Nowadays, is capable of innovation. In the modern

 

Nowadays, the market power has smoothly passed from manufacturer to consumer and this should not be ignored in building a business model. Therefore, the basis of success of any enterprise is the creation of a decent customer value, which should bring the profit to the business. Thus, firms try to maximize the customer’s expectations in order to increase sales and profits, respectively. Creation of consumer value, as a rule, is based on innovations. Modernization is a guarantee of leadership, as they provide a competitive advantage to the enterprise.

According to the Alexander Osterwalder & Yves Pigneur’s book “Business Model Generation”, the business model describes the rationale of how an organization creates, delivers, and captures value. (Alexander, 2010) The BM (Business Model) is a simplified representation of a complex object or process and their most essential characteristics. The business model is the potential of the company; its commercial partners, which are necessary for creation, promotion and delivery the product/service to the target market, for instance, Hollister Co. and Zalando are the key partners of Abercrombie & Fitch; relationship with the company’s consumers and formation of investments for a steady stream of income.

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There are dozens of different definitions for business innovation but Peter Drucker’s seems the best. Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or service. It is capable of being presented as a discipline, capable of being learned, capable of being practised. (Drucker, 1985) Undoubtedly, the effectiveness of the organization’s activities largely depends on how much it is adapted to the external environment, to which extent its structure is flexible and mobile and to what extent it is capable of innovation. In the modern period of rapid market development, innovations are the main driving force for the dynamic development of production. It is possible to identify four types of innovation: product innovation, process innovation, position innovation and  paradigm innovation. The importance of innovation can be explained by competitiveness. Due to the Internet existence, customers have become more aware of product/service, they can compare them and look for the best suitable option. Therefore, it is extremely necessary to be ahead of your competitors, that is, to be open to innovation and to expand value proposition.

                                                   

 

 

 

 

 

 

 

 

 

 

 

 

 

Chapter 2: A company summary

2.1 Activity of the company

The story of Abercrombie & Fitch began in 1892, when David Abercrombie opened his first sports equipment store in New York. Today, it is the speciality retailer company that has over 350 stores all over the world. Moreover, A (Abercrombie & Fitch) sells its production direct-to-consumer operations (e-commerce portal) and through various wholesale, franchise and licensing agreements. The company has business operations on four continents: Asia, Europe, the Middle East and North America. The headquarters of the company locates in New Albany, Ohio, United States of America. 311 stores are located in US and only 44 stores in various international markets.

Figure 1 represents the statistical graph about the number of Abercrombie & Fitch stores worldwide from 1998 to 2016. The data on histogram shows the gradual decline in the number of stores in the period from 2007 to 2013 and the sharp rise after.

 

Figure 1. The number of Abercrombie & Fitch store a worldwide from 1998 to 2016.

 

The retailer is mainly focused on young people (both men and women) aged 16 to 25 years who value comfort and quality and lead an active lifestyle. In addition, Abercrombie kids, – clothing brand owned by Abercrombie & Fitch, produces clothes for children aged 3-14. A has a fairly wide range of products, such as following: sportswear (track suits, shorts, T-shirts etc.), intimate and swimwear, sleepwear, coats and jackets, accessories (scarves, hats, bags, belts etc.), personal care products (perfumes and candles). Furthermore, the brand offers few services like gift cards and purchase delivery.

2.2 Market position and revenues

 

The main focus of the company is on the USA. The American market has 63.8% of the total sales. Geographically, 23.1% of the total revenue belongs to Europe and 13.1% to the rest of the international markets (for instance, Asia).

Abercrombie & Fitch Co. has a high competition since the ready to wear retail market is full of large and successful companies. The key direct competitors of the A are fashion group Inditex which includes such famous brands as Zara, Massimo Dutti, Pull and Bear and others; H; Gap Inc.; Nike Inc. and Adidas AG. According to CSIMarket, the market share of Abercrombie & Fitch fell to 1.22% in 2017 (See the Figure 2).

Figure 2. Total Segment Market Share Q3 2017.

 

The company reported revenues of (US Dollars) US$3,326.7 million for the fiscal year ended January 2017 (FY2017), a decrease of 5.5% over FY2016. In FY2017, the company’s operating margin was 0.5%, compared to an operating margin of 2.1% in FY2016. In FY2017, the company recorded a net margin of 0.1%, compared to a net margin of 1% in FY2016.

 

2.3 Main strength and weakness

Strength

Brand

Strong brand image, which exist from the year 1892 attract teenage customers and increase demand for fashion items of the brand throughout the world.

 

Online store

An rising number of sales through e-commerce portal, developing platforms and applications for IOS and Android to increase convenience on customer’s online shopping experience.

 

Weaknesses

Price

High price for a low perceived and simple fashion items. Clothing is designed primarily for children and young generation, and families, who have a middle income level are not always able to let their child buy clothes in Abercrombie & Fitch, because it is too expensive.

 

Marketing strategy

Too provocative advertisement strategy, which promote naked bodies causes a negative reaction from buyers, which reduces their loyalty.

 

Customer segment

Abercrombie & Fitch has a fairly limited segment of customers. The company’s position is to not see oversized customers in their store, and accordingly, it does not produce clothes larger than L size. Given the fact that most of the stores are located in the US, where there is an imposing number of oversized residents, the company is losing a huge number of potential buyers.

 

 

 

2.4 The Business Model Canvas

 

The BMC (Business Model Canvas) is one of the tools of strategic management for entrepreneurs, promoted within L.E.A.N., which allows the company to make a description of the certain project, product or service. Here is the business model of Abercrombie & Fitch Co.

 

 

Figure 3. The Business Model Canvas.

 

Description of the Business Model Canvas.

The BMC consists of nine blocks, which can be combined into four groups, each of the blocks describes its part of the business model of the organization. The model will be described by each of the four groups.

The first group is Infrastructure. It describes how A&F produces value, in fact, determines the basis of the enterprise’s production processes. Infrastructure comprises three blocks: Key Partners, Key Resources and Key Activities.

Key Partners. The mail partners of the company are Zalando (A Germany-based online retailer that sells Abercrombie & Fitch products to its more than 18 million customers in 15 European markets); Hollister Co. (An American lifestyle brand owned by Abercrombie & Fitch Co.); Abercrombie Kids (A children’s clothing brand owned by Abercrombie & Fitch Co.); Zalora (An e-retailer with operations in several South East Asian countries) and Gilly Hicks (A lingerie brand owned by Abercrombie & Fitch, specializing in women’s underwear and loungewear).

Key Activities. Here are the most important processes in the chain of value creation for A’s clients: Trends and Forecasting; Designing; Production; Selling; Shipping and the Customer Service. In the ready-to-wear industry, it is essential to do the constant research in order to match modern fashion and satisfy the customers. Furthermore, the company realize its ideas and projects by producing and selling them. And as an owner of e-commerce portal (official website), Abercrombie & Fitch has a qualitative and operational customer service for solving problems and helping its customers.

Key Resources. The key resources are the following: Brand (intellectual resource); Official Website (financial resource) and Employees (human resource). It is the employees of the company who help the business in attracting new customers, solving important issues and having stable sales. The brand plays equally important role as a face of the company, which determines the image for consumers. Moose is a A&F’s trademark, it is known all over the world. Last but not least is a convenient and simple website where most of the sales and bargains are carried out and through which the management can analyze profitability.

Offering is the second group. It represents the goods that Abercrombie & Fitch offers on the market.

Value proposition. Its trademark slogan is “Casual Luxury”. The enterprise offers its customers comfortable, practical and quality clothes for everyday life, which corresponds to the latest of fashions.

Customers, the third group, shows the main segments of the market, which will be primarily serviced by the company. Moreover, the main processes and ways of working with clients. It consists of three blocks:

Customer segments. The typical customer of the brand Abercrombie & Fitch is seen as a young, energetic and modern person. Store’s size range is limited to L for women and XXL for men that means a slender and well-trained body type.

Channels. The two main ways of delivering products to the customer are self-operated retail stores and e-commerce portal (official website).

Customer Relationships. The enterprise tries to build good relationships with its customers, thus acquiring new potential customers, retaining existing ones and developing relationships with them. Different forms of building relationships include Global Trend; Possibility of Returning the Purchase; Special Offers and Free Shipping. All this improves customer loyalty and desire to buy  more with the next purchase.

Finally, the fourth group- Finances, which includes the features of organizing the financial flows of the company, both incoming and outgoing.

Cost structure. Logistics, Material, Taxes and Salaries are the main financial investments that must be incurred for stability and promotion of A&F.

Revenues Streams. The only way to obtain financing from the market for Abercrombie & Fitch is to sell the product portfolio, in this case, –  in the stores and from the online sales through the website.

 

2.5 The Business Model Pattern

 

Abercrombie & Fitch captures several stages of production of goods, for example, retailing; designing; manufacturing; logistics; selling; etc. This brings to the definition of a clothes firm as a vertically integrated. The enterprise is able to translate customer intelligence (wants, trends, fashions) much quicker through its wholly-owned chain.

It is possible to assume with the fully confidence that Unbundling business model, Multi-sided platforms and Free business model do not fit the description of the A&F activities. Considering that Abercrombie & Fitch does not have division into different forms of activity, – not unbundled; has only one group of consumers, – not multi-sided and its customers can not get free benefits, they have to pay for the products, – not free. With regard to Long tail, the company does not manufacture niche products and does not aim at selling less of more. The most appropriate business patter is Linear business model because the firm creates its value in the form of ready to use products and sells them to its consumers.

 

 

 

 

Chapter 3: Business Trend

 

In this chapter the digital transformation economy, the main business trend, its scenario and the impact it could have for the company’s business model will be presented.

In the modern world there is no place for discrimination. The humanity has changed the attitude towards people around the world, and discrimination against social, cultural or ethnical belonging has become unacceptable in the developed countries, like European countries and the US. Everyone knows that obesity has become a national problem in the US, every third American suffers from obesity. Over the past decade, the statistical data has shown a significant growth. (See The Figure 4)

 

Figure 4. Overweight and obesity among the US population.

Significant figures indicate that the size of clothing of many Americans exceeds L size. In its turn, Abercrombie & Fitch is a daring brand for those who are young and appreciate an active lifestyle. The company justifies its policy by saying that “A&F does not want to see overweight people but wants only thin and beautiful buyers in its stores.” (CEO Mike Jessfries), for which it is constantly condemned by human rights defenders. All product portfolio is mostly designed for slim teenagers – “Slim Fit”. There are only sizes up to L for women and XXL for men in the size range. As it turned out, it was made an exception for men just because there are muscular big sportsmen among them. Otherwise, the male line would be limited to the size L too.

Generally, Abercrombie & Fitch Co. operates in the United States, presenting this information more clearly: 311 out of 355 stores are located in US. So, most of its customers are American. Such an irreproachable attachment to one’s principles deprives the company of a huge number of potential customers. A large number of people are ready to buy products but do not have the opportunity because of the limited size range. Moreover, such management’s statements reduce the loyalty of tolerant buyers to the brand. The company runs the risk of losing its market share because such serious competitors as Zara, Gap and American Eagle have a more extended size range, thus, more clients.

The company should revise its policy and become more tolerant of modern society and its minorities. A will be able to attract a new customer segment, which was a potential one for a long time. Thus, the market share of the clothing firm will become more stable, and the company itself – more competitive. The profit must significantly increase and the margin – reduce. Regarding the digital transformation economy, the company has powerful and extensive digital resources and statistics data. Its easy-to-use website and platforms developed for IOS and Androids bring tremendous gains in sales. If the company does not want to “see overweight customers in their stores,” it can sell over L size clothes on its e-commerce portals.

The major impact on the business model would be increasing productivity, opening new self-operated retail stores and attract a new segment of customers (overweight young people).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chapter 4: Conclusion and Recommendations

 

Nowadays, in conditions of increased competitiveness in the world market, a significant number of once successful firms remain on the verge of bankruptcy. This is happening because the market is rapidly changing, at the same time, technologies are developing as well, and entrepreneurs become more loyal to the middle class, and consequently, any company has to keep up with the time in order to succeed, while simultaneously absorbing new technologies and changing its attitude to the minorities of the modern society, as well as globally reconsidering their major principles. On the example of Abercrombie & Fitch Co., it was detailed considered how fidelity to its principles and unwillingness to adapt to the changes in environment can significantly harm the business.

Even though the company has a long history, it is quite difficult for it to stay afloat. The enterprise has both strengths and weaknesses, and in order to make its activities profitable again, it is important to understand that the sales methods that could be applicable in the last century are no longer relevant today. Thus, Abercrombie & Fitch should change its attitude towards customers, who are suffering from obese, and become more tolerant. This will help to expand its customer segment and will allow the firm to be more competitive not only within the United States, but also around the world.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chapter 5: Bibliography

 

Books

Company Profile. Abercrombie & Fitch Co. (2017). Marketline.

 

Gann, D., Phillips, N., & Dodgson, M. (2015). The Oxford Handbook of innovation management. Oxford: University Press.

 

Murray, A. (2015). The Business Model Canvas. Symphonya.

 

Osterwalder, A., & Pigneur, Y. (2010). Business Model Generation. Hoboken, New Jersey: John Wiley & Sons, Inc.

 

Strekalova, N. (2009). Business Model Concept: Methodology of system analysis. Saint Petersburg State University Graduate School of Management.

 

Tidd, J., Bessant, J., & Pavitt, K. (2016). Managing innovation: Integrating Technological, Market and Organizational Change (3rd ed.). John Wiley & Sons, Inc.

 

 

Websites

 

Abercrombie & Fitch Co. (2018). Retried January, 2018, from

https://www.abercrombie.com/shop/eu/sale?originalStore=eu-nl&&source=google=NL=PDS_G_813950086_43622786553_kwd-488023224872_245977212677_9065248_c=CMnP0-Da5tgCFUmKhQod_PcA4w=ds

 

Abercrombie & Fitch Co’s competitiveness. (n.d.). Retrieved January, 2018, from https://csimarket.com/stocks/compet_glance.php?code=ANF

 

Flegal, P. K. (2012, February 01). Prevalence of Obesity and Trends in the Distribution of Body Mass Index Among US Adults, 1999-2010. Retrieved January, 2018, from https://jamanetwork.com/journals/jama/fullarticle/1104933

 

Platform vs. Linear: Business Models 101. (2017, May 01). Retrieved January, 2018, from https://www.applicoinc.com/blog/platform-vs-linear-business-models-101/

 

The Statistics Portal. (n.d.). Retrieved January, 2018, from https://www.statista.com/search/?q=abercrombie

 

Table of Figures

Figure 1. The number of Abercrombie & Fitch store a worldwide from 1998 to 2016………….. 2

Figure 2. Total Segment Market Share Q3 2017……………………………………………………………… 3

Figure 3. The Business Model Canvas…………………………………………………………………………… 4

Figure 4. Overweight and obesity among the US population…………………………………………….. 6

 

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