• Business Insider

Abercrombie & Fitch might have made a huge mistake

Abercrombie & Fitch might have made a huge mistake.

The retailer has been working to repair its reputation and change its image over the past several quarters, but one of its core strategies — abandoning the "teen" sector and focusing on 18-to-25-year olds — might have missed the mark, according to Eric Beder of Wunderlich Securities.

The " shift to an older customer makes little sense to us," Beder wrote in a recent research note to clients.

"While the shift to an older customer is a strategy for Abercrombie, we see limited reasons for older customers to shift back to a 'teen' brand and, frankly, there are better brands and lifestyles for the 20+ customer to focus on," Beder wrote.

In November, Abercrombie & Fitch Chairman Arthur Martinez highlighted this change to Business Insider; it was one of the reasons for the brand's toned-down imagery.

Abercrombie & Fitch had long been known for its overtly sexy marketing campaigns, and by focusing on an older demographic, it enabled the brand to do more than just titillate.

"The rebelliousness that was embodied in that [older] marketing and that positioning was very much directed at the teen who was ... finding their own identity," Martinez said. "We aim today to be a little further up the age curve ... where people are little more grown up, if I can use that phrase. They're entering a true adulthood, sort of 18-to-25 age band, collegiate and immediate post collegiate. They have a more refined sensibility, a great sense of themselves, and the imagery that used to be used was designed to provoke," he said.

It's unclear if the strategy will pay off. In fact, Beder said it will take "material time (if ever) to succeed." In the fourth quarter of fiscal 2015, the parent company, which includes a brand for children and teen surfer brand Hollister, posted its first positive quarter since 2012. But by the first quarter of 2016, comparable sales for the parent company dropped 4%.

Abercrombie & Fitch is already being forced to resort to promotions.

A recent Credit Suisse report highlighted that Abercrombie & Fitch — along with Gap — had been discounting more heavily than other retailers during the back-to-school season. One reason for this? Both retailers are forced to compete with fast fashion companies like Zara and H&M, which churn out runway-esque styles at affordable, millennial-friendly prices.

Abercrombie & Fitch reports earnings on Tuesday.


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