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Abercrombie's Strong Brand DNA Will Prevail

|Includes:Abercrombie & Fitch (ANF)

Over the past few months, I've been listening to the powerful storm brewing over Abercrombie & Fitch (NYSE:ANF). The company has been getting pummeled by the press and media for comments its CEO made back in 2006 about the brand being targeted to "cool" kids. Stock analysts and the media are having a field day with the company and many are asking for major changes and an overhaul of the brand. The stock is currently trading at less than $35 a share, almost 40% lower than its 52-week high of $55.23 and less than half of the $77.81 it traded at 2-years ago.

I think an overhaul of the brand would be irresponsible and detrimental. Here's why:

Recently I had the honor of being the keynote speaker to a group of international entrepreneurs who gathered in NYC to learn from industry leaders how to build businesses and contribute to the global economy. These entrepreneurs were extremely interested in branding and my discussion with them centered on finding the DNA of their businesses so all efforts, all people, all products, and all campaigns stem from that core DNA. Finding the DNA of a brand is an experience I gained while working at Tommy Hilfiger during the build of the business from less than $100 million to more than $1.5 billion in the 1990's. It was one of the best lessons I've learned on how to build a brand, and it amazes me still how many brands struggle to do this and not reach their potential.

Finding the DNA of a brand involves a great deal of work, but ultimately helps a brand form and deliver its message. In a highly-simplified way it goes something like this: think of any great brand and you will surely find one or two words that express the sensibility of that brand. Whichever words immediately pop into your head is the brand message--its DNA--and high-impact brands are exceptional at understanding their DNA deeply. Think about brands like Ralph Lauren, Nike, and Mercedes or Whole Foods, and Apple. They are strong brands with decisive sensibilities--or DNA. When you think of Ralph Lauren you probably think American luxury. Nike may make you think performance and innovation, and Mercedes about quality and "German engineering". Many people think of healthy and organic when they think of Whole Foods. And Apple almost certainly makes you think of cool. Other brands, while they may be large and successful, may not have as strong a DNA and their businesses are often stale or stunted as a result--think about Microsoft or Levi's? Both are big brands, but Microsoft floundered for years and Levi's is not getting the traction it deserves in non-jeans related businesses. Tommy Hilfiger was its strongest when its DNA was young and fun. It faltered hard when it lost track of that DNA in the late 90's and early 2000's when the brand changed course to become modern and edgy, and urban. Today Tommy Hilfiger is doing well again and its DNA, which is referenced appropriately in advertisements, is all about being young-minded and definitely fun.

The point of all this is that high-impact brands have solid DNA, and when you think of them you know exactly what they are--like when you think of Apple, you think of cool. But guess what, ANF is cool and it has always had one of the strongest DNA's in the industry. It would be irresponsible and detrimental to the brand to undertake an overhaul or make big changes too quickly. Does ANF need to adapt and evolve? Absolutely. And the company has a lot of work to do to help the brand modernize and evolve that will take some time.. I am not defending mistakes the company has made or the things it may have said to offend some consumers, but I do believe everyone makes mistakes and they need to learn from them to become better. I am charmed by the founder of Spanx, Sara Blakely, who talks of how she attributes much of her success to her father who always encouraged her to make mistakes. He'd ask her as a child "what did you fail at today" with the point being to make mistakes and to learn from them so she would do things out of her comfort zone and grow as a person.

It seems that ANF is learning from its mistakes. The company is working to offer a broader size assortment online this spring and I think it could do a better job managing its social media campaigns--but they'll figure that out. Analysts are frustrated because inventory levels are high compared to sales and costs to run the company need to be better controlled so earnings can improve more quickly. Well this is what happens when bad press stunts good companies and when good companies strive to protect "human capital" knowing that "financial capital" may suffer some of the hurt as well when working through these types of challenges. I'm not an analyst. I'm a brand builder. My motivation is to build businesses and help entrepreneurs like those I spoke to last week learn to build businesses so people can have and keep good jobs that stimulate our global economy.

I believe ANF's brand DNA is solid and needs to be evolved, not overhauled. It is cool and there is nothing wrong with that if the message is delivered properly. You cannot be everything to everybody. Apple could be making many other products at different price-points to appeal to a wider range of people, but they don't--or should I say they didn't? (It is widely argued that Steve Jobs would never have allowed the launch of the iPhone 5C, which is targeted to a price-conscious consumer). I believe the team at ANF is learning from its mistakes. The team appears to be adapting and recognizing the need for the brand to evolve. But businesses the size of ANF don't turn on a dime. It's reckless to do so, and likewise completely overhauling a brand that has good product and DNA is irresponsible--the brand needs evolution, not revolution.

My hope in speaking with the young entrepreneurs about branding is that they come to understand the importance of brand DNA and how to manage it for the long-term benefit of their businesses along with human capital and financial capital harmony. Brand DNA has to be nurtured, protected, and expressed while constantly adapted to markets and evolved to remain relevant. It should never be overhauled, thrown-out or misused.

Stocks: ANF