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SWOT Analysis. 1. Strengths (Internal/Company Focus). Some of Abercrombie & Fitch's greatest strengths are their strict management and their ability to












    22 NOVEMBER 2005

a. Bottom Line Up Front:

    Upon strategic and financial analysis of our four assigned companies in the apparel industry (Gap, Urban Outfitters, Limited, Abercrombie & Fitch), we conclude

    that Urban Outfitters, Inc. is the best managed and best positioned for long term


b)General Overview of the Companies and Industry Analysis using Five Forces:

     The apparel industry has been a pivotal part of the American economy for much

    of history. The industry started making clothes mainly for work and some types of

    outdoor play. The style and fabric was most often an effect of the need. However, with

    ththe turn of the 20 century, the apparel industry changed. With inflation and consumer

    spending on the rise, some types clothing have become a luxury item. Abercrombie &

    Fitch left its “outdoor wear” model that they stared in 1892, deciding to instead

    concentrate on furs and coats, in 1992, when they ventured into a separate market, one

    that focused on casual clothing for young, single adults. Clothing stores now must not

    only compete for customers by working to produce the best product, but also present an

    image which reflects a lifestyle that many customers find attractive. Four current,

    competitive clothing companies are, The GAP, The Limited (Brands), Abercrombie &

    Fitch, and Urban Outfitters. Each of these tries to maintain a competitive advantage in

    today’s industry by promising a superior product that will satisfy the customer. The

    strong forces in the apparel industry are buyer power and rivalry. Supplier power, threat

    of substitutes, and threat of new entrants are all weak forces. Buyers today are given a

    plethora of options for how to get their clothes-catalog, online, and in the store. Polo

    shirts come in all sizes and colors today for customers-the industry must cater to the

    buyers. Customers are willing to pay top dollar for what they want, but also bargain shop

    and hit the sale racks first. Looking and feeling good is a top concern for every consumer.

    Strong brand identification exists in the industry. This results in rivalry between the

    companies and a strong barrier to entry for new entrants. Although store/mall space may be open, the ability for a company to successfully thrive as a competitor without brand identification is impossible. Suppliers have lost their power. Many of the rivals run their own factories around the world, paying cheap labor and giving little concern to workplace safety. Urban Outfitters says in its 10-K report, “No single vendor accounted

    for more than 10% of merchandise purchased during that time. While certain of our vendors have limited financial resources and production capabilities, we do not believe that the loss of any one vendor would have a material effect on our business” (Urban 10-

    K). Finally, there is really no present substitute for the apparel industry. As of now, as is with almost all of history, all Americans will need and want clothes. The only real substitute to clothes is no clothes, or nakedness. The individual retailers in the industry do offer a wide variety of types of clothing, ranging from athletic to street to work items, but there really is no replacement on the industry level.

    The first company we will overview is Urban Outfitters, Inc. Urban Outfitters

    offers specialty retail stores under the Urban Outfitters, Anthropologie and Free People brands, as well as a wholesale division under the Free People brand. Their core competencies are their stores locations, design, and product line. Urban Outfitters strategically puts its stores near college campuses, where new, trendy clothes and fashion ideas are first experimented with and often at the highest demand. They pursue a business strategy that focuses on differentiation, abandoning the idea of cost leadership. Urban achieves its differentiation by selling clothes that appeal to sophisticated, urban adults ages ranging from 18-30. Anthropologie then tries to keep these same customers,

providing sophisticated clothing in a unique environment to women aged 30-45. Free

    People retail primarily offers unique casual merchandise ranging from clothes to

    accessories for women aged 25-30. The company sets hard, strict budget constraints on

    its individual stores, but allows them to make ultimate decisions on the popular fashion

    colors and style that their location favors for the new upcoming trends. The stores

    themselves often are put in an old movie theater at the center of a popular street; this idea

    stays consistent with the company’s goal of grabbing the attention of the customer. As

    their 10-K says, “Our core strategy is to provide unified store environments that establish emotional bonds with the customer”(Urban 10-K). This strategy has definitely worked,

    as the company achieved around $827.8 million in sales in 2004. The company’s net

    income growth is near 80% a year. The company is currently expanding into the

    European market (U.K., Scotland, Ireland), with plans to further develop its website and

    begin to pursue more mainstream ways to compete by putting stores now in malls. The

    company’s ability to compete in this more mainstream market will be dependent on its

    ability to fight against other stores pre-established brand name prowess.

    The second company we will overview is Abercrombie &Fitch, a retailer that specializes in casual apparel as well as accessories and personal care for both men and

    women. Abercrombie & Fitch, also known for its subsidiaries, abercrombie, Hollister

    Co., and RUEHL, was first established in 1892 primarily as a supplier of outdoor gear. It

    was not until 1992 when Abercrombie & Fitch switched gears and began focusing on

    appealing to the 18-22 year old college student market. Their new clothing line took on a

    more casual look as it incorporated the East Coast heritage and Ivy League traditions.

    Abercrombie & Fitch’s abercrombie brand, was launched in 1998, and targets children from the ages of seven to fourteen and Hollister Co., another of Abercrombie & Fitch’s

    brands, was launched in 2000 and targets 14-18 year old high school students. Hollister’s

    apparel embodies the laid-back California surf lifestyle at lower price than Abercrombie

    & Fitch. In 2004 Abercrombie & Fitch launched their newest brand, RUEHL, which

    targets an older crowd consisting of men and women ages 22-35 years old. RUEHL

    continues to offer the trendy yet casual clothing that Abercrombie & Fitch offers, but

    adds a more sophisticated touch and also offers a variety of business casual fashion in

    order to appeal to the post-college customers. Abercrombie & Fitch merchandise is sold

    in stores through the nation and operates more than 700 stores. In the year 2004 alone,

    the clothing company opened 113 stores. The company’s policy consists of always

    maintaining large quantities of inventory in each store in order to offer the customers a

    large variety and selection of its merchandise. Abercrombie & Fitch strives to always

    stay on top of fashion trends and therefore emphasizes rapid inventory turnover and

    markdowns. The company also maintains point-of-sale marketing which helps to create a

    shipping experience that they believe to be consistent with the Abercrombie & Fitch,

    Hollister Co., abercrombie, and RUEHL lifestyle.

    Next, we will take a look at Gap Inc. Gap Inc. actually has four brands. These

    brands include Gap, Old Navy, Banana Republic, and Forth & Towne. Gap Inc.’s core

    competencies include its name, product, and accessibility. Its core competencies lie

    within the name that it has established. Gap and Old Navy have widely popular

    commercials that have played a large role in creating their extremely popular image.

    Furthermore, Gap Inc. has the core competency of availability. Gap has stores in the United States, Canada, Japan, France and the United Kingdom. Additionally, anybody with a computer can shop for Gap’s different brands through their website. Furthermore, many malls actually have all of Gap Inc.’s brands in that single building. Gap Inc. pursues a business strategy that focuses on a balance between differentiation and cost leadership. Gap Inc. fulfills a cost leadership strategy through Old Navy. claims that Old Navy offers great fashion at great prices. Gap Inc.’s brand of Banana Republic

    focuses more on the differentiation. explains Banana Republic as delivering elevated designs and luxurious fabrications. Finally, the Gap brand is the happy medium between Old Navy and Banana Republic. It focuses more on a balance between the cost-leadership and differentiation. This strategy aids in Gap Inc.’s core competency of accessibility. Its wide range of product and price helps Gap Inc. satisfy the requests of a wide range of customers. Unlike Urban Outfitters, Gap Inc. has been around for a while. Since Gap Inc.’s birth in 1969, it has become a very large and widespread company. Their current focuses do not lie so much in expanding but making what they currently have better. states they are doing this by working to improve factories, protecting the environment, and giving back to the community.

    The company achieved $16.267 billion in sales in 2004. Despite some recent

    trouble with increasing its net income percentage and having inconsistent ratios, Gap is a top force in the apparel industry. However, with companies such as Urban Outfitters showing a strong future, Gap must be ready to fight to keep their leading position in the industry.

    On Aug. 10, 1963 the son of a Russian immigrant, Les Wexner opened the first

    1 Leslie created the name and image of his store after Leslie’s Limited with $10,000.running his fathers small shop, Leslie’s, for one week while his parents were on vacation

    in Miami. Leslie an inspiring architect at the time did not want to work in retail but had

    agreed to spend a few months learning how the small shop worked so his parents could

    take a break. Leslie while running the store for the week decided to put his basic

    accounting skills to work from college for fun and studied for the week where his father

    2made and lost his money; his fathers store was making a profit of around $10,000.

    Leslie quickly discovered that his father made his money from typical sportswear

    separates and lost a large amount of money selling dresses and coats. When his father

    came back he claimed that he made his money on dresses and coats. Leslie tried to argue

    with his father about how to run the shop, but his father said he knew nothing about retail,

    so in an effort to prove his father wrong he started his own specialty shop where he

    would sell a limited selection from his fathers shop and thus Leslie’s Limited was born.

     Since the beginning Les Wexner’s shops have had core competencies of specialization, differentiation and efficiency. The Limited Brands has bought and

    transformed many failing or small retail stores into highly recognized specialty shops

    such as Victoria's Secret and Abercrombie & Fitch by applying these ideas. The Limited

    Brands has made its fortune by using its competencies and sticking to its mission of

    “building a family of the world’s best fashion brands, offering captivating customer

    experiences that drive long-term loyalty and deliver sustained growth.” The company

    has established its family of brands owning such stores since its beginning as The

     1 How We Got Started Les Wexner: Limited Brands. 2 Ibid.

Limited, Express, Lane Bryant, Victoria’s Secret, Structure, Abercrombie & Fitch and

    countless other brands all of which specialize in its own specific area of apparel, lifestyle

    and age.

     Although Limited Brands sells apparel this is not its main industry of operation.

    Limited Brands makes 70% of its sales from personal care, beauty and lingerie putting it

    3primarily in the packaged goods industry. Limited Brands has applied its talent of

    specialization, differentiation and efficiency to revolutionize this industry with such

    power houses as Victoria’s Secret and Bath & Body Works. This transformation has

    taken place over the past 10 years; apparel was a little more than 70% of the

    4organizations sales in 1994. This transformation has shown that Limited Brands has a strong ability to adapt to the markets and has built a diversified organization which

    covers more than one industry. Limited Brands strategy of diversifying across industries

    while specializing in each one specifically has been extremely successful with revenues

    5of $9.4 billion dollars in 2004 and a net income of $705 million in 2004.

    C)Individual Company Analysis: Urban Outfitters

    SWOT Analysis

    1. Strengths (Internal/Company Focus)

     Urban Outfitters prides itself in being unique. “No two of our stores are the

    same,” said Richard Hayne, founder and CEO for Urban Outfitters Inc (Brown). Among

    the nation’s popular clothing stores including the GAP, Limited, and Abercrombie &

    Fitch, the company chooses to distinguish itself form the competition by providing a

     3 Limited Brands 2004 Annual Report, 2. 4 Ibid, 2. 5 Ibid, 29.

    totally unique experience for their customers. From the way their stores are designed and located, to the styles of clothing they carry, Urban Outfitters views their ability to standout form the competition by staying current with their customer bases fashion trends as their greatest strength. The company started in the early 1970s as a store called Free People, located near the University of California, Berkley. There, the store targeted popular, “hippy-like” fashion trends and sought out local college students as the

    foundation of their customer base. The company differentiated itself form the major retailers as a small store that was seriously dedicated to getting popular clothes into students hands at whatever cost due to their great location. Initially, the company built a great reputation, as they let some students build a tab for when they needed clothes and didn’t have any cash on them. The company’s main strategy is to put merchandising decisions in the hands of each store’s respective staff, while maintaining tight budget

    controls at corporate headquarters. This is a decentralized way of thinking, one that puts decisions in the hands of those with the most intimate knowledge of their retail area. Urban’s CFO John Kyees believes that too many retailers, such as the Limited, make too

    many decisions form high (Brown). Two of the company’s greatest strengths though lie in their ability to predict what the customer is hoping to buy. The company stays in touch with its customers and catalog orders, basing the items it will place in their stores of those items success in the catalog. The company has a wholesale division, called Free People, which carries the company’s catalog and any possible products for the company’s stores. Then, every Monday Urban executives decide what products to emphasize for the week based of earlier results then implement this on Tuesday. Finally, the company has stayed true to its loyal customers. Urban Outfitters developed Anthropologie, a company that

targets older women who wore Urban Outfitters in their younger years. This keeps their

    customers over time, an idea that their competitors, such as the GAP, and Limited, are

    just catching up too.

    2. Weaknesses (Internal/Company Focus)

     One of the company’s greatest weaknesses lie in its lack of advertising. The

    company does not choose to advertise nationally, afraid that this could alienate some of

    its traditional customers who may view the company as “selling out.” The company’s

    main advertising source comes from its website and word of mouth around college

    campuses. They do not have anything that can compete with the GAP’s catchy


     The company has also recently come under persecution for some of its printed

    shirts and other items on its shelves. The Anti-Defamation League filed a complaint on

    Urban for selling a t-shirt that said “EVERYONE LOVES A JEWISH GIRL” surrounded by dollar signs (U.S. Newswire). The company took the item off of its shelves and stated

    that any future production of the shirt would not involve the dollar signs. Such events are

    bad press for the company, one which has a weak marketing strategy. This is a risk that

    the company is willing to take, even if it costs it customers.

     Although, being unique is the Urban’s main strength, at the same time it is also a

    weakness that they must deal with. “Historically, perhaps, Hayne’s biggest strategic

    challenge these days is fighting convention,” said Heidi Brown of Forbes Magazine (154-

    162). The company is now considering moving into malls where it can reach a greater

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