Entry Of Abercrombie And Fitch In France

Entry Of Abercrombie And Fitch In France

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INTRODUCTION

Michael S. Jeffries, Abercrombie’s CEO, told stock analysts in May that the four-story New York store, which opened in November, has drawn “a very large percentage of international customers, a very large percentage European,” adding, “We are thrilled with what we are learning about running high-volume stores. It gives us huge confidence for the international potential of this brand.” (Abercrombie & Fitch, 2007)

Then, Abercrombie & Fitch decided to expand its brand throughout the european market.

Abercrombie & Fitch has recently opened its first store in Europe. Indeed, on March 22, 2007, Abercrombie & Fitch opened a store in Mayfair, London. It is a big success, indeed the store generated a volume of $280,000 in its first 6 hours of operation. (Abercrombie & Fitch, 2007)

On July 13, 2007, Abercrombie & Fitch Head Office based in New Albany, Ohio, United States of America, announced “its plans to expand its retail presence throughout Europe. The Company is in the process of securing locations in Italy, France, Germany, Spain, Denmark and Sweden and plans to identify additional key locations in the United Kingdom.” (Abercrombie & Fitch, 2007)

Because of the success of the first european store based in London, the Board of management decided that the new team based in England will be responsible for the expansion of the company throughout Europe.

A contract between Abercrombie & Fitch and PBS Real Estate has already been signed. Indeed, “Abercrombie & Fitch has retained PBS Real Estate, LLC (PBS Real Estate), and its Principal Laura Pomerantz, as exclusive European and United Kingdom real estate consultant to identify locations that best support the Abercrombie & Fitch brand attributes.” (Abercrombie & Fitch, 2007)

The Board of Management based in United States of America thinks that it is a good time for expansion throughout Europe. Indeed, Mike Jeffries, Chief Executive Officer and Chairman of the Board of Abercrombie & Fitch stated: “We have been evaluating the European markets for some time and it is clear that the demand for the Abercrombie & Fitch brand is very strong”. He added: “We believe that now is the ideal time for us to execute our international growth strategy with expansion throughout Europe.” (Abercrombie & Fitch, 2007)

As mentioned above, Abercrombie & Fitch plans to expand in many markets throughout Europe. As the Marketing Manager of Abercrombie & Fitch Ltd., based in United Kingdom, I got the responsibility to choose which market is the best in order to keep on making the brand successful.

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The marketing team has worked on the expansion throughout Europe for six months and we decided to expand the brand in France first.

The report identifies the reasons for selection of french market, presents the market entry strategy, outlines the actual and potential barriers of entry and identifies the issues which could arise from cultural differences.


1. REASONS FOR SELECTION OF FRENCH MARKET FOR ENTRY BY THE COMPANY

The marketing team analysed the french clothing market:

Overview

“The French clothing and textile industry is the second largest market in the EU and remains one of the leading motors of the French economy. High quality, style and creativity contribute to the glamorous worldwide reputation of "made-in-France" clothing.” (Allaire and Couvelaëre, 2005)

According to Allaire and Couvelaëre (2005), “the french clothing market is dependent on seasonal and discount sales. They peak at four periods: December (Christmas), January (sales), June-July (sales) and October (first winter purchases). In 2003, January sales represented 12.8% of the total annual turnover.”

Allaire and Couvelaëre (2005) stated: “promotions and discount sales are dramatically increasing. They represent 42% of total sales in the distance-selling network and 32% of sales in hypermarkets. In 2003, their share accounted for 30% of total childrenswear sales, 26% of womenswear and 25% of menswear sales.”

Market size

According to Mintel (2007), “spending on clothing stood at €38.9 billion (incl. sales tax) in 2006, following growth of 7.1% in the past five years. This translates to €632 per capita spending in 2006.”
“With sales growth of 16.5% to €22.7 billion, clothing was one of the weaker non-food sectors over the period 2002-06.” (Mintel, 2007)
However, the french economy is expected to grow. Indeed, according to Mintel (2007), “the economy is expected to post healthy although not phenomenal growth, with solid consumer spending continuing to drive this growth. Retail sales are forecast to grow by some 17.8% over the period 2007-12, to reach €474.5 billion.”
More precisely, according to Mintel (2007), “the French economy is expected to grow at around 2% annually in the near future.” Moreover, “the economy is set to benefit from ongoing healthy consumer spending, on the back of a rise in purchasing power. This will be driven by continued new job creation, wage growth, and cuts in taxes and social contributions.” (Mintel, 2007)
Therefore, the purchasing power of french people will increase.
Moreover, according to Mintel (2007), “french consumer confidence hit rock bottom in late 2005, soon after a series of riots and violent clashes mainly in poor housing developments across the country. Since then falling unemployment levels and a strong housing market have helped to drive an upward trend in consumer confidence.”
Therefore, consumer will spend more money to buy clothes.

Market Share
Sales by sector in 2003 (Allaire and Couvelaëre, 2005)

- Womenswear: 52.2% of total sales (€13.5 billion)
- Menswear: 31% of the market (€8 billion)
- Childrenswear: 13% (€3.4 billion)
- Babywear: 3.8% (€1 billion)

Sales by product in 2003 (Allaire and Couvelaëre, 2005)

- Ready-to-wear represented 46% of total sales in 2003 (€11.9 billion): 48.4% of womenswear sales, 48.3% of menswear sales and 44.5% of childrenswear sales.
- Shirts, blouses and other tops made 33% of total sales (€8.5 billion): 41.9% of menswear, 39.1% of childrenswear and 27.9% of womenswear sales.
- Underwear and lingerie amounted to €4.5 billion (17% of total sales): 23.7% of womenswear, 16.4% of childrenwear and 9.8% of menswear.
- Babywear was valued at €1 billion (4% of total sales).

According to Allaire and Couvelaëre (2005), “Streetwear is becoming increasingly popular.”

Our products are defined as casual and luxury products therefore french demand completely match with our products.

Moreover, according to Mintel (2007), “the French are strong believers in the importance of looking well-dressed (61.6%), backed by a strong faith in their personal sense of style (60.8%)” and “around one in three (36.5%) like to keep up with the latest fashions”.

Therefore, french people are ready to buy more expensive clothes.

Channels of distribution

According to Allaire and Couvelaëre (2005), “retail distribution has been considerably modified by the growing importance of mass distribution, discounting and own-label clothing. Distribution is now highly organised and controlled by specialised chains, hypermarkets and distance selling groups.”

- Specialised chains have become leaders in the market for clothing. They represent 35.7% of sales in 2003. Chains less than 400 m2 (24.8%) are the most dynamic.

- The share of independents continued to fall to 18.5% in 2003 (-4% compared to 2002).

- Hypermarkets and supermarkets (grocery superstores) are also loosing market share to 15.2%. Their prices and special offers are not attractive enough, compared to chains and discounters.

- Distance selling gained 2% in 2003 to reach 8.6% of the market.

- Sales in specialist sports chains are significantly expanding: +10% in 2003, to represent 7.6% of the retail distribution.

- Department and variety stores have also increased their market share by 2% to 6.8%.

Source: Allaire and Couvelaëre (2005)

As mentioned above, “specialised chains have become leaders in the market for clothing (35.7 % of sales in 2003).” (Allaire and Couvelaëre, 2005) Therefore, french consumer used to buy in big stores.

Thus, as a conclusion, french clothing market is a good market to develop our brand. Indeed, because of the economy growth and the drop of unemployment, consumer confidence increases and people will spend more money to buy clothes. Moreover, they will buy more expensive clothes because of the increase of GDP and because french people are fashion-conscious.


2. PROPOSED MARKET ENTRY STRATEGY

According to Quer et al. (2007), “when the time comes to reflect on the possibility of entering a foreign country, the firm must take into account that country's social, legal, economic and political framework. It is in this context that we find one of the most influential variables in internationalisation decisions: target country risk. In a broad sense, this risk can include various types of interrelated specific risks: that derived from uncertainty about the demand, the competitors, the costs and other market conditions; that which jeopardises the country's actual financial solvency; and the political risk.”

Quer et al. (2007) stated: “there are different views about the influence of target country risk on the commitment level assumed with the entry strategy. According to some of them, higher risk will be associated with the adoption of entry modes involving lower resources commitment.”
For instance, “before a high-target country risk, the firm will have to find a flexible position that allows it to modify its decisions if environment conditions should change and even to leave the country without incurring substantial losses. For this reason, the firm will prefer non-ownership-based or low investment modes.” (Quer et al., 2007)

It is important to remind that Abercrombie & Fitch always used the same foreign entry mode in the past.

However, it is important to identify factors in order to decide which foreign entry mode is the most suitable:

- Political: France is a democracy. New French President Nicolas Sarkozy has begun to make changes, for instance the 35 hours per week is one of the first items on the agenda. (Mintel, 2007)

- Economical: According to Mintel (2007), “the economy is expected to post healthy, although not phenomenal growth, with solid consumer spending on the back of a rise in purchasing power.”
According to Mintel (2007), recent years have seen steady declines in unemployment.
- Social: According to Mintel (2007), “the french population has been posting slow growth over the past five years, at around 0.6% annually. This has been driven mainly by natural increase (births over deaths), with only a marginal boost from immigration.”
Thus, there are not any risks to expand the brand in France. Therefore, the marketing decided to use a hierarchical mode of entry to expand the brand in France. It means that the firm completely owns and controls the foreign entry mode. (Hollensen, 2007)

Abercrombie and Fitch will enter the french market through a foreign branch. A foreign branch is an extension and a legal part of the firm. A foreign branch also often employs nationals of the country in which it is located as salespeople. (Hollensen, 2007)


3. OUTLINE OF PROPOSED MARKETING MIX

- Product: Abercrombie & Fitch products and retails high quality and casual clothing and accessories for men, women, and children. The products are defined as “casual luxury”.
There are two product lines: Abercrombie & Fitch and Ezra Fitch. (Abercrombie and Fitch, 2007)

The company claims to target 18 to 22 years old, but its marketing appears to be aimed at all teens in general. Abercrombie recently introduced stores with a target market of 7 to 14 years old.

- Price: According to Mintel (2007), retail apparel is a highly competitive business in France, with numerous outlets for purchase, rapidly changing fashions, and an increasingly demanding customer.
At present, the bulk of clothing is sold in specialised chains. However, with the advent of Internet technology and e-retailing, many companies are realizing the synergies that exist when selling through catalogs and on the Internet.
Abercrombie's primary competitor is Gap.

A polo sold $49.50 is USA will be sold €49,50 in the French store. Howerver, French people will be able to buy the polo online for $49.50, which is € 33,60.

- Place:
o Limited Marketing Channel: exclusive distribution strategy
o Product is manufactured and sold through exclusive retail outlets
o Abercrombie stores range from 8,000 ft.² to 22,000 ft.²
o Strategically places the stores in high volume areas, typically in urban centers and regional super centers (ultimately a destination store)
o Factors that determine placing of store location include visibility, accessibility, and surrounding competition

Source: Manning-Schaffel (2004)

The first french store will open in Paris on the Champs-Elysées.

- Promotion:

According to Manning-Schaffel (2004), concerning advertising, Abercrombie uses provocative photos, created by Bruce Weber, of athletic and handsome models. These images often depict nudity and sexual behaviors. As described in the New York Times Magazine, these photos are engaging in voyeurism, homoeroticism, desire, frustration, sublimation and displacement…
Abercrombie & Fitch does not have a mass market approach to its advertising. It places print ads in 4 magazines: Vanity Fair, Interview, Out, and Rolling Stone.

Personal selling: Abercrombie & Fitch salespeople are recruited largely from college campuses, in particular popular fraternities and sororities. The goal is to not only have attractive teens promoting the image in the stores, but also on the street. (Manning-Schaffel, 2004)

Promotion: Abercrombie focuses on rapid turnover and marks down apparel to keep the store fresh and current with fashion trends. Spring and Fall are Abercrombie's two most important selling seasons. Fall is by far the primary season with the back-to-school rush. (Manning-Schaffel, 2004)

Promotional discounts are not consistent with the image of privileged lifestyles. “We are a full-price brand. We are not a promotional business”, stated Abercrombie COO Seth Johnson. (Abercrombie & Fitch, 2007)

As mentioned above, “the french clothing market is dependent on seasonal and discount sales”. (Allaire and Couvelaëre, 2005) Therefore, we need to discuss and find solutions about this issue.


4. IDENTIFICATION OF ACTUAL AND POTENTIAL BARRIERS OR LIMITERS TO ENTRY

According to Mintel (2007), in France:

- Unemployment remains high by EU standards.
- Inflation still higher than in most EU markets
- House prices are precariously high

According to Allaire and Couvelaëre (2005), “compared to their european neighbours, French consumers spent the least on clothing: only 3.8% of their budget went to clothing in 2003, whilst housing was their first priority (24.4 % of the budget). Moreover, people tend to spend more on outside activities, sport and leisure goods.”

Mintel (2007) stated: “Unlike in the UK, where shopping has become a national leisure pastime, only 27.9% of French state that they enjoy clothes shopping. Less than one in five (17.7%) say they spend a lot on clothes, however around one in three (36.5%) like to keep up with the latest fashions.”


REFERENCES

Abercrombie & Fitch Website: www.abercrombie.com

Allaire, G. and Couvelaëre, J. (2005) “The French Clothing Market”, UK Trade & Investment

Hollensen, S. (2007) “Global Marketing: 4th Edition”, Prentice Hall

Manning-Schaffel, V. (2004) Abercrombie & fitch – second skin. Brandchannel.com. Available from:
[Accessed 28 December]

Mintel (2007) Clothing Retailing – Europe – October 2007 [online] Available from:
[Accessed 28 December 2007]

Quer, D., Claver, E., Rienda, L . (2007), “The impact of country risk and cultural distance on entry mode choice: An integrated approach”, Cross Cultural Management: An International Journal, Vol 14, Issue 1, pp 74-87
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