Abercrombie&Fitch (ANF) SWOT Analysis / TOWS Matrix / MBA Resources

Introduction to SWOT Analysis

SWOT Analysis / TOWS Matrix for Abercrombie&Fitch (United States)

Based on various researches at Oak Spring University , Abercrombie&Fitch is operating in a macro-environment that has been destablized by – increasing household debt because of falling income levels, central banks are concerned over increasing inflation, cloud computing is disrupting traditional business models, there is backlash against globalization, talent flight as more people leaving formal jobs, increasing transportation and logistics costs, increasing government debt because of Covid-19 spendings, customer relationship management is fast transforming because of increasing concerns over data privacy, banking and financial system is disrupted by Bitcoin and other crypto currencies, etc

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Introduction to SWOT Analysis of Abercrombie&Fitch

SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that Abercrombie&Fitch can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Abercrombie&Fitch, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Abercrombie&Fitch operates in.

According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.

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SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix

SWOT analysis of Abercrombie&Fitch can be done for the following purposes –
1. Strategic planning of Abercrombie&Fitch
2. Improving business portfolio management of Abercrombie&Fitch
3. Assessing feasibility of the new initiative in United States
4. Making a Retail (Apparel) sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of Abercrombie&Fitch

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Strengths of Abercrombie&Fitch | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The strengths of Abercrombie&Fitch are -

Sustainable margins compare to other players in Retail (Apparel) industry

– Abercrombie&Fitch has clearly differentiated products in the market place. This has enabled Abercrombie&Fitch to fetch slight price premium compare to the competitors in the Retail (Apparel) industry. The sustainable margins have also helped Abercrombie&Fitch to invest into research and development (R&D) and innovation.

Successful track record of launching new products

– Abercrombie&Fitch has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Abercrombie&Fitch has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.

Organizational Resilience of Abercrombie&Fitch

– The covid-19 pandemic has put organizational resilience at the centre of everthing Abercrombie&Fitch does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.

Highly skilled collaborators

– Abercrombie&Fitch has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Retail (Apparel) industry. Secondly the value chain collaborators of Abercrombie&Fitch have helped the firm to develop new products and bring them quickly to the marketplace.

Diverse revenue streams

– Abercrombie&Fitch is present in almost all the verticals within the Retail (Apparel) industry. This has provided Abercrombie&Fitch a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.

Ability to lead change in Retail (Apparel)

– Abercrombie&Fitch is one of the leading players in the Retail (Apparel) industry in United States. Over the years it has not only transformed the business landscape in the Retail (Apparel) industry in United States but also across the existing markets. The ability to lead change has enabled Abercrombie&Fitch in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.

Cross disciplinary teams

– Horizontal connected teams at the Abercrombie&Fitch are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.

High switching costs

– The high switching costs that Abercrombie&Fitch has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.

Effective Research and Development (R&D)

– Abercrombie&Fitch has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – Abercrombie&Fitch staying ahead in the Retail (Apparel) industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.

Analytics focus

– Abercrombie&Fitch is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the Retail (Apparel) industry. The technology infrastructure of United States is also helping it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.

Digital Transformation in Retail (Apparel) industry

- digital transformation varies from industry to industry. For Abercrombie&Fitch digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Abercrombie&Fitch has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.

Operational resilience

– The operational resilience strategy of Abercrombie&Fitch comprises – understanding the underlying the factors in the Retail (Apparel) industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.

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Weaknesses of Abercrombie&Fitch | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The weaknesses of Abercrombie&Fitch are -

Low market penetration in new markets

– Outside its home market of United States, Abercrombie&Fitch needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.

Increasing silos among functional specialists

– The organizational structure of Abercrombie&Fitch is dominated by functional specialists. It is not different from other players in the Retail (Apparel) industry, but Abercrombie&Fitch needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Abercrombie&Fitch to focus more on services in the Retail (Apparel) industry rather than just following the product oriented approach.

Slow decision making process

– As mentioned earlier in the report, Abercrombie&Fitch has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the Retail (Apparel) industry over the last five years. Abercrombie&Fitch even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.

High cash cycle compare to competitors

Abercrombie&Fitch has a high cash cycle compare to other players in the Retail (Apparel) industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.

High dependence on Abercrombie&Fitch ‘s star products

– The top 2 products and services of Abercrombie&Fitch still accounts for major business revenue. This dependence on star products in Retail (Apparel) industry has resulted into insufficient focus on developing new products, even though Abercrombie&Fitch has relatively successful track record of launching new products.

Employees’ less understanding of Abercrombie&Fitch strategy

– From the outside it seems that the employees of Abercrombie&Fitch don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.

High operating costs

– Compare to the competitors, Abercrombie&Fitch has high operating costs in the Retail (Apparel) industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Abercrombie&Fitch lucrative customers.

Slow to harness new channels of communication

– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Abercrombie&Fitch is slow explore the new channels of communication. These new channels of communication can help Abercrombie&Fitch to provide better information regarding Retail (Apparel) products and services. It can also build an online community to further reach out to potential customers.

Aligning sales with marketing

– From the outside it seems that Abercrombie&Fitch needs to have more collaboration between its sales team and marketing team. Sales professionals in the Retail (Apparel) industry have deep experience in developing customer relationships. Marketing department at Abercrombie&Fitch can leverage the sales team experience to cultivate customer relationships as Abercrombie&Fitch is planning to shift buying processes online.

High dependence on existing supply chain

– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Abercrombie&Fitch supply chain. Even after few cautionary changes, Abercrombie&Fitch is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Abercrombie&Fitch vulnerable to further global disruptions in South East Asia.

Lack of clear differentiation of Abercrombie&Fitch products

– To increase the profitability and margins on the products, Abercrombie&Fitch needs to provide more differentiated products than what it is currently offering in the marketplace.

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Abercrombie&Fitch Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The opportunities of Abercrombie&Fitch are -

Developing new processes and practices

– Abercrombie&Fitch can develop new processes and procedures in Retail (Apparel) industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.

Harnessing reconfiguration of the global supply chains

– As the trade war between US and China heats up in the coming years, Abercrombie&Fitch can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help Abercrombie&Fitch to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.

Redefining models of collaboration and team work

– As explained in the weaknesses section, Abercrombie&Fitch is facing challenges because of the dominance of functional experts in the organization. Abercrombie&Fitch can utilize new technology in the field of Retail (Apparel) industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.

Use of Bitcoin and other crypto currencies for transactions in Retail (Apparel) industry

– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Abercrombie&Fitch in the Retail (Apparel) industry. Now Abercrombie&Fitch can target international markets with far fewer capital restrictions requirements than the existing system.

Buying journey improvements

– Abercrombie&Fitch can improve the customer journey of consumers in the Retail (Apparel) industry by using analytics and artificial intelligence. It can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.

Using analytics as competitive advantage

– Abercrombie&Fitch has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Retail (Apparel) sector. This continuous investment in analytics has enabled Abercrombie&Fitch to build a competitive advantage using analytics. The analytics driven competitive advantage can help Abercrombie&Fitch to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.

Loyalty marketing

– Abercrombie&Fitch has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.

Reforming the budgeting process

- By establishing new metrics that will be used to evaluate both existing and potential projects Abercrombie&Fitch can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.

Reconfiguring business model

– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Abercrombie&Fitch to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.

Identify volunteer opportunities

– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Abercrombie&Fitch can explore opportunities that can attract volunteers and are consistent with its mission and vision.

Creating value in data economy

– The success of analytics program of Abercrombie&Fitch has opened avenues for new revenue streams for the organization in Retail (Apparel) industry. This can help Abercrombie&Fitch to build a more holistic ecosystem for Abercrombie&Fitch products in the Retail (Apparel) industry by providing – data insight services, data privacy related products, data based consulting services, etc.

Finding new ways to collaborate

– Covid-19 has not only transformed business models of companies in Retail (Apparel) industry, but it has also influenced the consumer preferences. Abercrombie&Fitch can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.

Changes in consumer behavior post Covid-19

– consumer behavior has changed in the Retail (Apparel) industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Abercrombie&Fitch can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Abercrombie&Fitch can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.

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Threats Abercrombie&Fitch External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The threats of Abercrombie&Fitch are -

Capital market disruption

– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Abercrombie&Fitch.

Consumer confidence and its impact on Abercrombie&Fitch demand

– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in Retail (Apparel) industry and other sectors.

Technology disruption because of hacks, piracy etc

– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.

New competition

– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Abercrombie&Fitch in the Retail (Apparel) sector and impact the bottomline of the organization.

Regulatory challenges

– Abercrombie&Fitch needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Retail (Apparel) industry regulations.

Backlash against dominant players

– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Abercrombie&Fitch business can come under increasing regulations regarding data privacy, data security, etc.

Easy access to finance

– Easy access to finance in Retail (Apparel) industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Abercrombie&Fitch can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.

Learning curve for new practices

– As the technology based on artificial intelligence and machine learning platform is getting complex, Abercrombie&Fitch may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Retail (Apparel) sector.

Trade war between China and United States

– The trade war between two of the biggest economies can hugely impact the opportunities for Abercrombie&Fitch in Retail (Apparel) industry. The Retail (Apparel) industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.

High level of anxiety and lack of motivation

– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Abercrombie&Fitch needs to understand the core reasons impacting the Retail (Apparel) industry. This will help it in building a better workplace.

Increasing wage structure of Abercrombie&Fitch

– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Abercrombie&Fitch.

Aging population

– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.

Environmental challenges

– Abercrombie&Fitch needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Abercrombie&Fitch can take advantage of this fund but it will also bring new competitors in the Retail (Apparel) industry.

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Weighted SWOT Analysis of Abercrombie&Fitch Template, Example

Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at Abercrombie&Fitch needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants. We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –

First stage for doing weighted SWOT analysis of Abercrombie&Fitch is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.

Second stage for conducting weighted SWOT analysis of Abercrombie&Fitch is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.

Third stage of constructing weighted SWOT analysis of Abercrombie&Fitch to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Abercrombie&Fitch needs to make to build a sustainable competitive advantage.

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