79-A High End Retailer in a Leader’s Trap
In a Leader’s Trap, an established industry competitor maintains a price umbrella and gives up market share to a discounting competitor. (See the Perspective, “The Leader’s Trap” on StrategyStreet.com.) The company in a Leader’s Trap believes that customers will stay loyal to the established company’s brand name by paying a premium for its product. Over time, the company in the Leader’s Trap not only loses share, but also sees its prices eventually fall to a level near the price established by the discounting competitor.
Abercrombie & Fitch is now in a Leader’s Trap. The company is refusing to discount its latest clothing lines, even though competitors are discounting their lines. Both American Eagle Outfitters and Aeropostale are offering discounts on their current lines. Not Abercrombie.
Abercrombie is a higher-end retailer, someone we call a Performance Leader competitor. American Eagle and Aeropostale aim for somewhat lower price points. Nonetheless, even though the companies compete at different price points, significant discounting in a marketplace affects all competitors. If an industry Standard Leader, who prices at average for the industry, or a Price Leader, who prices at the low end of the market, begin offering new significant discounts, even Performance Leaders have to follow or be willing to give up market share. (See the Symptom and Implication, “Most competitors are offering low prices after a period where leaders held prices high” on StrategyStreet.com.)
So far Abercrombie has refused to go along with discounts. Its market share is also falling. In December, its same-store sales fell 24%. Aeropostale’s same-store sales rose 12% at the same time. Eventually, Abercrombie will have to reduce its prices to stay competitive.
After clashing with one another and suffering grievously in the process, Abercrombie, Aeropostale, and American Eagle have diverged from one another though all face continuing intense competition.
Abercrombie went through a tough period of closing stores from 2010 through 2018. It began to rebrand itself, moving away from Its former sexualized advertising and stressing more customer service. It now operates 729 stores worldwide focusing on a market segment of 21+ years. Today it is a near luxury brand selling high quality and high-priced fashions.
Aeropostale went through bankruptcy in 2016. It was unable to move away from its pricing strategy of constant discounting. It emerged from bankruptcy after a bid from former vendors and private equity companies. By 2019 it had over 1000 worldwide stores targeting a consumer in the age range of 14 to 17.
American Eagle Outfitters today is classified as a “retro/vintage” retail chain focused on consumers around the age of 20.
All 3 companies maintain a solid online presence. Abercrombie and American Eagle enjoyed something over 13 million online visits in February 2022, with American Eagle leading Abercrombie with 5.38 pages per visit to Abercrombie’s 4.95. Aeropostale trailed both of these competitors by a wide margin.
While the 3 companies are less engaged with one another than they were 10 years ago, they all face intense competition from the newer, fast fashion competitors such as Zara, H & M and Forever 21. Each of the three companies has many alternatives to develop new products and services as they consider what their final customers expect of them as retailers. HERE is an explanation of the many concepts and examples of product innovation that are possible. You can use these innovation concepts and examples to brainstorm improvements for your own company.
HOW CAN THESE BLOGS HELP ME?
If you face a competitive marketplace, read these blogs. We wrote them to help you make better decisions on segments, products, prices and costs based on the experience of companies in over 85 competitive industries. Much of the world suffered a severe recession from 2008 to 2011. During that time, we wrote more than 270 blogs using publicly available information and our Strategystreet system to project what would happen in various companies and industries who were living in those hostile environments. In 2022, we updated each of these blogs to describe what later took place. You can use these updated blogs to see how the Strategystreet system works and how it can lead you to better decisions.