Abercrombie & Fitch Finally Ready To Try Discounting

Abercrombie & Fitch (ANF) took a bold stand during the depths of the recession when the retailer refused to cut prices. Sadly, that move has not paid off.

Though the New Albany, OH-based company is still profitable, sales plummeted, and 2009 did not turn out well for the retailer. Abercrombie & Fitch stores open at least a year saw sales plunge 12 percent during its all-important fourth quarter, which highlighted a disappointing holiday season. Additionally, the retailer closed down its upscale Ruehl concept, which never got off the ground.

Meanwhile, chains that used promotional prices for their items gained ground. Aeropostale (ARO), and its relatively inexpensive products, continue to record great sales. Private retailer Forever 21 continues to expand rapidly. Gap Inc. (GPS) even shows sales improvement after years of dismal performance.

Now it looks like Abercrombie will modify its tough-love strategy. "While we never and do not ever plan to be a promotionally led business, we are getting better at figuring something out that was completely alien to us," said Mike Jeffries, Abercrombie's chairman and chief executive, during the company's fourth-quarter conference call. The chain will moderately lower prices.

In an uncertain economic environment, this strategy only makes sense. Joblessness, a tight credit market and persistent problems in the housing market are all weighing on the consumer. It's no secret that TJX Cos. (TJX), the deep-discounting apparel company that owns Marshalls and T.J. Maxx is one of the industry's leaders with its exceptional sales performance.

Abercrombie is not going away. The retailer's brand name is too strong for it to disappear. Management just needs to understand that the value of that brand won't diminish if the company can pass some value to the consumer.

Store image by flickr user Remon Rjiper.