Abercrombie prepares to cut prices
Michael Jeffries, the CEO of struggling retailer Abercrombie & Fitch (NYSE: ANF) recently told investors on a conference call that "Consumer spending patterns domestically continue to be dictated by cost and value propositions, and this is clearly a headwind for our premium brands."
Abercrombie has garnered headlines for its steadfast refusal to cut prices to keep up with lower-end competitors like Aeropostale (NYSE: ARO), which is picking up market-share because of the recession. But that could be changing.
"We are planning to deliver greater reductions in [average retail prices] for the fall season, but we will continue to review pricing on an ongoing basis," he added on that conference call, according to The Wall Street Journal(subscription required).
There has been a lot of complaining about Abercrombie's strategy of standing by its high prices -- and the stock has been hammered as a result. Last year, Jeffries called discounting a "short-term solution with dreadful long-term effects."
So this decision to cut prices now may be a bit of backpedaling, but the good news is that Abercrombie's high margins give it a ton of room to cut costs to keep up with Aeropostale and others. Abercrombie's gross margin of 65% is much higher than Aeropostale's -- which stands at 35% because of aggressive cost-cutting. Because Abercrombie offers better quality and a stronger brand, discounting will lure shoppers back and away from Aeropostale at a point where Aeropostale really can't do much more on the cost side of things than it has already done.
http://www.bloggingstocks.com/2009/08/17/abercrombie-prepares-to-cut-prices/