Fran Horowitz' Turnaround at Abercrombie & Fitch

Source: bizjournals.com

Fran Horowitz, CEO of Abercrombie & Fitch, has led quite a turnaround at the company over the past several years (the firm manages both the A&F and Hollister brands). She inherited a company spiraling toward a similar horrible fate experienced by other struggling brick-and-mortar apparel retailers in recent years. Horowitz managed to reverse the decline. Under her leadership, A&F has rebounded to reach a revenue level last achieved in 2014. The firm's share price has almost quadrupled during her tenure.  

Fortune recently published an in-depth look at the turnaround.  As I read the article, authored by Phil Wahba, I was struck by two key elements of Horowitz' leadership.   She offers us one important lesson about business strategy and another about organizational culture. 

First, with regard to competitive strategy, Horowitz noticed that the A&F and Hollister brands had converged to the point of becoming indistinguishable.   Horowitz noted, “The simple conclusion I came to was that the brands had really become melded into one.  It was essentially the same product with just a different logo across the chest, at a different price.  She set out to create brands with distinct competitve positioning.  I would argue that many multi-brand apparel retailers have faced a similar predicament.  In desperate search of synergies among their subsidiaries, the firms have watered down the distinctive aspects of each brand.  They have reduced costs, but at the expense of a developing strategies that stood out from one another.  Wahba writes, 

On a more fundamental level, Horowitz started to put distance between Hollister and Abercrombie & Fitch so they weren’t interchangeable and didn’t risk being seen by shoppers as commodities, something that was draining their pricing power. “We had an opportunity to separate the brands and get them each on their own path,” she says.

The problem was that for years, the two brands had shared a merchandising and design team, so the products were very similar. For instance, a Hollister parka and one at Abercrombie would have almost the same design, with only tiny touches—a difference in color, say—to set each brand apart. So Horowitz gave each brand its own dedicated teams.

She also zeroed in on making sure they served different markets. For Hollister, based on data drawn from tons of in-person consultations with shoppers, the company determined that the target customer would remain a 17-year-old looking for clothes that invoke the feeling of a carefree, endless summer. Abercrombie, meanwhile, would “age up” and look to cater to 25-year-olds looking for casual, quality clothing. (But 25 is an average: A&F does carry items aimed at an older shopper, including $40 Def Leppard men’s t-shirts.)

In terms of organizational culture, Horowitz tackled the transformation of a top-down culture where front-line employees' ideas and perspectives were not valued. Wahba describes the culture under the previous CEO:

Jeffries’ top-down management approach worked well...until it didn’t. By the 2010s, his my-way-or-the-highway approach meant the company was missing important cultural shifts and falling out of step with its consumers, who were becoming less interested in company logos and airs of exclusivity. And the CEO eventually became notorious for his imperious management style.

The point here is very important. Creating a culture of low psychological safety not only demoralizes your employees, but it means you miss KEY shifts in customer behavior and market dynamics.  The people closest to the customer are not able to provide critical feedback and information to senior managers plotting overall strategy. Hollister President Kristen Scott, hired by Horowitz to help lead the transformation, notes, "“It took years, really, to get everybody comfortable reporting back what the customer was really asking for.”

Apparel retailer is a highly competitive industry.  The future may still present major pitfalls for A&F.  However, Horowitz' turnaround reminds us not to sacrifice distinctive competitive positions in desperate search for corporate synergy, and not to forget the impact that low psychological safety can have on an organization's ability to sense changing customer behavior, wants, and needs.