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Wk 1 – Apply: Selecting a Company [due Day 7]

Assignment Content

  1. Working in business management means taking on responsibility to lead your organization in a variety of situations. Part of that responsibility is understanding where an organization has been and where it’s going. In this course, you put yourself in the shoes of a manager and use resources to make decisions on where an organization is heading in respect to business needs, organizational structure, leadership strategies, and change management. Some of the information needed may be easy to locate, but other information may take time and effort to find. Some may even need assumptions based on research. These research and strategizing skills will be useful in your business management career.


    Select a company and learn about its history. This will prepare you for your Week 2 Analysis.


    Note: Some reports are more recent than others. It’s in your best interest to find a company with a recent (within 2 years) report.


    Select 1 global company from Business Source Complete: SWOT Analyses to use for the next 5 weeks (this will sometimes be referred to as “your company”).


    Create a chart or outline that conveys the following information:
    • Name of company
    • Industry
    • Brief history of company
    • At least 3 milestones from the company’s history
    • 3 resources (in addition to Business Source Complete) where you can locate company information in future weeks. This may include company websites, current employees, journals, etc.
    • Define 1 new unique business opportunity the company can do to increase their competitive advantage.
    • Identify a function of management that is needed for this opportunity.
    • Submit your assignment as an attached Word document.

 Abercrombie & Fitch Co SWOT Analysis: Business Source (ebscohost.com) 

COMPANY PROFILE

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Abercrombie & Fitch Co

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Abercrombie & Fitch Co TABLE OF CONTENTS

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TABLE OF CONTENTS

Company Overview …………………………………………………………………………………………..3 Key Facts………………………………………………………………………………………………………….3 SWOT Analysis …………………………………………………………………………………………………4

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Company Overview

COMPANY OVERVIEW

Abercrombie & Fitch Co (Abercrombie) is a specialty retailer that offers a wide range of apparel, accessories, and personal care products. The company’s product portfolio comprises knits, tops, woven shirts, fleece, jeans, graphic t-shirts, woven pants, sweaters, shorts, outerwear, loungewear, sleepwear, bras, bralettes, dresses, intimates and swimwear, personal care products and accessories. Abercrombie markets products under Abercrombie & Fitch, abercrombie kids, Hollister and Gilly Hicks brand names. The company’s business operations span across North America, Europe, the Middle East and Asia. It sells products through various third-party wholesale, e-commerce websites, stores, franchise and licensing agreements. Abercrombie is headquartered in New Albany, Ohio, the US.

The company reported revenues of (US Dollars) US$3,623.1 million for the fiscal year ended February 2020 (FY2020), an increase of 0.9% over FY2019. In FY2020, the company’s operating margin was 1.9%, compared to an operating margin of 3.5% in FY2019. In FY2020, the company recorded a net margin of 1.1%, compared to a net margin of 2.1% in FY2019.

Key Facts

KEY FACTS

Head Office Abercrombie & Fitch Co 6301 Fitch Path New Albany Ohio New Albany Ohio USA

Phone 1 614 2836500 Fax Web Address www.abercrombie.com Revenue / turnover (USD Mn) 3,623.1 Financial Year End February Employees 7,000 New York Stock Exchange Ticker ANF

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SWOT Analysis

SWOT ANALYSIS

Abercrombie & Fitch Co (Abercrombie) is a specialty retailer. Revenue growth, liquidity position, and multi-channel selling are the company’s major strengths, even as, dependence on the US remains a cause for concern. Consumer spending in the US, e-commerce market in the US, and apparel retail in the US are likely to offer growth opportunities to the company. However, cost of labor in the US, foreign exchange risks, and intense competition could affect its business operations.

Strength

Multiple Channels Sales Liquidity Position Revenue Growth

Weakness

Dependence on US

Opportunity

Apparel Retail Market in US E-Commerce Market in the US Consumer Spending in US

Threat

Cost of Labor in US Foreign Exchange Risks Intense Competition

Strength

Multiple Channels Sales

Abercrombie sells products through traditional stores and online, and the sale of merchandise through multiple channels increases the company’s direct-to-consumer business. Diverse retail and marketing channels helps to increase brand awareness, store traffic and sales. Abercrombie retails its products through a combination of traditional retail outlets and online business formats. As of February 2020, the company operated 854 retail stores, including 647 in the US and 207 in the international markets. The company also markets products on www.abercrombie.com, and www.hollisterco.com, and its mobile apps for Android and iOS.

Liquidity Position

Abercrombie reported high liquidity in FY2020. The company’s current ratio was 1.6 in FY2020. This was higher than the retailing industry average current ratio of 1.5. The higher than average industry current ratio indicates that the company is better-placed to payout its obligations. Abercrombie’s current ratio was above its competitor PVH Corp which reported current ratio of 0.8 during the same period. Improved liquidity is an indication of the increasing ease in funding the company’s day to day operations, which also improves its ability to capture growth opportunities in the market.

Revenue Growth

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Strong revenue growth increases the company’s ability to allocate adequate funds for its future growth prospect. Abercrombie exhibited a strong revenue performance during the review year. In FY2020, the company reported revenue of US$3,623.1 million as compared to US$3,590.1 million in FY2019, representing an annual growth of 0.9%. The growth in revenue was due to increase of 1.9% in the sales of Abercrombie and 0.3% in the sales of Hollister.

Weakness

Dependence on US

Though the company has operations across Asia, Europe, Middle East, Canada and the US, it derives majority of revenue from the US. In FY2020, the company’s operations in the US accounted for 66.5% of its total revenue, while International regions accounted for 33.5% of the total revenue. Dependence on a single region makes the company vulnerable to various risks associated with political and economic uncertainties in the region. Also, lack of revenue from other geographical regions limits the company’s ability to build diverse customer base.

Opportunity

Apparel Retail Market in US

Abercrombie could benefit from growing apparel retail in the US as it offers a wide range of apparel, and accessories to men, women, and children. According to in-house research, the apparel retail market in the US is estimated to grow at a CAGR of 1.9% to US$366.7 million in 2022. Growth in the market is due to growing populations, tendency of youth to buy different apparel for different occasions and increasing consumer spending in the country. Abercrombie offers knits, tops, woven pants, sweaters, shorts, outerwear, loungewear, woven shirts, fleece, jeans, graphic t-shirts, sleepwear, bras, bralettes, dresses, intimates and swimwear. In line with this, in November 2019, the company opened a new store in Westfield London, the UK.

E-Commerce Market in the US

The company stands to benefit from growing e-commerce, which provides consumers the convenience of shopping from home. With the increase in interactive methods and limitless content, the retail e- commerce is growing at a faster rate. According to the report published by the Census Bureau of the Department of Commerce in August 2019, the estimated retail e-commerce sales in the US for the second quarter of 2019 was US$139.7 billion, an increase of 8.3% from the first quarter of 2019. The estimated retail e-commerce sales in the US for the second quarter of 2019 increased by 13.6% from the second quarter of 2018. E-commerce sales in the second quarter of 2019 accounted for 10.1% of total sales. The use of smart phones, tablets and other internet enabled devices contributed to growing E- commerce market.

Consumer Spending in US

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The company could benefit from the increase in spending by consumers in the US. Growing personal income, disposable personal income and personal consumption expenditure indicate improvement in consumer spending in the US, which could increase the purchase of the company’s products and enhance its performance. According to the US Bureau of Economic Analysis (BEA), in December 2019, the personal income (PI) in the US increased 0.5% or US$101.7 billion; disposable personal income (DPI) increased 0.5% or US$87.7 billion and personal consumption expenditure increased 0.4% over that in the previous month to reach US$64.9 billion. In December 2019, the real DPI increased 0.4% and real personal consumption expenditure (PCE) increased 0.3% over that in the previous month.

Threat

Cost of Labor in US

Increasing manpower costs could have an adverse effect on the company’s margins. As of February 2019, Abercrombie employed about 7,000 people on a full- or part-time basis. The tight labor markets, government mandated increases in minimum wages and a higher proportion of full-time employees could result in an increase in labor costs. The federal minimum Labor costs are rising significantly in the US. The federal minimum wage provisions are contained in the Fair Labor Standards Act (FLSA). As of January 2019, the minimum wage rate in the US was US$7.2 per hour. The minimum wage rate in 29 states and the District of Columbia is more than the federal rate. These wages range from US$13.2 in District of Columbia, US$12 in Massachusetts and Washington, US$11.1 in Colorado, US$11 in Arizona, US$10.8 in Vermont, US$9.9 in Arkansas, US$8.5 in Florida, US$8.2 per hour in Illinois. The minimum wage in the District of Columbia reached US$13.3 per hour.

Foreign Exchange Risks

Abercrombie has operations across the world, therefore, is vulnerable to the fluctuations in foreign exchange rates. It reports its financials in the US Dollar), therefore changes in exchange rate of US Dollar against other functional currencies such as Australian dollar, Pound Sterling, Euro and Yen could affect the size of the financial statements of the company. Major elements exposed to exchange rate risks include the company’s investments in overseas subsidiaries and affiliates and monetary assets and liabilities arising from business transactions in foreign currencies. To minimize risks from currency fluctuations, the company could involve in foreign exchange hedging activities by entering into foreign exchange forward contracts. However, there could be no assurance that such hedging activities or measures would limit the impact of movements in exchange rates on the company’s results of operations.

Intense Competition

The company operates in a highly competitive apparel retail market. The factors that determine the level of competition within the industry include service performance, price, and sales and distribution capabilities. Abercrombie faces competition from American Eagle Outfitters Inc, Belk Inc, J.Crew Group Inc, Le Chateau Inc, PVH Corp, Target Corp, The Buckle Inc, The Gap Inc, The Wet Seal Inc, Tommy Hilfiger Europe BV, and Williams Sonoma Inc. Apart from established players in developed countries, players from emerging countries are also competing hard to garner greater market share. Many of its competitors have a longer operating history, greater brand recognition, established customer and supplier

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relationships, and greater financial resources, which could lead to the creation of innovative products and business expansion through acquisitions.

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