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CONTENTS
1.1 Introduction

2. Strategic Management 2.1 Mission Statement And Objectives 2.2 Importance Of Goals And Strategic Overview

3. Strategic Choices 3.1 Porter s Strategic Choices- Generic Strategy 3.2 Expansion Strategy 3.3 Location Strategy

4. The Paradigms Of Corporate Strategy 4.1 Outside-In Approach- Competitive Advantage 4.2 Inside-Out Approach Resource Based

5. Environmental Analysis 5.1 Political Factors 5.2 Economic Factors 5.3 Social Factors 5.4 Technological Factors

6. Conclusions

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An Evaluation Of The Retail Strategy Employed By Abercrombie & Fitch

1.1 Introduction To briefly introduce the company itself, Abercrombie & Fitch (commonly known as A&F) is an American fashion retailer which was founded in 1892 by David T. Abercrombie and Ezra Fitch. In more recent times, A&F is currently being headed by chairman and CEO Michael S. Jefferies who was central to the transformation of the brand from being an elite outfitter of sporting and excursion goods (particularly noted for its expensive shotguns, fishing rods and other outdoor goods) into the aspirational casual luxury lifestyle brand category that it is renowned for today (Banay, 2007). Abercrombie & Fitch focus on offering premium quality, casual, all-American lifestyle clothing for both men and women. The company is comprised of four separate off-shoot brand concepts, Abercrombie & Fitch, Hollister California, abercrombie and Gilly Hicks Sydney:

Abercrombie & Fitch have labelled their four separate brands as each embodying qualities that are equally classic, casual, confident, intelligent, privileged and possess a sense of humour (Abercrombie & Fitch Official Website, 2010) (a).

2.Strategic Management

2.1 Mission Statement and Objectives Whilst looking at A&F s retail strategy, their mission statement should first be analysed to give a brief, concise description of the company itself. A mission statement should embrace the values of a company, and accurately explain why your organisation exists and what it hopes to achieve in the future (Radtke, 1998). Abercrombie s mission statement claims, "We are committed to providing comfortable and long lasting clothes that look good". Abercrombie s focus on premium quality goods and comfortable clothing is what distinguishes their product range from other competitors. The brand reputation is focussed around the quality of the goods being sold as well as the appeal of the brand itself, and therefore the sourcing of materials and quality control of products is an integral

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part of the A&F ethos. A&F s future strategy, as outlined in their annual reports from 2007-2010, is to expand the focus of their customer base and increase their analysis of customer trends. This was displayed by A&F s development of the now redundant Ruehl No.925 sub-brand, which ceased operations in 2010, which was an effort by A&F to maintain a customer base past ages 18-22, and to move into a more mature and sophisticated clothing line appealing to slightly older customers. Despite a decline in both net sales and gross profits between late 2009 and 2010, A&F reported a 64% rise in net income to $32m (19m) for the 13 weeks to 30 July 2011 with total sales also rising. Total comparable store sales for the quarter increased 9%. Like-for-like store sales increased 5% for Abercrombie & Fitch, 7% for Abercrombie kids, and 12% for Hollister. Total sales by brand were $383.4m (231.9m) for Abercrombie & Fitch, $83.3m (50.4m) for Abercrombie kids, and $434.2m (262.7m) for Hollister. (MINTEL, 2011) (a) 2.2 Importance of Goals and Strategic Overview

This assignment aims to critically evaluate the retail strategy of Abercrombie & Fitch, both from a company-wide perspective, and also looking into the strategies employed within the subsidiary brands of the company itself. Strategy can be defined as as a unified, comprehensive and integrated plan, designed to ensure that the basic objectives of the enterprise are achieved (Glueck, 1980). In terms of the importance of goals when making reference to A&F s retail strategy, it is important to take into account four main sections of strategic goals in order to evaluate the state of Abercrombie & Fitch and the past, present and future for the company: direction, prioritise, evaluate, horizon. The direction of Abercrombie & Fitch is emphasised through the aforementioned mission statement Abercrombie aim to retain a focus on long lasting, comfortable luxury goods , which are the basic defining factors which distinguish the product range of A&F from their competitors. . The brand is centrally designed and marketed around fashion conscious teens and young people in their early 20 s, and therefore remaining current and cool is at the forefront of Abercrombie s direction as a company. In terms of the second area of main strategic goals, prioritising, it is clear that while A&F have focussed primarily on the 15-22 age group, in recent years they have prioritised diversification through A&F s strategy of attempting to spread out and reach a wider demographic, both in terms of development of subsidiary brands, but also their key goal of internationalisation and establishing a foothold in new countries and territories, which A&F and their stakeholders evidently see as vital for the future success of the company on a global scale. Brand image maintenance and strengthening is also central to the priorities of the company, as is maintenance of consumer perception of the quality products. Although the remainder of this study will focus on a

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further analysis of the the evaluation perspective of A&F is displayed in this year-to-year comparison of the company on a few key areas: y y 1998: Store Count- 196. Associates- 9,500. Net sales- $815,804. 2010: Store Count- 1098. Associates- 85,000 (Approx) . Net sales- $3.469 Billion

Finally. In the last area of the four main strategic goals, horizon, Abercrombie s plans in 2009/2010 allowed for consideration of the economic downturn, including the closing down of their 29 Ruehl No.925 stores due to the underperformance of the brand in comparison to their other stronger brands. The company has however continued its key goal of brand expansion, and now operates stores in Italy, Denmark, and France. With plans for continued openings of stores in both the aforementioned countries and new territories in the close future. Belgium, Germany, Spain and Irish flagship stores have been planned for opening in late 2011. Similarly, the company s Asian expansion is ongoing, with a new flagship store opening December 2011 in Singapore. There has, however, been some worry about store closings in the U.S for the company, with a significant number of outlets being closed in U.S malls since 2010 (All Headline News, 2011). 3. Strategic Choices 3.1 Generic Strategies After analysing A&F s retail strategy using Porter s Generic Strategies ( Wright et al, 1990), Abercrombie & Fitch have primarily undertaken a Focused Differentiation Strategy , as depicted below in Fig (a) Fig (a)

Source: Carpenter, Bauer and Erdogan (2009) Principles of Management. 4

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The focused differentiation strategy allows A&F to differentiate their product range in a way that means they can compete successfully in different markets, and distinguish their collections clearly in order to compete in separate diverse markets. Particularly since the demise (and eventual dissolution) of the Ruehl No.925 brand, Abercrombie & Fitch have tailored their strategy to select and focus on a particular market, the 18-22 demographic (as outlined in Table (a) ). The idea behind this strategy is that the retailer focuses all of its resources in marketing on a niche target segment of consumers (here, the student/young adult category), and tailors their marketing mix and 4P s (Price, Place, Product, Promotion) to cater towards this category particularly. This allows A&F to focus it s subsidiary brands (abercrombie kids, Hollister and Gilly Hicks Sydney) to target both strictly the female market (Gilly Hicks Sydney) the slightly younger market of 14-18 year old high school teens (Hollister), and the 7-14 year old age group (abercrombie kids) Table (a) Abercrombie & Fitch s Segmentation Variables And Target Segments

Segmentation Variable Demographic- Age, Gender, Size, Look Geographic- Location of Store, Theme of Store

A&F Target Segment 18-22+, Male/Female, Athletic/Slim, Attractive City centre locations, university cities, in-store New York College theme

Psychographic- Socioeconomic group, Activities, Lifestyles Behavioural- Consumer Behaviour, Consumption

Upper-Middle class, casualluxury, athletic lifestyle, confident. Aspirational lifestyle brand, cool appeal, high disposable income bracket.

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3.1 Retail Strategy Abercrombie & Fitch have gained competitive advantage in a crowded marketplace through a specific brand strategy, including a somewhat controversial catalogue with semi-nude Caucasian males and females in their twenties (Dressen, 2005) which is chiefly concerned with selling the idea of party-loving jocks and bare naked ladies living fantasy lives (Safer, 2003). In-store, Abercrombie & Fitch employ front-of-house models as sales assistants, who are handpicked in line to look like college students. Safer (2003) describes Abercrombie as wanting a sales force that reflects what s up on it s walls . Sales associates are required to wear products from the Abercrombie range (and are often advised to buy this season s clothing). Dressen (2005) describes the in-store design as being centred around dark Victorian wood, large leather couches, moose heads and canoes (tying in with the outdoors theme), with each store costing around $650,000 to open (Abercrombie & Fitch Website, 2003). The stores are also decorated with the same racy photography conveyed in the A&F magalog A&F Quarterly (combining a magazine and catalogue). Abercrombie & Fitch s Website (2010) describes the stores as having a combination of classic and sexy that creates a charged atmosphere that is confident and just a bit provocative. This deliberate move into provocative advertising campaigns has been successful in A&F s positioning in a competitive environment (See Appendix 1).

3.2 Expansion Strategy

With the company experiencing a period of growth in both the size and popularity of the brand, a decision was taken by A&F in 1998 to introduce it s first subsidiary brand, abercrombie, a version of their own brand targeted at a younger 7-14 age group. Later, in 2000, Hollister Co. was introduced as another subsidiary brand of A&F, which was a concept based on the Southern California surf lifestyle and a target demographic of mainly high school students. Ruehl No.925 (now defunct) was Abercrombie & Fitch s venture into retaining its customer base past college students and moving into a more mature market. Launching in 2004, the subsidiary brand was deemed comparatively unsuccessful by A&F, and taken off the market in late 2010. The most recent concept by A&F has been the subsidiary brand Gilly Hicks Sydney, inspired by Down Under and the Australian lifestyle, which is catered solely towards female clientele and specialises in women s knickers from casual to sexy, relaxed PJ s and beauty things (Gilly Hicks Website, 2011).

Using the Boston Box Matrix (see Appendix 2) to categorise Abercrombie s 4 sub-brands (and one redundant former sub-brand) allows a further understanding of how each brand is performing, as 6

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well as allowing for the assessment of potential for further expansion in other markets. Each brand has a distinctly different target market , however the sentiment and image that each brand conveys fits in with the A&F aspirational lifestyle mould. Despite each brand s target demographic differing, the focus and overall appeal of the brands are essentially the same; premium quality products, aspirational advertising campaigns, similar in-store environments, attractive staff and the most important of all: the lifestyle brand reputation, and image that A&F and it s various sub brands represent. The Ruehl brand has been included in the Boston Box Matrix here despite it s closure by A&F in 2010 as it demonstrates A&F s efforts to branch out into a fourth sub-brand which, despite it s lack of success, displays the company s focus on diffusion brands and attempt to branch out into retaining their current customer base beyond the age of 22+. Abercrombie s main aim in creating these sub-brands ties in with their long term expansion goals, as they also aim to improve the productivity of the Gilly Hicks brand, which the company believes is a necessary precursor to expanding the store count for the brand and having a path to profitability (A&F Annual Report, 2010).

The organisational fit of these brands does not stop at the in-store experience, however; the Abercrombie lifestyle can be found in every corner of the operation, with the Abercrombie & Fitch Headquarters being located on a 300 acre site in Colombus, Ohio which is known as The Campus . (Abercrombie & Fitch Website, 2011) . All decision-making is dictated from this centralised location, which allows the organisation to incorporate fast decision making and quick turnover of product designs, a key factor in the ever changing fashion industry. Abercrombie say this set-up allows them to respond to emerging trends faster than any other retailer (Abercrombie & Fitch Website, 2010). Within The Campus, all of the departments operate within their own compartmentalised sections from merchandising to product design, as well as the centralised Distribution Hub, where all of the A&F merchandise is held and processed for shipping and delivery to each of their stores worldwide. Crucially, The Campus also contains A&F s very own Campus Stores , which according to the A&F website allow us to effectively plan how our garments will be marketed, and how our stores will look and feel to our customers . Therefore, not only does The Campus undertake in the design and distribution process, but they also have employees involved in merchandising the actual products in order to ascertain the optimum methods of displaying the garments in-store before they are even distributed to the stores themselves!

4.1 Environmental Analysis And PEST

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4.2.1 Political Factors y Abercrombie & Fitch has moved into new territories, but crucially plans to move into more new territories by the end of the year; one in Brussels (late 2011), one in Dublin (late 2011), and one in Hong Kong (2011/2012). The political constraints/laws in each of these countries may be entirely different to the laws/political constraints in the countries in which A&F currently operates, therefore it is important that A&F conduct a proper PESTEL analysis and comply with local laws in each of these countries. y Employment laws are ever-changing, and A&F has come under heavy criticism for hiring staff on the basis that they fit in with the Abercrombie Look . There was controversy, noted by the New York Times (2004) on the Gonzalez v. Abercrombie & Fitch case, resulting in a Class-action settlement, where the two sides announced an agreement that calls for Abercrombie & Fitch to pay $40 million to several thousand minority and female plaintiffs. Abercrombie also agreed to hire 25 diversity recruiters and a vice president for diversity and to pursue benchmarks so that its hiring and promotion of minorities and women reflect its applicant pool (New York Times, 2004). With Abercrombie coming under fire and eventually having to settle on employee rights cases such as these, it is important that the company avoid negative publicity such as these cases, and keep a close eye on employment laws in the respective countries in which they operate, and also look into hiring a more diverse workforce to avoid political intervention.

4.2.2 Economic Factors y Economic downturn in the previous 3 or 4 years has led to a declining Net Profit figure in A&F s balance sheet, as well as a declining Net Sales figure (A&F Annual Report, 2010). A&F need to ensure that they work to regain a higher sales figure as in previous years, and do not lose market share to lower-priced competitors. A&F s reluctance to display discount items may have been detrimental to their sales figures in times of economic downturn, but conversely, it can also be argued that their reputation as a premium quality lifestyle brand marketed to upper-middle class customers does not fit in with the discount culture, and therefore they must sustain prices (despite a drop in net sales) in order to maintain their brand image. y Doeringer and Crean (2006) suggested that the delocalization of production to low wage countries by American apparel retailers has disadvantaged American retailers in that they lack the speed, flexibility and proximity to centres of fashion and design which they would 8

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previously employed when producing the goods in America. Therefore, the opportunity cost of delocalising production to cheaper territories such as South America and Asia to save money on production and labour has been that retailers such as A&F are often suffering other negative externalities arising such as speed of delivery and reaction to changing fashion trends. The economic opportunity cost of relocating production to foreign territories therefore has to be weighed up, as the costs in some cases may outweigh the benefits in the fast-pased fashion industry. y During times of economic downturn, perhaps Abercrombie should look at countries experiencing lower or no recession to market their products, and strengthen marketing in these countries; Australia is one of the few developed countries that many could argue did not experience a recession when the US economy was in decline, and therefore perhaps A&F needs to focus on increasing spending on marketing of their products to countries such as Australia in times of economic downturn in local territories. 4.2.3 Social Factors y Aspects such as cultural change in the future are something that A&F must consider, but are unable to mould to the extent which they would wish. A&F must consider developments in the Internet Generation and move with these changes, ensuring that it remains current and cool in the eyes of tomorrow s youth.

With regards to financial performance, Abercrombie & Fitch s Income Statements from 2007- 2011 is displayed below in fig (B)

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Fig (b) Source: MSN Money Central Investor Reports (2011) The financial performance for A&F experienced a decline in both Total Revenue and Net Income from 2009-2010, as displayed above, which led critics including Britt Bremer (CEO of America s Research Group) to the statement that Abercrombie has mis-managed this economic downturn more than any other retailer . This statement appears to be supported by Time Business expert Sean Gregory, who commented in 2009 that A&F had suffered 10 straight months of double digit same store sales decline. Gregory goes on to point out that, in 2009, Abercrombie & Fitch lost $26.7 Million (in the second quarter). During the same period in 2008, Abercrombie scored a $77.8 Million profit. Gregory argues that a large proportion of this poor performance could have been avoided (or at least minimised to an extent) by discounting products and offering sales, which Abercrombie remained resilient in their refusal to undertake, despite competitors such as Aropostale offering 10

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huge discounts on their products. Though there was no official information available as to why Abercrombie refused to join competitors in offering large discounts in the recession, Abercrombie s focus on being a luxury lifestyle brand , and premium, high-end products could be the reason behind this decision, as A&F would not want to damage their upmarket reputation by discounting goods. C.W Park of the Journal Of Consumer Psychology to an extent argues in favour of A&F s refusal to drop prices, stating that according to various research findings, a company will have a tough time increasing prices once they've lowered them (whenever a recession subsides)", and also argues that when discounting goods, shoppers start to think the discounts are base prices, and you risk alienating shoppers if you raise (the prices again).

Abercrombie & Fitch have often came under criticism in the media for their sales technique of employing their own idealised beautiful people as brand reps , and Kimberley West-Faulcon of the NAACP Legal Defense and Education Fund described the Abercrombie & Fitch hiring process as having a back-of-the-bus mentality , presumably alluding to Abercrombie s focussing on predominantly white fraternities and sorority in it s recruitment (NY Times, 2004). Abercrombie workers have also said that they were often told to go to college campuses and to urge goodlooking fraternity and sorority members to apply for jobs (NY Times, 2004). Abercrombie & Fitch Official Website (2010) (a) , Annual Report, Form 10-K, available from http://www.sec.gov/Archives/edgar/data/1018840/000095012311030172/l41654e10vk.htm Last Accessed: 19/10/11 18.00PM Abercrombie & Fitch Official Website (2010), Our Company, available at http://www.abercrombie.co.uk/webapp/wcs/stores/servlet/product_12406_10901_681165_1_56948_12202 Last Accessed: 20/10/11 22.00pm. Abercrombie & Fitch Official Website (2011), Careers And Opportunities, available from: http://www.abercrombie.co.uk/anf/careers/homeOfficeOpportunities.html Last accessed: 20/10/11, 21.00PM All Headline News (2011), Shopping Mall Vacancies Hit 11-Year High , available from http://www.allheadlinenews.com/articles/90063256?Shopping%20mall%20vacancies%20in%20U.S. %20hit%2011-year%20high , last accessed: 26/10/11, 16.30PM Banay, S., (2007), Top Companies Profile- Abercrombie & Fitch , available from http://web.archive.org/web/20070622124955/http://www.portfolio.com/resources/companyprofiles/3375 Last accessed: 19/10/11, 17.49PM. Carpenter, Bauer and Erdogan (2009) Principles of Management. Nyack, NY. Flat World Knowledge

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C.W Park,. (2009), Abercrombie & Fitch- Worst Recession Brand , Time Business, available from http://www.time.com/time/business/article/0,8599,1918160,00.html Last Accessed: 24/10/11, 18.50PM Doeringer, P.B., and Crean,S. (2006), Can Fast Fashion Save The US Apparel Industry? , SocioEconomic Review, Vol 4, Issue 3. Pages 353-377. Dressen, C. (2005). Message Communication In Advertising- Selling The Abercrombie & Fitch Image. Journal Of Undergraduate Research, Vol VIII. Pages 2-13. Gilly Hicks Official Website (2011), About Us. Last accessed: 20/10/11, 18.10PM Glueck, W.F., (1980) Business Policy And Strategic Management, 3rd Edition, (NY Mc-Graw-Hill), Page 9 Hazlett,C. (2008) Brits Get Fitched: Saucy American brand shakes up London s formal Saville Row. Jezebel Official Website (2010), American Beauty: A Brief History Of Abercrombie s Hiring Practices. Last accessed: 20/10/11, 18.57PM MINTEL (18-08-2011) (a), Abercrombie & Fitch income rises , available from http://academic.mintel.com/sinatra/oxygen_academic/search_results/show&/display/id=18608/dis play/id=589135 MSN Money Central Investor Reports (2011), Abercrombie & Fitch: Income Statement, Available at: http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?symbol=ANF Last accessed: 24/10/11, 18.59PM New York Times, (2004). Abercrombie & Fitch Bias Case is settled http://www.nytimes.com/2004/11/17/national/17settle.html?_r=2&scp=10&sq=Abercrombie&st=n yt&oref=slogin Last accessed: 21/10/11, 16.57PM Radtke, J.M, (1998) Mission Statements, Strategic Communications, (The Grantsmanship Centre) Poulter, S., (2007), The trendy US gear that costs double over here . Daily Mail Newspaper, http://www.dailymail.co.uk. Last accessed 28/10/09 Safer, M. (2003). The Look of Abercrombie and Fitch. CBS Online. Available at: www.cbsnews.com/stories/2003/12/05/60minutes/main587099.shtml Last accessed 19/10/11, 22.25PM Wright, Peter, Kroll, Mark, Kedia, Ben, and Pringle, Charles. (1990) Strategic Profiles, Market Share, and Business Performance. Industrial Management, May 1, Pages 23-28.

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Appendix 1 Porter s Five Forces Model Threat of new entrants

Bargaining power of suppliers

Competitive Rivalry Within The Industry

Threat of substitute products

Bargaining power of customers

The barriers to entry in this case are weak in the sense that it is easy to source and produce cheap apparel in the Far East, however the barriers to entry in this case exist as the apparel industry (and particularly brands such as Abercrombie & Fitch) maintain a strong, loyal customer base and have brand sovereignty which is hard to replicate. Buyer power in this case is relatively high- consumers are price sensitive, and especially in current times of economic downturn, will respond positively to seasonal sales and promotions more so than in more prosperous times. A&F goods are priced 10%-40% above their competitors such as American Eagle, and therefore during seasonal sales from competitors, A&F may suffer the consequences of their reluctance to display sale goods in flagship stores. Supplier power is relatively low as the market position of A&F and the company s buying power means they are able to exact influence over suppliers due to the quantities of garments that they are ordering. Factories are also plentiful in the Far East and South America, putting A&F in a strong position to barter and negotiate with suppliers if the instance arises when they are unhappy with current suppliers.

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Threat of substitutes here comes in the form of both branded and non-branded goods. Retailers such as H & M and Zara often have generic non-branded goods with no labels to indicate which store they were purchased from. These substitutes therefore lack the prestige of the label/logo of A&F and are not the status symbols that A&F clothing represents, as well as the instant recognition of A&F branded products.

Appendix 2 Boston Box Matrix

High

STAR (Growth Phase)

Problem Child /Question Mark

Market Growth

Cash Cow (Maturity)


Low

Dog (Decline)

High Relative Market Share

Low

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Appendix 3 Ansoff s Growth Matrix

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Appendix 4 S.W.O.T Analysis

STRENGTHS
1. Strong brand image both domestically and internationally 2. Customer service levels high 3. Premier casual luxury lifestyle brand 4. Flagship stores in premium locations 5. Reasonably strong financial performance in recession 6. Centralised efficient operational base 7. Two efficient distribution locations 8. Established supplier product quality standards in place

WEAKNESSES
1. Criticised for sexualising catalogues (padded bikini tops targeted at children etc) 2. Reputation for employee discrimination based on attractiveness, race etc 3. Criticised for creating unrealistic expectations and perceptions of attractiveness in catalogues/models/staff 4. Low inventory turnover ratio 5. Product offering is often deemed unadventurous and repetitive 6. Currently, limited global outreach (in terms of stores internationally) 7. Decrease in Net Sales/Gross Profits 2009 on previous year

OPPORTUNITIES
1. Continued global expansion planned within the year ( Belgium, Germany, Spain and Ireland) 2. Strong investment in infrastructure 3. Larger investment in marketing for 2010/2011 4. Improvements in domestic productivity levels in 2010 5. Closure of negative contribution stores strengthens company as a whole 6. Investment in improving productivity of Gilly Hicks brand 7. Higher gross margins in international operations 8. Developments of new product ranges/styles 16

THREATS
1. Anticipating and quickly responding to changing fashion trends 2. New competition in new foreign territories 3. Changes in consumer spending patterns as a result of economic downturn 4. Counterfeit goods 5. Increases in substitutes on the market 6. A&F does not own manufacturing facilities, therefore dependent upon third parties 7. Fluctuations in foreign exchange rates 8. Declining Net Sales, 2008-2009 9. Declining Gross Profit, 2008-2009

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Appendix 5

Brand Positioning Diagram

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