Abercrombie and Fitch's evolution from sporting goods retailer to apparel leader

Abercrombie & Fitch: An Upscale Sporting Goods Retailer Becomes a Leader in Trendy Apparel

The retail industry has faced a number of challenges over the last several years. This is because the economy has gone through a severe recession. For Abercrombie and Fitch, they are at the cross roads of being able to survive what occurred, while being strong enough to take advantage of the opportunities. Where, the company is facing a number of unique situations that is highlighting the opportunities and possible threats. To most effectively determine these different variables requires an examination of the company itself.

Abercrombie & Fitch is one of the leading retailers for casual apparel that caters to: men, women and children. The company has been facing a number of severe economic challenges since 2007. Evidence of this can be seen with the overall performance of the stock during the last five years. Where, shares would reach an all time high of $80.00, then decline to $14.00 in 2009. Part of the reason for this decline, was because of the inevitable slowdown in the economy. Where, the company was able to overcome the various challenges that they were facing (with of the price of the stock climbing back to $47.00 per share). ("Abercrombie & Fitch," 2010) However, to fully understand the various internal conditions requires that you examine the various environmental threats, opportunities, organizational strengths, weaknesses, strengths that company has in relations to its competitors and how these strengths can used to benefit the company over the long-term. Together, these different elements will provide the greatest insights facing the internal environment of a & F.

Identify and describe the greatest environmental threats that have immediate implications for a&F.

The biggest threat that could affect a & F. is a secondary slowdown in the economy (a double dip recession). This is where it appears as if the economy could be recovering, then a crisis or incident would take place that causes it to go back into a recession. This would have an immediate impact on the overall bottom line of the company. Where, same store sales could fall dramatically, causing the earnings per share and the price of the common stock to fall. A good example of this could be seen in the first quarter of 2009, where the company reported same stores sales were down 22% and net sales decrease by 19% during the quarter. If another slowdown were to occur in the next six to nine months, the company could see comparable drops in same store sales and net sales. ("Abercrombie & Fitch Reports Fourth Quarter," 2009)

Identify and describe the greatest opportunities available in the marketplace for a&F to pursue.

Currently, the company has the opportunity to be able to expand into areas where many competitors have been faltering. This is because the current recession has caused a number of specialty chains to go out of business. As a result, the improvement in the economic picture would allow the company to expand its presence both domestically and internationally. This is a major opportunity because a & F. can be able to quickly expand into markets such as China, Brazil and India. Where, consumerism has not completely taken hold in these emerging economies. The company can also expand into existing markets that were hit hard by the current recession such as South Florida and California. Once consumer spending begins to pick up, it would not be surprising to see above average growth in these markets. This would allow the company to be able to grow when many in the retail industry are taking a wait and see attitude.

Identify and describe a&F's greatest organizational strengths.

The biggest strength of the company is its ability to control debt. This is important because during times of economic prosperity, many companies will often finance their growth through debt. Instead, a & F. has been focused on delivering consistent results, and the using the additional profits that they have made to improve the overall financial strength of the company. As a result, the operations and departments of a & F. function more effectively because the management has focused on prudent growth strategies. A good example of this can be seen by looking no further than current cash to debt levels. Where, the company has $712 million in cash and $111 million in debt. ("Abercrombie & Fitch," 2010)

Identify and describe the company's greatest weaknesses.

The biggest weakness that the company is facing is a slowdown in consumer spending. This can take place because energy prices rise sharply or a particular event could affect consumer psychology. Once this occurs, it means that same store sales will drop and the overall bottom line of the company could begin to weaken.

Describe how a&F's strengths can be used to deflect environmental threats to further the company's success in the industry.

The large amounts of cash can be used to repurchase stock. If a double dip recession occurred, then you could see such moves help to mitigate the effects on the company. Where, the earnings per share would be higher because of such actions. Secondly, it would help show that the company is financially sound by repurchasing shares of stock. Together, these elements will allow the company to shield itself against the possible effects of another down turn in the economy.