horowitz has ensured her mission is highly visible on Abercrombie’s website: “Abercrombie isn’t a brand where you need to fit in — it’s one where everyone truly belongs. We lead with purpose, and that inclusive and equitable spirit is woven throughout all we do.”¹⁶

Sustainable Results and the Future

After years of effort by the company, consumers are reevaluating the Abercrombie & Fitch brand and many like what they see. ANF uses social media and influencer relationships to reach Gen Z and millennials. Examples include TikTok videos that feature influencers of all types demonstrating the fit of Abercrombie clothes and how they style them in their daily lives.

While still aspirational, we think this type of marketing is far more relatable than images of cookie-cutter models frolicking on the beach. The company says its social media reach increased by 1,980% from 2018 to 2021, achieving 343 million hashtags on TikTok.¹⁷

These new marketing efforts have led to increased sales. Since 2018, women’s apparel sales have increased by 40%, and Abercrombie has reached 12 million new customers. U.S. sales grew by 4% from 2017 to 2021, slightly better than the industry average, and the company’s stock has risen 80.14% over the last five years.¹⁸ It appears Abercrombie may have turned a corner and is anticipating greater growth. Its recent Investor Day presentation noted that the company is targeting sales of $4.1B - $4.3B from 2022 to 2025, which would return Abercrombie to its revenue peak in 2013.

The Abercrombie & Fitch experience today is entirely different from 2013. With its rebranding, customers are more likely to be online and see photos of models who show the company embraces diversity. The new Abercrombie appeals to a new generation of sustainability-conscious and body-positive shoppers who previously felt scorned by the brand.

The company’s comeback demonstrates that ESG issues, such as workplace culture and leadership, can greatly affect a brand, its operations and financial performance.

The Abercrombie experience shows that customers will abandon companies unaligned with their values. And it shows that companies can recover from mistakes with product, organizational and marketing changes that are more sustainable and ESG-aligned.

It is still early days for this new Abercrombie, but we are excited to see its continued movement toward strong ESG practices.