Essay About A&F’S Operating Margin And Focus Strategy

Recommendations Abercrombie & Fitch
5. RecommendationsThe question that lead to this report was the following:“Abercrombie & Fitch is an American retailer that focuses on casual wear for consumers aged 18 to 22. Abercrombie & Fitch is currently facing a poor financial performance. A&F’s operating margin has declined from a peak of over 19% in 2003 to an estimated 4.4% this year, and its total shareholder return the past five fiscal years has ranked among the bottom in the apparel sector. Advise A&F on how it could recover by altering its market positioning & scope of activities. Which activities/businesses should be expanded? Which activities/businesses should be divested? Which new activities/businesses should be created? How and why?”After examining and evaluating Abercrombie & Fitches’ current situation, its strengths and weaknesses and its financial position, the following recommendations have been made:5.1. Brand ImageIntro recommendation and summary of found infoIf the strategy on keeping customers and employees doesn’t change drastically within the company, A&F faces challenges that might not be repaired after a certain period and customers and employees trust cannot be rebuild. A&F should therefore consider a focus strategy and target a narrow segment. It should regard a differentiation focus, as argued by Porter (1980). A differentiation focus strategy looks for the customer needs of specific segments. By doing so, it is able to create insight knowledge of the segment. This will help the company improving its brand recognition and help increasing customer loyalty. The strategy will be successful when the customer is willing to pay more for its products than for similar products of its rivals. A&F should implement a differentiation focus strategy and focus on…5.2. Cost reductionIntro recommendation and summary of found infoEven though the brand has shifted to a different strategy and style of clothing which suits the expectations and needs of its customers (wide customer base, accurate style), it became competitors with brands like Zara, H&M or Forever21. Considering the quality of the products, A&F offers products that are in the same category. However, its prices are notably above the prices of its competitors, concluding that the prices need to be reduced if the company wants to keep up the competition. This can also be achieved via one of Porter’s focus strategies (1980), namely a cost focussing strategy. With a cost focus strategy, A&F will focus on reducing costs and appeal to customers that are price-sensitive. This can be achieved with two approaches.