No, Abercrombie & Fitch Isn’t Going Bankrupt: In-fact Paying Good Dividend
Summary: Just Relax, Abercrombie & Fitch Is not Going out of business. Company has a good history of paying dividends. In 2012 it has paid dividend of $0.70 and until Aug-2013 it has paid $0.40 already.
Just keep in mind, company will pay dividend to shareholders only if it is making profit.
Now, Let us start Go back in the History and find out why there was fear in the market….
2008 – 2009
In 2009, Time Business illustrates how the company has suffered 10 years of the same continuous sales declines. Let’s not forget that that the company has three other outlets under its brand such as Ruehl, Flagship Abercrombie and Hollister.
Ruehl’s 29 store chain was shut down in June 2009 by Abercrombie. Because of the shutdown, the company lost over $20 million and a total loss of about $27 million. Around the same time in 2008, the company managed to rake in over $75 million in profits. According to CEO of Americas Research Group, Britt Beamer company failed to use the downturn of the economy to their advantage.
While other retailers were using the economic situation as a way to offer their customers discounted merchandise to keep them shopping and coming back, Abercrombie refused to do the same. They felt like the reputation of the brand would be link to being cheap, and that is what customers would expect all the time. Britt comments that cutting prices in times of an economy crisis can help businesses build loyal relationships between them and the customers.
Not to mention, you can simply raise prices when the economy gets better or can’t you? According to a marketing professor in California, C.W. Park, it is difficult to raise prices of merchandise or services once you have cut them. Customers do not always look at the lower price as being a reward or a discount for the time being and may cause them to stop shopping with the company.
While Abercrombie was competing with Aeropostale in their second quarter, their profits fell over a 100% while Aeropostale went up over 80%. Britt states that not only is Aeropostale pricing aggressively, but they offer fashions trends that are in-style right now. Who wants to pay more for clothing that has went out of the trend? CEO of Abercrombie Mike Jefferies believes that once the economy gets back on its toes, they will present better prices.
2011 – 2012
People are happy with spending less money and only about 60% of people will buy at stores with high end apparel. If Abercrombie wants to stop seeing those 30% sale drops, they will have to take action quickly. Now, in 2012, Mike has come to the conclusion that something bigger has to be done, and because of this realization, 180 stores are scheduled to be closed by the time we reach 2015.
The company has over 1000 stores that are underperforming, and Mike believes if they close these stores, they can build their brand back up and hopefully stay in the game. In 2011, 71 of Abercrombie’s stores were already closed. The company is looking into building their brands in other countries like Asia and Europe where spending big money is not a problem.
In fact, in China the American image of the brand seems to be a big hit. Abercrombie & Fitch is now expanding in Asia and other continents.
Conclusion: With Up and downs in economy, company has to take decision to close non-performing stores/branches. It’s completely fine. At least as of Aug-2013 I can say they are not going bankrupt and with US economy improving, I am hoping they will even do better in terms of business and profits.