Abercrombie & Fitch seeks the model balance between digital and physical


A&F is a prime exemplar of a retailer re-organizing its offline real estate to create the optimal omni-channel mix to support its Gen Y/Gen Z customers.

Another day, another example of a retailer making moves to balance the online/offline nature of its business.

This time it’s teen-focused Abercrombie & Fitch, which announced yesterday that it will be closing 60 stores this year. That comes on top of 39 last year and 60 in 2016.

Getting the omni-channel mix right is a priority, as evidenced across all retail sectors, but for a youth-demographic business like A&F, judging the balance between digital and physical is particularly relevant. CEO Fran Horowitz says the firm is turning in record digital sales across all its brands, adding:

We see DTC (Direct To Consumer) as our largest storefront.

DTC now accounts for 34% of total sales, up from 31% a year ago, with 70% of that DTC business coming in from mobile platforms. That, and the store closure program, is not to say that there isn’t a role for A&F and Hollister stores staffed by model-like store assistants.

COO Joanne Crevoiserat argues that the firm invested early in DTC platforms and technologies and this is paying off, citing that high level of mobile engagement as a proof point. But it’s not all about online:

The physical and digital experience is increasingly connected. Digital is often a starting point for product discovery and purchase generally, but not always the endpoint. Our physical stores still serve an important role for the customer journey, from a brand experience, trial familiarisation and fulfilment perspectives.

She adds:

We’re continuing to learn and improve the customer experience with these capabilities both online and in our physical stores, allowing seamless migration between the two environments. Gen Y and Gen Z customers have an increasing expectation of being able to engage with the brand on any platform or medium they have at the moment, wherever they are in the world.

Crevoiserat suggests that when it comes to stores that smaller may be better in the future, something that bookseller Barnes & Noble espoused earlier in the week:

Our experience has shown we can drive greater store productivity through an enhanced store experience on a smaller footprint. We continue to take a holistic approach to driving improved productivity and investment in our associates and inventory and the omni-channel capabilities are all part of the mix…The focus of the investments made today in stores has been on improving the customer experience through integrating omni-channel capabilities and smart use to smaller footprint, which has resulted in improved productivity. We continue to evolve the stores role for the future of retail.

That includes using them as a physical channel for returns of online purchases that can in turn lead to up-selling:

We do see a large proportion of our DTC returns going back to stores. We look at that as an opportunity to engage our customers. It’s a very important aspect of the way we engage customers. We see them respond between both the digital environment and the physical environment. So having the capability return to a store is very important to our customers and it also allows us the chance to engage our customers and get more into their basket, introduce new aspects of our brand, particularly as we go through the brand turnaround.

With all that in mind, there is continued investment into upgrading and overhauling stores with that integrated omni-channel experience in mind. For example says Crevoiserat, in 2017 35 Hollister stores were remodelled and seven new A&F “prototype stores” were rolled out. For 2018, the plan is to open 21 full-priced stores across geographies, including 13 Hollister, four A&F and four kid’s stores and remodel approximately 40 Hollister stores, six of which will be downsized.

Flexibility and learning

Nonetheless, the reality is that more than 400 stores have been shuttered since 2010 and as noted there’s more to come, with 60% of the firm’s US leases conveniently expiring over the next two years. Crevoiserat sees this as providing:

significant flexibility to strike the right channel balance and drive efficiency by remodelling or resizing our stores, renegotiating leases or closing stores.

Striking that balance does, according to Horowitz, continue to be a learning process, a sound philosophy in a fast-changing retail market:

The focus of our efforts is on continual testing, learning and adapting to make sure we have the most effective integration of the physical and digital world. That’s the foundation of making sure our customers’ engagement with our brand is the best it can be whenever, wherever and however they choose to shop with us.

So the more A&F can engage with its customers, the more data it can gather and the more understanding of trends and desires it can accumulate. Horowitz points to loyalty schemes as a key enabler in this respect:

Our loyalty programs are growing [as] powerful means of customer engagement across our brands. They have grown in scale and strength in 2017, ending the year with more than 14 million members. Loyalty accesses a versatile platform to drive innovation and inspire customers, driving engagement in both digital and physical stores environments.

Expect more investment here in 2018 as Horowitz explains:

Our investment will also be directed to further enhancing and applying our analytics capabilities to our programs-rich data. The wealth of insights from our customer interactions will deepen our understanding of their behavior and how best to engage and inspire them on a personal basis.

One learning that is already apparent is that a continued physical stores presence actually fuels digital spend. It’s not a case that customers take to online because their local store has been closed. Horowitz says:

We have some transfer when we closed stores, but it’s very low to the digital business. We see the opposite actually happen. We see much more transfer or much more digital growth when we opened stores in markets…or where there’s a physical store nearby is where we see more of the transfer.

My take

Crevoiserat makes the eminently pragmatic point:

Longer term, it’s worth remembering there is no real finish line here as customers’ needs and individual market dynamics will continually evolve.

At the end of the day, it’s clear there is a major transformation journey underway at A&F, with a healthy awareness of the need for that elusive online/offline retail balance that bodes well.

Image credit - A&F

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