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Abercrombie & Fitch is a specialty retailer that operates stores and websites selling casual sportswear apparel, including knitted and woven shirts, graphic t-shirts, fleece, jeans and woven pants, shorts, sweaters, outerwear, personal care products, and accessories for men, women, and kids under the Abercrombie & Fitch, Abercrombie kids, and Hollister brands.
Abercrombie & Fitch operates about 238 namesake stores globally, while it has roughly 497 Hollister stores, which are comparatively smaller in size. In the past, Abercrombie & Fitch stores generated better revenue per square foot as compared to Hollister, because it is a relatively expensive brand. This trend reversed in 2017. Consequently, having a significantly higher store count and a better revenue per square foot, Hollister contributes a higher value to the company.
Internet revenues have increased substantially for the company in recent years, forming nearly one-third of the company's sales. The aggressive growth is expected to continue going ahead. With the anticipated growth in online apparel sales in the U.S., Abercrombie's plans to take advantage of this growing segment, and the development of e-commerce channels and an omnichannel portfolio remains a high priority for the company.
Abercrombie & Fitch is looking to reduce its U.S. store fleet to an optimal size, as it takes significant strides towards the development of an omnichannel platform. Also, with its top line under pressure, the company is relying on this strategy to defend its bottom-line growth. Abercrombie & Fitch has closed significantly more stores in the U.S. over the past three years than it has opened.
Since 2010, over 450 stores have been closed, representing more than one-third of the company's store count. Further, a significant number have been remodeled or downsized. In FY 2018, the company closed down 20 A&F stores, in addition to converting 46 Hollister stores and 21 A&F stores into the new prototype format. Moreover, the company closed down further 47 stores in 2019, including the closure of the company’s SoHo Hollister flagship in New York City. Additionally, with an average lease life of 3 years, the company has significant flexibility to find the right store count balance, and drive efficiency by remodeling or resizing the stores, renegotiating leases, or shuttering some. The company is also shifting from large-format and its flagship stores to smaller, mall-based stores. The company noted that over the past two years, the total square footage was down 6%, and ANF saw a steady improvement in overall real estate productivity. In theory, the company's comparable sales should show an improvement when the unprofitable stores are closed down, particularly with a greater focus placed on the online segment. Additionally, the revenue per square foot should increase with stores being downsized.
Victoria's Secret's loss seems to be A&F's gain. The former discontinued its swimwear line and has suffered from a comps decline ever since. Abercrombie, on the other hand, witnessed aggressive growth in its Swim and Intimates line, with Gilly Hicks continuing to attract new customers to the Hollister brand. The Gilly Hicks brand was relaunched globally at the beginning of 2017 and seems poised for success in the future. As competitor American Eagle's lingerie and activewear brand, Aerie, has been its best-performing segment for a while now, we believe the market has strong growth potential.
While Abercrombie & Fitch has been focusing on right-sizing its store footprint in North America, it is dependent on the international markets for growth through expansion. In Europe, the company sees a $1 billion opportunity across all channels. At present, the company has a modest 129 stores in the region. Consequently, its focus in the region is on increasing penetration, shifting to smaller, more productive stores, and building a more local customer base. The company's partnership with wholesalers, like ASOS, NEXT, and Zalando, should ensure online sales growth. In China, the company estimates a $500 million opportunity. The company currently has only 28 stores in the country and is focusing on growing its digital business, through its partnership with Alibaba, as well as its store count, to address this opportunity.