T H E O D O R E U D E L S M A N , C AT H E R I N E S O N

ABERCROMBIE & FITCH:SALES AND FORECAST ANALYSIS

COMPANY BACKGROUND

• Originally sporting goods store, now clothing retailer• Headquartered in New Albany, OH (Home Office)• Brands:• Abercrombie & Fitch – 253 US locations, 22 International• abercrombie kids – 131 US, 5 International• Hollister Co. – 458 US, 129 International

• Competitors: Aéropostale, American Eagle Outfitters• Began international expansion campaign in 2005• Canada• Europe (2007): England, Italy, Denmark, France, Spain,

Germany, Belgium, Ireland, Netherlands• Asia (2009): Japan, China, Korea

2013 MIKE JEFFRIES CONTROVERSY

• Business Insider uncovered a quote from a 2006 interview with Mike Jeffries• “In every school there are the cool and popular kids, and

then there are the not-so-cool kids. Candidly, we go after the cool kids. We go after the attractive all-American kid with a great attitude and a lot of friends. A lot of people don’t belong [in our clothes], and they can’t belong. Are we exclusionary? Absolutely. Those companies that are in trouble are trying to target everybody: young, old, fat, skinny. But then you become totally vanilla. You don’t alienate anybody, but you don’t excite anybody, either.”

• Company image was ruined quickly thereafter• Consumers were outraged with statement and demanded

he step down from CEO position

DATA SOURCE

• Collected data from A&F’s 10-K and 10-Q SEC filings• Based results and forecasts on sales data from

2007-2014• Broke down each year into quarters (Q1-Q4)

• Consistent peak in Q4

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 20

2

4

6

8

10

12

14

16

Quarters 1-4 for Years 2007-2014

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DATA BREAKDOWN

• Non-Adjusted Raw Data

• Retail Model data reflects some cyclical trends towards Q4 and some seasonal trends towards holidays

• Luxury products • Strong growth

‘11-’12 but surging a bit downward as of late

TIME SERIES MODEL RESULTS

• Smoothing RMSE $215,301,939.7• Holt’s RMSE $228,690,799.3• Winter’s (Multi) RMSE $59,042,215.2• Winter’s (Add) RMSE $80,281,534.7

• Revenue Forecast:2014 Q3 = $1,036,676,966 2014 Q4 =

$1,309,937,2782015 Q1 = $828,932,906.3 2015 Q2 =

$875,639,8392015 Q3 = $1,022,528,416 2015 Q4 =

$1,291,998,068

EXPONENTIAL SMOOTHING METHOD

• Large RMSE: $215,301,939.7• Alpha: 0.1488• This is expected as it is the most basic model• It does not take into account any seasonality or

cyclical trends in the business model• Data is has clear evidence of such trends

EXPONENTIAL SMOOTHING METHOD

HOLT’S METHOD

• Largest RMSE: $228,690,799.3• Alpha: 0.3988 Beta: 0.1070• Adds into account a growth factor (beta) however

due to Abercrombie's established business position and fluctuating growth this throws off our forecasts slightly from the last model.

• Many factors can be taken into account: • 1. Seasonality• 2. Recession/Economy – goods are considered luxury• 3. PR scandals• 4. Growth of competition • 5. Business Model

HOLT’S METHOD

WINTER’S METHOD (MULTI)

• Lowest RMSE: $59,042,215.2 • Alpha: 0.8989 Beta: 0.040 Gamma: 1 • Best forecasting model • Takes into account trends AND SEASONALITY • Captures huge Q4 growth (Holiday Seasons)• Forecasting• Revenue Forecast:

2014 Q3 = $1,036,676,966 2014 Q4 = $1,309,937,278

2015 Q1 = $828,932,906.3 2015 Q2 = $875,639,839

2015 Q3 = $1,022,528,416 2015 Q4 = $1,291,998,068

WINTER’S METHOD (MULTI)

WINTER’S METHOD (ADD)

• RMSE: $80,281,534.7• Alpha: 0.7938 Beta: 0.0369 Gamma: 0.4776• Good forecasting model• Takes into account trends AND SEASONALITY • Captures huge Q4 growth (Holiday Seasons)• Forecasting• Revenue Forecast:

2014 Q3 = $1,024,046,009 2014 Q4 = $1,271,551,9552015 Q1 = $820,684,617.072015 Q2 =

$868,450,267.502015 Q3 = $1,005,706,183 2015 Q4 = $1,253,212,129

WINTER’S METHOD (ADD)

CONCLUSION

• Winter’s (Multi) had lowest RMSE of all methods• $59,042,215.2

• Seasonal trends in Q4 due to holidays• A&F had experienced a steady increase in sales

from 2009-2012• Sales declined in 2013 after a scandal involving Mike

Jeffries

• Sales will continue to decline in the future• Compared to previous year’s corresponding quarter

FUTURE RECOMMENDATIONS

• As a retailer, A&F should consider repositioning its brand image• Offer clothing that is up-to-date with current trends• Compete with “fast fashion” brands (Forever 21, H&M)

• Target a wider demographic to compensate for Jeffries’s statement in the controversial interview

• Close underperforming brick-and-mortar locations• Focus on e-commerce business

• Continue international expansion plans• A&F still has a strong brand image overseas

THANK YOU

Questions?