Watch CBSN Live

Abercrombie & Fitch Holds Prices Down and Watches Revenues Go Up

It took a while, but management's move to (finally) lower prices at upscale teen retailer Abercrombie & Fitch (ANF) is continuing to pay off on the company's balance sheet. For the fiscal quarter ended October 30, 2010, net sales increased 18 percent to $885.8 million and comps rose 7 percent. Can you say wow? For management-types playing along at home this is a good lesson that illustrates how swallowing a slice of humble pie can earn some extra cake.

You may remember CEO Mike Jeffries digging in his heels and refusing to discount his merchandise as the recession bells were ringing. He finally conceded somewhat in February saying, "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." The chain lowered prices about 10 percent.

The effect was dramatic and swift. Back in August ANF returned to profitability, yet stuck to its tough love plan of continuing to close underperforming stores. My BNET colleague Carol Tice speculated at the time that this would restore the brand's cachet and shore up the pricing structure.

Now that the plan continues to show good results, ANF is playing that exclusivity card more heavily â€" this time overseas. WSJ reports that an ANF store in Tokyo carry identical items at about 50 percent higher prices. In London, ANF's prices are around 30 percent higher. You can bet your crocodile wallet that when ANF opens on the Champs-Élysées in Paris, garments will be priced to accommodate the high cost of rent on that haute shopping boulevard.

So far, Abercrombie's failed to incite a riot about its widely varying pricing thanks to a small trick on its Web site. Comparison shoppers are immediately re-directed to their local ANF page. But that doesn't mean bargain-hunting trend setters will be in the dark forever. The information is out there. In fact, back in 2007 when ANF opened its Savile Row store, the Evening Standard reported on the glaring disparity between U.S. and UK pricing.

Still, the fact that those quintessentially American threads are only available at select outlets may render the issue moot. Back in the States however, ANF may have bigger pricing fish to fry. Cotton prices are up about 80 percent since the beginning of 2010, making it nearly impossible for retailers not to consider passing the buck to consumers.

The good news for ANF is that it held its drop to only 10 percent. Add to that the lack of fanfare surrounding the decrease (remember these were not promotions) and the retailer may not meet too much resistance if it has to hike them again.