A&F Kills Quarterly, Cites 'Time for New Thinking'

Did an image defined largely by nudity and youth finally become too hot to handle for Abercrombie & Fitch?

That was the thinking of an analyst who covers the company after Abercrombie & Fitch's announcement late Tuesday that it would stop publishing its A&F Quarterly with the Christmas issue, which included advice on oral sex and group sex.

“It's strictly the publicity [that led to this decision],” said senior analyst G. Murray Wanstrath of Hibernia Southcoast Capital, New Orleans. “The publicity has never reached this level before. The exiting of the catalog is mainly based on the negative publicity that they've been dealing with as a result of the raciness of the catalog.

“They introduced a thong for 10- to 11-year-olds last year, and that raised some eyebrows.”

The firestorm of recent publicity included the Dec. 7 airing of a “60 Minutes” report that contained allegations of racial discrimination in its hiring practices. It also was the subject of a boycott by a Christian organization.

The company said in a statement that “it is time for new thinking and looks forward to unveiling an innovative and exciting campaign in the spring.”

“I would refer you to [our] statement,” company spokesman Hampton Carney said when asked whether future marketing would be less racy, and also whether the company needed to tone down its image. He said the boycott had no effect on the decision.

The move to eliminate the book followed the decision earlier this month to take the racy holiday magalog off store shelves.

“We moved them out to make room for [a] fragrance,” Carney said at the time. “What this means is you won't be seeing the spring one.”

The quarterly's end coincides with recent news that November comparable-store sales fell 13 percent compared with the four weeks ended Nov. 30, 2002.

“The trends have been negative for four years, and their comps have been eroding largely due to the fact that the teen retail space has grown tremendously competitive and it's becoming price-point-sensitive,” Wanstrath said. “They do not alter their price points and are well above their peers regarding initial price points.”

He cited Old Navy, American Eagle and Aeropostale as competitors.

“They are a good 40 percent [higher priced], and it makes them less in favor, and their assortment needs to be more right [so they can differentiate] themselves from the competition,” he said. “Everything in their stores can be found in the others' stores. You can walk across the mall and find it for less. Their assortments have to be more compelling than the rest of the mall.”

The analyst rates the stock as a hold with a $25 target price over the next six to 12 months. It's down from a buy with the downgrade occurring Dec. 4. It closed Dec. 10 at $24.77.

“If the company was to get back on track, November was their month to post a decent comp,” he said. “The other stores, except American Eagle, are showing positive comps. A&F stuck to the game plan, which was to maintain price points since they will not play a promotional game when the economy turns around. They've failed to realize that the consumer has become more value-oriented in the past three years.”

The company still will produce a separate catalog that will be expanded in size and distribution with “details to be seen in the spring,” Carney said. It is also produced quarterly. Its holiday version came out in October and is 106 pages.

Wanstrath doesn't think the future will include “another magalog with naked people in it, but they will not go back to being an outdoor outfitter. They have to re-identify themselves.”

The A&F Quarterly's final version was available at the end of October with the title “David Abercrombie & Ezra Fitch's Christmas Field Guide.” The cover contains an illustration of a moose. Its circulation was 200,000 with half sold by $16 subscription and the rest sold in stores for $7 per issue. The quarterly started with the back-to-school edition in 1997.

The bottom of the current cover reads: “280 pages of moose, ice hockey, chivalry, group sex and more.”

Carney would not comment when asked about the amount of capital that would be available for future marketing as a result of the quarterly's discontinuation.

An item posted Dec. 9 on gawker.com, which describes itself as a Web magazine including media gossip, contained an item titled “A&F: No More Porn, Ever.” It quotes the following from “a source”: “I work on the A&F Quarterly and as of yesterday it was announced to us that it will no longer be continued. It is no longer a rumor that it has been pulled from the shelves for good. In fact the issue we are currently working on will not be continued. Several employees here in New York were fired by A&F because they will no longer be needed. Regardless of what the media will say this is not as a result of the Ohio conservative groups trying to stop the quarterly. It is because there have been many recent creative differences on the past few Quarterlies and [chairman/CEO] Mike Jeffries wants to stop now before the Quarterly becomes uncool.”

The company's catalog and advertising costs totaled $33.4 million in 2002, $30.7 million in 2001 and $30.4 million in 2000. Its Web sites and the quarterly represented 4.2 percent of fiscal 2001 net sales compared with 3.8 percent of 2000 net sales.

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