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Sozzi: 5 Reasons Abercrombie & Fitch Huge Flagship Stores Are Pretty Silly

NEW YORK (TheStreet) -- The Abercrombie & Fitch (ANF - Get Report) huge flagship store, sigh.....I don't even know where to begin. At the opening of this store with multiples levels of Abercrombie & Fitchness, male models with no shirts usually are lined up out-front in a firing squad fashion. They pose for pictures, which are promptly posted to Facebook (FB - Get Report) and Instagram by teen girls that have been following the marketing leading up to the big grand opening. Music is pumping through the speakers. Cologne is seemingly oozing from the walls, and if you open your mouth it will venture down the throat. At the very least, the stench permeates your non-Abercrombie & Fitch clothing. Oh yes, the Abercrombie & Fitch flagship store, quite the experience for the international community.

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Here is how Abercrombie & Fitch describes its flagship store strategy in its latest 10-K:

"In-store experiences captivate the senses to reinforce the aspirational lifestyle represented by each brand and flagship stores represent the pinnacle of the Company's in-store branding efforts. The brands also have a strong fan base of globally diverse followers on key social platforms, such as Facebook, Twitter, Instagram, and Weibo. The brands engage influential personalities that include celebrities, fashion bloggers, and stylists, to communicate key fashion stories, and have launched updated mobile apps, with more than 1 million downloads to date. "

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Gotcha. Well, then if the flagship store strategy is working so wondrously, why have these things happened:

From the aforementioned 10-k: "The company is in the process of evolving its consumer engagement strategy, going beyond its iconic in-store experiences to further develop leading digital experiences."

Flagship store opening slowdown: Only one flagship store opened in 2013, an Abercrombie & Fitch in Korea. Abercrombie & Fitch opened five flagships in 2011.

Charge creep: Abercrombie & Fitch took a $14.6 million asset write-down in 2011 related to the reconfiguration of three flagship locations.

I bring this to your attention as Abercrombie & Fitch will open the doors to its newest flagship, this one in Shanghai (which was originally scheduled to open in 2013), on April 19. It will be surrounded by the same pomp and circumstance that has historically characterized an Abercrombie & Fitch flagship store opening. Hear this and hear it loud and clear: opening Abercrombie & Fitch flagship stores overseas is a poor strategy in its present form, and a byproduct of an arrogant long-time CEO that enjoys seeing mirror images of himself plastered on paper shopping bags and via shirtless male models out front greeting a crowd that won't look like that again other than the grand opening day. I expect more "reconfigurations" of the flagship store base over the next five years, at the expense of shareholders.

Here are the problems with these stores not being captured in the teenage selfies or on earnings calls:

  1. Merchandise is not aesthetically being tailored to the community around the store. Abercrombie & Fitch is jamming its own vision for what customers should wear down their cologne filled throats. If you venture to an overseas H&M or Uniqlo flagship store, the clothing is more in keeping with local tastes.
  2. The store environment is not necessarily in line with local customs or how the consumer shops. For example, there are numerous accounts of male models at these flagship openings greeting customers in English.
  3. The inside of the store is more about theater than presenting large amounts of merchandise, which is needed to justify the expenses associated with the store size and premium location.
  4. The outside of the store is still exclusionary instead of welcoming. Abercrombie & Fitch has removed the shutters from its U.S. store windows, but there continues to be a cold feeling to all of its stores.
  5. Prices, too high. Yes, there has to be a premium charged given the shipping and store build out considerations, but the general take away from my work is that the prices are too exorbitant. This is the same problem Abercrombie & Fitch  has had at home, so much so that it has to remove quality from its merchandise to become more promotional on prices in the namesake division while seeking to turn the Hollister division into a surf inspired fast fashion destination.
-- By Brian Sozzi CEO of Belus Capital Advisors, analyst to TheStreet.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

At the time of publication, Sozzi held no position in the stocks mentioned.

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