Abercrombie and Fitch’s CEO Mike Jeffries To Step Down Immediately

Following 11 consecutive quarters of comparable sales decline, Abercrombie & Fitch‘s (NYSE:ANF) CEO Mike Jeffries has decided to retire. In a recent press release, the management stated that Mr. Jeffries will step down from his positions of the CEO and a member of the board of directors effective immediately. ^[1] Alongside, Arthur Martinez, the current non-executive chairman of the board has been promoted to executive chairman, and he along with office of the chairman will oversee Abercrombie’s strategies until a new CEO is appointed. The company’s shares have been up almost 10% since this announcement.

Mike Jeffries’ sudden resignation, followed by a positive stock movement, indicates that investors weren’t happy with his leadership, under which the company had lost a number of its customers to fast fashion brands. Abercrombie has been slow to align itself with changing consumer tastes, due to its persistent emphasis on basic logo products. Moreover, Mr. Jeffries has been under tremendous scrutiny for some time now, due to controversies surrounding his activities and failed strategies. Under his leadership, the company witnessed certain expensive failures such as Ruehl and Gilly Hicks brands and the European expansion.

Our price estimate for Abercrombie & Fitch stands at $39, which is about 30% above the current market price.

See our complete analysis for Abercrombie & Fitch

Mike Jeffries Was Credited With Building A Solid Brand Image

It is worth noting that Abercrombie had relieved Mike Jeffries from his responsibilities as the chairman of the board earlier this year, which was also followed by a positive stock movement. ^[2] While it is somewhat evident that investors are pleased with Mr. Jeffries’ departure, his valuable contribution to the company cannot be ignored. Under his leadership, the company had successfully positioned itself as a premium logo brand with a loyal teenage customer base.

Mike Jeffries was appointed as the CEO of the company in 1992, and he transformed the brand into somewhat of an exclusive club for attractive teenagers. While the company’s advertisements and models offended parents, it resonated very well with Abercrombie’s target audience. Within the first two years of his tenure, Abercrombie’s sales had doubled to $165 million and five years later, the figure reached $1 billion. During that time, Abercrombie was among the most sought after apparel brands in the country, and teenagers regarded its products as a high end status symbol. ^[3]

But Certain Things Went Against Him

In an interview with Salon in 2006, Mike Jeffries said that Abercrombie’s clothes were only meant for “cool kids – the attractive all-American kid with a great attitude and a lot of friends”. ^[3] Early last year, this comment came to light after a Business Insider article pointed out that the company does not offer clothes in sizes XL, XXL and 10 plus. ^[4] This unintentionally offended a lot of people and created significant media upheaval, which was followed by Mike Jeffries apologetic statement.

Abercrombie’s primary motive behind its strategy of not offering plus sized clothes was to remain focused on a specific group of customers, and create a niche image for itself. Instead, it ended up upsetting a lot of investors, which is evident from Engaged Capital’s letter to the board earlier this year. The investment firm had said that Mike Jeffries’ public statements and the apparent intrusion of his private life in the company’s business have caused unnecessary controversy, which is damaging the brand image, employee morale and likely sales. ^[5] Amid all the negative publicity, investors also pointed out some of Abercrombie’s failed strategies, which again brought the CEO in the firing line. The company was scrutinized for its overbuilt U.S. store base, aggressive European expansion strategy and failed brands – Ruehl and Gilly Hicks. Engaged Capital had stated in its letter that poor leadership was more responsible for Abercombie’s under-performance than weak asset quality. ^[5]

With Abercrombie’s brand image faltering, sales rapidly falling and strategies not paying off, the company’s shares have been down 35% since July. Near-term prospects aren’t looking too good either, given that the retailer is aggressively pursuing its strategy to reduce logo business to “almost nothing”, in order to reposition its brand in the market. We believe that the image Abercrombie built for itself over the years, cannot be overhauled in such a short span of time. These issues have made investors more skeptical about the company and to regain their confidence, it appears that the top level management and Mike Jeffries have mutually decided that it was time for him to retire.

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1. Abercrombie & Fitch Co. Announces Senior Leadership Changes, Abercrombie & Fitch, Dec 9 2014 [↩]
2. Abercrombie & Fitch Implements Significant Corporate Governance Enhancements, Abercrombie & Fitch, Jan 28 2014 [↩]
3. Abercrombie CEO Is Out, Business Insider, Dec 9 2014 [↩] [↩]
4. Abercrombie & Fitch Refuses To Make Clothes For Large Women, Business Insider, May 3 2013 [↩]
5. Engaged Capital Tells Abercrombie: Replace CEO, The Wall Street Journal, Dec 3 2013 [↩] [↩]