Don’t blame direct channels for Abercrombie & Fitch’s lackluster 2008 performance. While the retailer’s overall sales and net income fell, direct sales rose both in term of total volume and as a percentage of sales.
First, the bad news. At $3.54 billion during fiscal 2008, the company’s sales dropped from the $3.75 billion seen during fiscal 2007. The company’s net income, which stood at $475.7 million in 2007, fell to $272.3 million for the year just ended.
The good news is that direct marketing works. The company’s direct sales totaled $315 million, or 8.9% of its sales, in 2008, up from $298 million (a flat 8% of sales) in 2007. This was while per-square-foot sales at the company’s stores fell from $489 per square foot to $425.
The Analyst’s Take: It’s no secret that stores are labor-intensive. Even with staff layoffs and hours cutbacks, there’s only so much a chain can trim and still have a functioning business. Perhaps this is why the biggest change within A&F’s expenses, on a percentage basis, was in stores and distribution expenses, which jumped from 37% a year ago to just under 43% for fiscal 2008. Perhaps 2008 wasn’t the best year for the chain to have a net addition of 90 stores? Be interesting to see how A&F changes its outlook on direct marketing as the year progresses.
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