I think few people would disagree that Abercrombie & Fitch needs a change of some sort. And with controversy-causing CEO Mike Jeffries's contract set to expire next February, that change could come pretty soon.
Obviously, Jeffries is not a particularly well-liked guy following this year's backlash over his jerky, condescending statements, like that Abercrombie's clothes are only for “cool, good-looking” people, i.e. people who aren't fat, given the brand's limited (but, finally, expanding) size range. Sickening revelations about the company's restrictive dress code followed. Just when it seemed things couldn't get any worse, Abercrombie then dissed Taylor Swift! Rude, not to mention, dumb, because most of the company's target customers are Taylor Swift fans.
But even before Jeffries's idiotic statements came to light, the brand wasn't doing well. A&F reported a first quarter loss of $7.2 million earlier this year, reflecting poor sales pre-backlash. And since then, stock prices have continued to plummet, until Tuesday.
Activist investor Engaged Capital, which owns about 400,000 shares of A&F, sent out a letter Tuesday urging the company to find a replacement for Jeffries in lieu of renewing his contract. The letter's message is very clear, and full of valid points. “Investors in Abercrombie have endured poor performance due to poor leadership for far too long. The Board needs to come to the same conclusion that everyone else already has – it is time for new leadership at ANF," the letter reads. "The renewal of Mr. Jeffries’s employment contract would be a direct contradiction to what shareholders want and the Company needs. ANF’s future success will be dependent on the Company’s ability to adapt to a fast changing retail environment, carefully manage expenses, and efficiently allocate capital. We urge the Board to immediately commence a CEO search for candidates with relevant retail apparel and turnaround experience or consider a sale of the Company.”
The letter is filled with research and examples that back up its claims, including a quote from CNBC's Jim Cramer: “This used to be the hottest teen brand in the world, yet under Jeffries’s recent leadership, Abercrombie & Fitch has become practically irrelevant.” Indeed, analysts have recently speculated that the Abercrombie (/American Eagle/Hollister/Aeropostale) aesthetic has fallen out of fashion.
In nine pages, the letter only makes one mention of Jeffries's controversial statements, suggesting that, because of them, his continued involvement with the company would "likely hamper efforts to hire a qualified successor." It can be read in full here.
The suggestion hasn't gone unnoticed. Since the letter went out, shares in Abercombie went up 7.3% according to Business of Fashion, suggesting this is an idea others are on board with, and that Jeffries's ousting is a very real possibility. Plus, activist investors like Engaged Capital, whose goals are to effect change -- when needed -- at the companies they invest in, have a history of getting new CEOs in place. One recent example involves Yahoo -- activist investor Daniel S. Loeb's campaign to change the company led to the hiring of Marissa Mayer as CEO.
Needless to say, it will be interesting to see what 2014 looks like for Abercrombie & Fitch, not only in terms of new leadership, but also because of the possibility of a new aesthetic and branding strategy, since they've been coasting on the same one for a really long time.