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| | Why Abercrombie & Fitch?
Description of the Business
Analysis of Competitors
The apparel business is highly fragmented and consists of many local and global competitors. A critical success factor is brand image and popularity, which is a prerequisite for charging premiums above the manufacturing price and value creation by growth. Because of rapid changes in popularity this brand popularity can disappear rapidly. Also Apparel companies selling similar apparel at a lower price poses a threat tot the success of the Guess company.
Competitors include:
- The GAP (ROE 23: ROA 12: Market Cap: $8.5 billion (February 2009)
- American Eagle Outfitters
- Guess (higher price segment)
- Bebe Stores (similar price segment)
- Esprit (lower price segment)
- Zara (lower price segment)
- Wet Seal (lower price segment)
- Aeropostale (lower price segment)
- Coach (higher price segment, providing leather apparel)
- Polo Ralph Lauren (similar price segment, but different collection)
- Tommy Hilfiger
- Charlotte Russe (lower price segment)
- Liz Claiborne
Although Guess is competing with a large number of apparel shops their shopping experience is unique. As a result we conclude that ANF is a franchise with competitive advantages and is able to keep an ROE of higher than 10.
Competitive Advantages
ANF has invented shop formulas which are successful and differentiates them from competitors.
A main risk is that fashion can change really quickly and if ANF is not able to sell "what is hot" and to attract customers because of their unique shopping ixperience their sales will decrease. Also an economic downturn could have a short term negative impact on their financial results as people tend to postpone clothing expenditures during a downturn.
Financial Analysis
Their balance sheet is very strong. They have no debt. The return on equity is 15% and the return on assets is 10%.
Their net income / tot assets is about 0.16 and their net income/non current assets is 0.5.
These are all indications that their formula creates a competitive advantage and they can increase revenue and create |
