CEO Gaffe of the Week: Abercrombie & Fitch
Last year, I introduced a weekly series called "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions when compiling my list of the worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!
This week, we'll take a look at Abercrombie & Fitch CEO Mike Jeffries and examine why it's important to think before opening your mouth.
The dunce cap
Make no mistake about it; the retail environment is highly competitive. It's not uncommon for apparel retailers to experience peaks and troughs concurrent with consumer spending, but it's even tougher for teen retailers like Abercrombie that rely on teen spending (and their parents' credit cards) to drive their business.
Teens are a fickle group of shoppers because fashion can change in a heartbeat and many still don't truly understand "value" when it comes to making a purchase. Aeropostale , for instance, excelled last decade by relying on deep discounts to drive quick turnover of its products. While these discounts hurt its margins, the sheer volume it was moving made up for its lower margins. Lately, though, its styles have failed to hit home with teens, causing its inventory levels to build and its growth to be sluggish.
Similarly, American Eagle Outfitters has struggled to connect with the younger generation with its direct-to-consumer business, lagging behind many of its peers despite hitting a nice mid-tier pricing niche. Not surprisingly, its forecast in March disappointed existing shareholders.
Then there's Abercrombie & Fitch, whose exposure to a troubled European market has hurt its bottom line and slowed its expansion. Domestically, A&F has benefited from the attrition caused by the closure of numerous Pacific Sunwear locations as the struggling teen apparel retailer attempts to rein in expenses, and even from the struggles of J.C. Penney , whose sale-on, sale-off pricing strategy drove customers out of its stores and to competitors like Abercrombie. But even this hasn't been enough to keep A&F from closing stores in an effort to control costs. In fact, Abercrombie's EPS forecast for the upcoming year was $0.23 below Wall Street's estimates at the midpoint, even with the cost savings from closing 40 to 50 projected stores this year.
To the corner, Mr. Jeffries
You might say that Abercrombie's turnaround is still in a fragile state, so it certainly couldn't afford any goof-ups, especially from its CEO, Mike Jeffries. However, in recent weeks an interview has resurfaced that Mike Jeffries did with news website Salon in 2006, in which he was quoted as saying:
In every school there are the cool and popular kids, and then there are the not-so-cool kids. Candidly, we go after the cool kids. We go after the attractive All-American kid with a great attitude and a lot of friends. A lot of people don't belong [in our clothes], and they can't belong. Are we exclusionary? Absolutely.
And that's how you anger an entire nation in just a matter of a few sentences! The resurfacing of this interview proves that a public figure like Jeffries can't simply escape what's been previously disseminated via social media, and that CEOs really need to watch what they say. In response to his comments' reemergence, those most angered by Jeffries' message are ensuring that homeless people, for instance, are receiving A&F clothing donated by people infuriated with the CEO's comments.
Jeffries has since apologized for his comments seven years ago and claims that Abercrombie is doing nothing more than marketing to a specific group of individuals similar to the strategy of many other apparel retailers. Jeffries also claims that discrimination of any form would be opposed by the company. Yet, seven years after Jeffries' comments, we still see that men can get XL and XXL sizes in A&F stores, yet women aren't able to get anything in XL or XXL sizes.
The epidemic of foot-in-mouth syndrome has claimed another victim in Mike Jeffries and earned him the title of "worst human in retail" on many social networking sites. It's a title that'd be hard to argue against.
Do you have a CEO you'd like to nominate for this dubious honor? Shoot me an email and a one- or two-sentence description of why your choice deserves next week's nomination, and you just may see your suggestion in the spotlight.
Will this retailer's turnaround ever take shape?
J.C. Penney's stock cratered under Ron Johnson's leadership, but could new CEO Mike Ullman present the opportunity investors have been waiting for? If you're wondering whether J.C. Penney is a buy today, you're invited to claim a copy of The Motley Fool's must-read report on the company. Learn everything you need to know about JCP's turnaround -- or lack thereof. Simply click here now for instant access.
The article CEO Gaffe of the Week: Abercrombie & Fitch originally appeared on Fool.com.Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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