US casualwear brand Abercrombie & Fitch opened its first store outside North America on March 22 in London. The company plans to open flagship stores in other European cities, as well as in Japan, as it grows into a global brand. The question is whether it will achieve success with its typically American style or end up with Gap's core problem - being unable to adapt to different markets.
There is no doubt Abercrombie & Fitch will score a hit with its London store, situated on Savile Row. It replicates the experience of its New York flagship with a huge cavernous dark interior, loud music, heavy wooden fitments, beautiful, young employees, bare torsoed males - not just those featured in the murals but also as greeters - and piles of denim jeans and logo t-shirts. The store, formerly a branch of the Bank of England, produces a brand experience that is the model for the company to take both its Abercrombie & Fitch brand and its younger Hollister brand global. However, there are risks attached to global expansion.
Firstly, the cost base in the UK is very different to the US. The occupational costs are far higher for instance. In the US, Abercrombie & Fitch produces average sales densities equivalent to GBP266 per square foot, while the average for a mid-market UK clothing specialist is GBP360 and the major clothing retailers produce much higher rates than this. However, the company should make a higher margin in the UK because it has positioned its GBP prices at a similar level in the UK market to its positioning in the US. This makes its prices similar to those of French Connection, which produces sales densities of around GBP400 per square foot. French Connection, however, has much smaller stores and arguably lower occupancy costs.
Secondly, its higher price positioning in the UK can be a turn-off. Even though a UK web user can no longer get easy access to its US site and therefore compare prices, with global travel its target market is well aware of its lower equivalent prices in the US. In addition, the fact that it is now readily available in the UK, via the website, diminishes its exclusivity appeal.
Thirdly, there is the question of whether its very American, preppy style, will travel well outside the US. Using Canada as a basis for international expansion is not wise. Its entry there has proved very successful, but the Canadians share very similar lifestyles and fashion to the US - the UK is a very different kettle of fish, with a much more urban street style and a very sophisticated retail sector to satisfy such styles.
That said, the company is taking a cautious approach and only opening large flagship stores in major cities. It intends to ensure the brand experience is repeated consistently and will not be franchising or opening concessions. This strategy will ensure it still remains relatively exclusive, but will limit growth per country, even with a website.
Source: Verdict Research