The rise and fall of Abercrombie & Fitch
On Sunday morning, December 7, Michael Jeffries called some of the senior executives at Abercrombie & Fitch to discuss the holiday season. That was typical Mr Jeffries. He was the creator and chief executive of the modern-day Abercrombie – a US$4 billion company with three brands and about 1,000 stores in 19 countries – and had controlled virtually every aspect of the company for 22 years. He approved every piece of clothing and for a while every employee, too, including the clone army of young men who stood shirtless at store entrances. He instructed staff on how to present themselves, down to the length of their fingernails. He had built an empire of cool based on preppy, well-made, expensive clothes, worn low and tight.
Mr Jeffries, who is 70, tried to keep up appearances. He lifted weights, barefoot, in the company gym most mornings. He dyed his hair blond and regularly visited his plastic surgeon, according to former executives who spoke on the condition of anonymity. He wore torn Abercrombie jeans and flip-flops around the woodsy campus outside of Columbus, Ohio, although he used to put on his lucky Tod’s loafers to review the numbers every day.
The loafers had stopped working. Sales at established stores had fallen in five of the past seven years, and 2014 wasn’t looking good, either. Profits were expected to be about $106 million, less than half of what they had been in 2012. Mr Jeffries’s pay had been cut by about 70 per cent, he had lost his position as chairman of the board, and his employment contract was expiring in February 2015.
On Monday, December 8, Mr Jeffries didn’t arrive at work in his black Range Rover. He never showed up. Early the next morning, Arthur Martinez, the former CEO of Sears and chairman of the Abercrombie board since early 2014, called the senior executives into a meeting. He told them that Mr Jeffries was leaving and the company was looking for a new chief executive.
Abercrombie & Fitch was a century old when Mr Jeffries joined in 1992. It had been a sporting goods emporium for adventurers and the elite: it outfitted Teddy Roosevelt, Admiral Byrd and Charles Lindbergh. But in the intervening decades, it had fallen on hard times.
When Mr Jeffries, then 48, arrived at Abercrombie, he wore khakis, Oxford shirts, and loafers. Leslee Herro, an executive who had been with Abercrombie before Mr Jeffries joined, later recalled his appearance at a company meeting: “It was kind of like a pep rally. We were all wearing our cargo shorts and plaid shirts. And all 15, 20 of us in the whole company we’re cheering. I will never forget the image of Mike in my mind, with his arms up in the air, saying: ‘We will be a world-known, fun, spirited brand.’ ”
Abercrombie & Fitch went public in 1996. It had about 125 stores, sales of $335 million, and profits of almost $25m. Mr Jeffries wrote a 29-page “Look Book” for the sales staff. Women weren’t allowed to wear makeup or coloured nail polish. Most jewellery was forbidden. So were tattoos. Hair had to be natural and preferably long. Men couldn’t have beards or moustaches. The only greeting allowed was: “Hey, what’s going on?” Store managers spent one day a week at their local college campus recruiting kids with the right look. They started with the fraternities, sororities, and sports teams. Managers forwarded photos of potential employees to headquarters for approval.
Mr Jeffries sent a weekly “time line” to each store, listing each task, including exactly how to arrange the clothes. One button had to be left undone if a blouse were hung, two if it were folded. Representatives from headquarters conducted what they called blitzes to make sure standards were met. Rehab teams were sent in if they weren’t. When Mr Jeffries visited stores, he didn’t challenge managers about payroll or theft, says a former executive – he cared only that the stage was set properly and the staff looked the way he wanted.
Alisa Durando joined the company in 1996 as a designer. “We could influence Mike about product but not marketing,” she says. “He was phenomenal. He was always creating the movie, the lifestyle story he wanted to project.”
When Mr Jeffries travelled, he sent an advance team to make sure his car and hotel looked and smelled the way he wanted. On West Coast trips, he would call meetings in his hotel room at 5am Models in Abercrombie outfits were there serving coffee.
He created a fantasy world, and plenty of teens wanted to be part of it. For a decade, Abercrombie’s profit increased every year as it expanded to 600 stores. During the 2001 recession, Abercrombie’s sales started slowing, but Mr Jeffries didn’t lower prices.
At the end of 2002, an analyst asked Mr Jeffries if the chain’s tight shirts and low-riding jeans might be unnecessarily excluding some teens from shopping there. “Does it exclude people? Absolutely. We are the cool brand,” Mr Jeffries replied.
Abercrombie sometimes seemed like code for something else. Asian American, African American and Hispanic college students in California sued Abercrombie in 2003 for racial discrimination in its hiring practices. The suits alleged that minorities were turned down for sales positions, shunted to stockrooms, and had their hours reduced, sometimes to zero, after managers got word that their staff didn’t look Abercrombie enough.
The company said it didn’t tolerate discrimination and settled the suits for $50m without admitting wrongdoing. As part of the deal, Abercrombie was subject to a consent decree that required it to hire a diversity officer and give progress reports to the district court.
Senior executives came and went, none able to exert any influence over Mr Jeffries. If they had ideas different from his, it didn’t turn out well, says a former executive who worked on the business side. Mr Jeffries talked of retiring one day but pushed out potential successors. The board of directors, composed mostly of local businesspeople, deferred to him in this matter, and most others.
Abercrombie’s same-store sales dropped 13 per cent in 2008 and 23 per cent in 2009, and although the company remained profitable, signs began to emerge that Mr Jeffries’s personality might overwhelm the business, especially if it wasn’t growing. In 2010 the board limited his use of the company’s Gulfstream G550 to $200,000 annually, although it also gave him a $4m travel stipend.
In 2010, Michael Bustin, 53, a pilot who flew the Abercrombie plane, filed an age discrimination lawsuit against the company. Abercrombie’s general counsel said the suit was without merit. The complaint included a 40-page “Aircraft Standards” manual. The four male crew members (models provided to Abercrombie) had to wear jeans, boxers, polo shirts and flip-flops. The manual specified the seating arrangements for Mr Jeffries’s three dogs, the length of the spoon his travelling companion Matthew Smith required for his tea, and the proper way to respond to requests (“No problem”), fold washcloths, vacuum, dust and present magazines. When Mr Jeffries was called to give a second deposition in the winter of 2012, Abercrombie settled the case without admitting wrongdoing. The details were not made public.
In the spring of 2013, Lewis, the retail expert, noted that the A&F brand didn’t carry large sizes because Mr Jeffries wanted only thin, beautiful people to shop there. Comments to that effect he made in 2006 went viral. That caused new outrage. Soon people were spoofing A&F’s ads and protesting its standards. This time potential customers were complaining, not their parents.
A Piper Jaffray survey in autumn 2013 asked teen girls what brands they no longer wear: A&F and Hollister ranked second and third. (Aéropostale was first.) By the end of 2013, a year in which same-store sales dropped 11 percent at Abercrombie, the company had closed at least 220 mall stores. Another 120 stores in the US would be gone within two years, it said.
Engaged Capital, a hedge fund that owns a small stake in Abercrombie, issued a public letter in December 2013 calling for Mr Jeffries’s resignation and for the company to consider putting itself up for sale.
Glenn Welling, the fund’s founder, noted that Mr Jeffries’s total compensation since 2008 was $140m, second only in his peer group to Ralph Lauren. Abercrombie’s total return to shareholders was far behind that of its peers though.
Abercrombie restructured Mr Jeffries’s contract to tie his bonus to the company’s performance. The contract was for just one year.
In January 2014 the board stripped Mr Jeffries of his role as chairman and brought in four independent board members, including Mr Martinez.
“It took a very dominant, controlling, detail-oriented visionary to build Abercrombie,” says Richard Jaffe, an analyst at Stifel Financial. “And those very same traits undermined the company, kept it from evolving.”
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Published: January 25, 2015 04:00 AM