Abercrombie & Fitch plans to close up to 40 stores this year

Dive Brief:

Abercrombie & Fitch Co. is not finished closing stores, saying this week it will shutter up to 40 this year. Last year about this time the teen apparel retailer had 60 closures planned, but CEO Fran Horowitz noted in a conference call with analysts that just 29 shuttered, reflecting a total square footage reduction of about 2%.
The retailer is also opening stores and remodeling others, and Horowitz said that those efforts would deliver "85 new experiences including remodels in 2019," according to a transcript from Seeking Alpha.
Half of the company’s leases are expiring in the next couple of years, COO Joanne Crevoiserat said on the call. Most of the retailer’s stores are now found in better malls, and "the vast majority of our store fleet is profitable," she also said.

Dive Insight:

Abercrombie has been methodically paring down its footprint for the better part of a decade. "Over the past eight years, we've gone from a peak of roughly 1,100 stores to 861 at year-end, including roughly 475 domestic store closures, leaving our current fleet well positioned in predominantly A and B malls," Horowitz said.

It's not that the company aims to shift over to e-commerce, which the Gap brand has done to a great extent. The Gap Inc. label plans to shutter 230 stores, and more heading into 2020. This week Gap Inc. CEO Art Peck said that any new Gap stores won't be opening in malls.

The closures will add to a massive retreat in brick and mortar in coming months. Last year, retailers collectively announced 5,524 U.S. store closures, down 32% from the prior year when they peaked at 8,139, according to Coresight Research, which also predicted the number would be about the same this year. But that total is already quickly reaching the numbers of the past two years. Among others, Dollar Tree this week said it plans to close 390 Family Dollar stores in 2019, Chico's will close 250 over the next three years, Shopko is closing at least 250 stores and Payless has begun the liquidation of a whopping 2,500 locations in the U.S. and Puerto Rico.

Abercrombie executives expressed confidence in physical commerce, however. "[W]e believe that stores still matter and closure is one of the many tools we use to improve our fleet and that customer experience, including remodels, rightsizes and relocations," Crevoiserat told analysts. "And I would say in 2018, we improved ... store performance, we reduced square footage, and we drove higher productivity and better economics in the box, and that's evidenced by the leverage of a 140 basis points in our store occupancy. ...[W]e're very committed to improving that physical touch point for our customers, embedding omnichannel capabilities, reducing our square footage and driving higher productivity across the board."

The company's investments back that up. Capital investments for the year will include about $120 million for stores and about $80 million for digital and technology investments, according to CFO Scott Lipesky. "With our remaining excess liquidity, we will prioritize our spend as follows, accelerating investments in the business, aggressively pursuing real estate rationalization including flagships and driving shareholder returns," he said.

The announcement came as Abercrombie also reported that fourth quarter net sales fell 3% year over year to $1.2 billion and for the year grew 3% to $3.6 billion. Operating income fell to $129.7 million from $140.3 million last year, according to a company press release.

Like Gap Inc.'s Old Navy brand, which is set to separate from its parent into a standalone company, the apparel retailer's lower-priced Hollister brand appears to be stronger than its flagship sibling, indicating a "loss of momentum" at the Abercrombie & Fitch brand, according to GlobalData Retail Managing Director Neil Saunders.

"Our data show that affinity to the brand, although much improved, is ... more tenuous than Hollister. This means that Abercrombie was more exposed to the loss of consumer momentum in the general economy after Thanksgiving and Black Friday," he said in comments emailed to Retail Dive. "Nevertheless, the brand continues to show good potential and there were a number of fashion wins over the period, including good traction in outerwear. Despite the slowdown we remain confident that Abercrombie is on the right track and can improve its numbers as it fine-tunes both marketing and merchandising."