Yahoo Finance Editor-at-Large Brian Sozzi sits down with Abercrombie & Fitch CEO, Fran Horowitz, to discuss how the company has changed, clothing trends, new store openings, and Fran’s advice to other leaders.

Video Transcript

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BRIAN SOZZI: Fran, good to see you in person. Abercrombie & Fitch Investor Day in New York City-- we did this four years ago.

FRAN HOROWITZ: We did. I'm so happy to be back with you, in person and in New York City.

BRIAN SOZZI: Well, you look the same. I have a lot less hair.

FRAN HOROWITZ: Thank you.

BRIAN SOZZI: I have a lot less hair. It's-- it's kind of actually depressing. But compared to four years ago-- I went back and I looked at that interview we did, and it was a different time for the brand. You were still starting out as CEO at Abercrombie & Fitch. How is the brand different today, the company? How are they different?

FRAN HOROWITZ: You know, Brian, you think back four years ago, I'm not sure if it's four or 400, to your--

BRIAN SOZZI: Or 400.

FRAN HOROWITZ: --to your point. The world has changed so incredibly. And so have we. We are fundamentally a different company than we were back then. And what we have been able to accomplish and deliver is nothing short of super exciting, you know, from my opinion.

We were able to define the purpose of each one of our brands. And we've got, now, you know, very healthy brands in our fleet. We had strong financial discipline. We learned a ton from COVID about inventory management. I mean, the lessons just go on and on. But yeah, sitting here, four years later, if I were then, four years before, I don't think I could have ever predicted all of the things and the challenges that we would have come across.

BRIAN SOZZI: I'm going to go with 400 years. I think it was 400. So let's just keep that thread going throughout this interview.

So look, talk to me about some of the changes you have made to Abercrombie & Fitch. Let's start with the Abercrombie & Fitch brand, because I heard you on stage, I caught the back end of your presentation, and I heard you say it's just a different company. And I heard a different tone from you.

FRAN HOROWITZ: Abercrombie is back. That is the headline. And four years ago, no one believed that we could turn that brand. And what that team has done, I will say, is truly phenomenal and very, very rare for that to happen in retail.

And that journey started when we defined the consumer and the 96-hour journey that the consumer is on. So that consumer feels-- the best way to explain it is the exceptional feeling you have on the first day of a long weekend. And that became our mantra.

And we created a 96-hour calendar of what that customer does during a long weekend, and we made sure that we had clothing to fit them for all of those occasions, whether that was a bachelorette party, a shower, a weekend away with friends, working out, whatever those activities were during that 96 hours.

Plus the brand has become inclusive and diverse as it always should have been. And that was all through listening to our customers and having them tell us how important that is. And we are there for them today on their journey.

BRIAN SOZZI: What is the secret sauce to turning around a legacy brand-- a legacy brand like Abercrombie & Fitch?

FRAN HOROWITZ: Listening to your customer-- it's that simple. Listening to your customer, getting your product right, and making sure that what they are telling you is what matters, and you are not telling them what matters.

BRIAN SOZZI: What do they want right now? So I go to the I went to the Abercrombie & Fitch site, and I'm scrolling around, and I saw a lot more occasion-based items from Abercrombie. I'm not used to seeing that, but I would suspect there's a reason for that.

FRAN HOROWITZ: So what's exciting is that he and she are back out there. They're an incredibly social consumer, and they are so excited to be-- to be living their best lives again, right? They're-- they're out from quarantine, they've moved on from COVID, and they are celebrating all sorts of things. They're celebrating-- I think it's the biggest year of weddings since, like, 1985. They're celebrating bachelorette parties, showers, all sorts of things. And they're coming to us for those occasions.

Because again, our dress business is a great example. And Abercrombie Women's has been terrific. And we have dresses that she can wear to any one of those events. We're there for her on whichever occasion she wants to dress for.

BRIAN SOZZI: Do we need to scrap, once and for all, that Abercrombie & Fitch is a teen brand?

FRAN HOROWITZ: Once and for all.

BRIAN SOZZI: Scrap it. It's done.

FRAN HOROWITZ: Scrap it.

BRIAN SOZZI: It's done.

FRAN HOROWITZ: Cross it off.

BRIAN SOZZI: So who's your target customer?

FRAN HOROWITZ: Our target customer is the young millennial. So that consumer today, the young millennial is around 23. Our consumer can go all the way up to 40. So we have a range-- a broader range of consumer. We've aged up the brand. And the team, again, has done a terrific job creating product and marketing for that consumer.

BRIAN SOZZI: How is the international consumer? I know you've cleaned up a lot of the flagship stores. I want to get to that too as well. But how are you seeing the international consumer compared to the US consumer?

FRAN HOROWITZ: So international, interestingly enough-- I'll break that down into two regions. We have APAC and we have EMEA. Excuse me. And the APAC customer, we know that that has been a very challenged region. And so that's just starting to reopen again. In EMEA, it's been a lot slower than the US. I mean, the US consumer went running back to the mall, so to speak. And the EMEA consumer is really just starting to get out there.

So in the first quarter, UK was very strong. As the quarter started to end, we saw France and Germany opening up because those restrictions started to lift. So again, it's coming along and it's starting to open up, but it has not come back as quickly as the US has.

BRIAN SOZZI: Compared to pre-pandemic-- or I'll go back to those four years ago-- how have trends changed? You are a merchant at heart. You're doing this for--

FRAN HOROWITZ: At heart.

BRIAN SOZZI: Yeah, for heart. And I could see it just walking around this room. I could see the love in a lot of these clothes. How have trends changed at this point in the pandemic?

FRAN HOROWITZ: Tremendously. So during the pandemic, when we were listening to our consumer and we were pivoting to be much more casual and cozy and at home. The consumer is telling us they're out there and they're celebrating in many, many different ways.

So we are seeing a nice reaction to denim. Now, denim did sell during the pandemic, and fashion denim sold during the pandemic, but even more of it is selling today. And they're using it to dress up and do all those occasions I mentioned before. But we're also seeing such a nice reaction to guy's woven tops, and swim, and all of those other things that they're packing up for those 96 hours and taking on vacation with them.

BRIAN SOZZI: Can you explain to me this multicolor denim trend? I am old. I am old, Fran. I don't understand this. Help me.

FRAN HOROWITZ: Brian, you've been through many, many trends. And all trends come around.

BRIAN SOZZI: That's too nice of you. That's too nice.

FRAN HOROWITZ: They-- they get reinvented time and time again. And you've got to continue to make things new, and that's what the consumer is responding to.

BRIAN SOZZI: You mentioned inclusivity. I know this has been near and dear to you. That is not where the brand was pre-Fran Horowitz.

FRAN HOROWITZ: Pre-Fran.

BRIAN SOZZI: What is the state of your inclusive efforts at Abercrombie & Fitch?

FRAN HOROWITZ: So I am-- listen, we own our past, and I understand who we used to be, but we are a fundamentally different company today. And I'm very proud of the progress that we have made.

In fact, I will share with you that, in the US, where data is a little easier to gather than it is internationally, 70% of our US associates identify as female and 60% of them identify as BIPOC. So we've made a terrific, terrific improvement in that.

But even more importantly, our associate-- we have associate resource groups that are, for example, BIPOC, LGBTQIA, families, women. And those associates help us understand what they need and what's important to them. It helps identify all of our partnerships. We've got great long-term partnerships with Trevor, and GLSEN, and the Steve Fund and the Academy Group, and all of those organizations that support all the causes that our associates and our customers are-- feel important.

BRIAN SOZZI: Can you shake that past? Look, it was interesting for me to watch the documentary. You came out with a statement, very forcefully explaining what you have been doing. Can you shake it? I mean, clearly you have made efforts to turn this company around.

FRAN HOROWITZ: Absolutely. The brand love that we have felt from our consumers during this period of that documentary has been nothing short of heartwarming. And people have come out on social media to be very clear about who we are today and what we stand for.

BRIAN SOZZI: So do you think they understand that you are a different company.

FRAN HOROWITZ: Absolutely.

BRIAN SOZZI: Interesting. Talk to us a little bit about Hollister. That is the other brand inside this portfolio, a little bit of a different-- muted. A little bit of a more muted outlook versus Abercrombie & Fitch, at least from what my old analyst's ears, I heard at this event. Why is that the case?

FRAN HOROWITZ: So Hollister has been the tale of two-- two worlds. I mean, that really sums it up. And over the past four years, our US business has outpaced the teen apparel business in the US. In fact, we've got a 4% CAGR and have grown nicely in the US over the past four years.

International, we've had a step back. So in EMEA, we've stepped back. Total international, I think, about a 20% stepback in the business. And that's a couple of reasons. First of all, this consumer still likes to go shopping in the stores, and so they've had an outsized impact from the store closures. And secondly, they're not as digital, so they start every purchase on their phone, but they don't complete it there necessarily. They still come to the mall with their friends to go shopping and be social. Versus an Abercrombie, where it's a higher digital penetration. So those two things coming together are the reason it has really been a tale of two worlds.

BRIAN SOZZI: There's a lot coming at this teen consumer. They're driving old jalopies. They're not driving Tesla electric cars. They're paying $5.50 in gas. What are you hearing from this customer right now? How much stress are they under?

FRAN HOROWITZ: Yeah, I mean, the customer is definitely-- you know, is challenged. And the consumer for Hollister, the majority of the consumer is $75,000 income per year or less. And so they've got a lot of competing priorities right now. What we have to stay focused on is the product, the voice, and the experience and giving them what they-- what they want. And by doing that, they will choose us over the other competitors.

BRIAN SOZZI: We're not that far away from back to school, Fran. It's-- it's that time. I mean, the business lives for back-to-school and the holiday shopping season. How might all these economic forces weigh on the business?

FRAN HOROWITZ: I mean, in our outlook, you know, we are-- we're cautiously optimistic about back-to-school. The big difference between last year and this year was that, last year, we had a mini back-to-school in March and then a little bit less of the back-to-school during the true Q2, Q3 period. So our expectation is that will you know, maybe even itself out a little bit and we'll have a more normalized back-to-school. But again, time will-- time will tell.

BRIAN SOZZI: In terms of inventory, there's a lot happening right now in retail inventories. The discounts are picking up. When do you expect to work through these-- these inventories?

FRAN HOROWITZ: So I want to just comment on that statement. So the headlines on the inventory are not the story, they're the headlines. And our story-- and I cannot-- I cannot speak for others, as I never speak about the competition.

Our situation is that, when we started the second quarter-- and we talked about our inventories being up 45% of cost and 10% units-- 93% of our inventory is current. And we broke that down today. You know, we took-- we took a little pivot from a future-looking day where we're talking about our long-term goals, and we took a minute to talk about inventory for that very reason. We wanted to make sure everybody understood that 93% of our inventory is current.

That means goods that actually haven't even been set yet that we brought in early because of, last year, we couldn't get the goods in because of all of the challenges that were happening out there, long-life goods like jeans and underwear and fragrance, as well as current goods for spring and summer.

BRIAN SOZZI: Talk to us about the promotional environment. We've seen a few cycles in our lifetime.

FRAN HOROWITZ: We have.

BRIAN SOZZI: I remember going to the malls at the height of the Great Recession, seeing 60%, 70% off. Are we there yet?

FRAN HOROWITZ: Again, we've made tremendous progress on our promotions. So before the pandemic, we were-- you know, our brand health was not where it is today and we were exceptionally promotional. Now, we will always be promotional. We live-- that's part of what our business is, and our customer enjoys and appreciates value. But today, we are still less promotional than we used to be. We've been able to make progress on our discount to ticket. We've been able to make progress on our AUR. First quarter was our eighth consecutive quarter of AUR growth. So we've seen a lot of progress.

BRIAN SOZZI: Inflation-- any sign it's easing? Anything, anything you can give viewers, Fran. It is-- I'm paying $6 or $7 for some 12 eggs. It's crazy.

FRAN HOROWITZ: I hear you. That one I'm going to leave to the economists, Brian. That's just not in my-- you know, not in my purview to comment on that today. But I'm hopeful, as everybody else is, that we're going to see that abating in the near term.

BRIAN SOZZI: Do you see it in the goods you're ordering for future periods? Is it starting to lessen at all? Or maybe it's not.

FRAN HOROWITZ: Yeah, I mean, currently-- obviously, the current goods we have seen some challenges on-- on both raw materials as well as freight. Our expectation towards the back half of the year is that might abate a little bit, but nothing-- nothing so far.

BRIAN SOZZI: Is the supply chain challenges abating at all? Can you get the goods you need?

FRAN HOROWITZ: We are seeing a little bit of that-- of the speed picking up. But understand that we've had to extend our deliveries significantly in order to make sure that we don't have a situation like we did last fourth quarter, where we were disappointing our customer because we were out of stock.

BRIAN SOZZI: Every chat that we have talked, I would say, over the past two years or so, has involved the future of your store network. Every time I talk to you, you have leases up for renewal. I think it's, this year, what, 25% of your leases are up for renewal. What are you doing with these stores?

FRAN HOROWITZ: Well, a couple of things. So first of all, this year is actually our first year of being a net store opener in a very long time.

BRIAN SOZZI: OK, well, that's new.

FRAN HOROWITZ: Yeah, that is new. And we're going to be opening up 60 new experiences this year that we're very excited about. And I hope your travels take you to Chicago.

BRIAN SOZZI: OK.

FRAN HOROWITZ: We just opened up two new stores in Chicago that I personally visited about three weeks ago that are fantastic. So one is on Southport, and it's a women's-only store-- so our very first women's-only store-- and we opened up a dual-gender store on State Street. Both of those stores were created through data and analytics and really understanding where our consumer is, where they're shopping, and how they're shopping. That helped us inform the location, the assortments.

So if it's in your travels, please let me know. We will make sure you have a nice visit to those stores.

BRIAN SOZZI: I can't help myself. Why a women's-only store?

FRAN HOROWITZ: Because that's what the data told us. The data told us that we overindexed to female, that there was a need to have an opportunity for them to pop in; purchase online, pickup in store; order in store; shop in store. And that particular location was very heavily indexed to women.

BRIAN SOZZI: Are you still closing flagship stores?

FRAN HOROWITZ: Well, I mean, that journey is pretty much finished. We have a couple left over the next few years, but that is really in our past and that journey has really been completed.

BRIAN SOZZI: Walking around the room, I would say it's a popup showroom [? out ?] here. And everybody can't see it, but I would say it's a popup showroom. Big representation, somewhat new, I would say, in athleisure.

FRAN HOROWITZ: Yes.

BRIAN SOZZI: Workout-- not workout gear, but things you can wear to work and then maybe wear out-- get a workout. How big could that business be for you?

FRAN HOROWITZ: You know, it's interesting. So NPD data will tell you that active is actually still the fastest-growing apparel sector in the US. And so we feel we have an opportunity to get our share of that as well. So we have two different places that we're playing.

So Gilly Hicks, which is our play happy brand, we have what we consider active lifestyle, so not necessarily hardcore performance wear, but to your point, things that you can go out in, hang out in, but you can also work out in. And YPB, Your Personal Best, which is our newest family member to our Abercrombie adult brand, which is our true performance activewear, that was created because our customers asked for it. They said, you're outfitting us for 96 hours. And one thing that we do on these 96 hours is we work out. And we love your quality, your fit, your price point, everything. Create a line for us that we can work out in. And it has been incredibly well received.

BRIAN SOZZI: Last top I want-- topic I wanted to get to, you just past your five-year mark as CEO of Abercrombie Fitch. I know you've been with the company for a while, but--

FRAN HOROWITZ: Yeah, 5 and 1/2. Yeah, I started-- February '17, I became CEO.

BRIAN SOZZI: OK, so you do not get to be the CEO of Abercrombie & Fitch for five years in a challenging apparel market, historically, if you're not doing a lot right. Any advice to fellow business leaders that-- based on things that you've learned the past five years? It's a challenging time right now out there.

FRAN HOROWITZ: People, people, people. I could not have made it through the pandemic or the last five, six, eight years, whatever we want to say, my time at Abercrombie, without the team that I have created. I absolutely-- I love my team.

I was asked this morning, a little bit, in our Investor Day, about the team. And what I'm most proud of is the fact that we have a team that is blended from some associates that have been here and have grown and developed with us and from recruiting talent from the outside. And we've been able to take those two things and blend and make an awesome, awesome team.

So I would say people number one and empathy number two. And I know you hear a lot of people saying that. But communicating with your team, staying close to them, making sure you are listening is the key to success today.

BRIAN SOZZI: How have you stayed focused over the past 2 and 1/2 years of the pandemic?

FRAN HOROWITZ: Well, I mean, our focus has shifted, candidly. In March of 2020, when we closed all the stores and lost 70% of our top line, you know, we shifted very quickly to zero-based budgeting, and not spending any money, and only thinking about the immediate term.

And then, as the year continued and we realized, you know, that we were going to come out a faster, stronger, and smarter company, we had to shift again to the long term. And that's why I'm excited to be here today. Today was like some time to share and spend our long-term strategic goals.

BRIAN SOZZI: Yeah, you put out some big long-term revenue goals, really above a lot of estimates that I saw on the street. Over $4 billion in sales by 2025.

FRAN HOROWITZ: End of 2025.

BRIAN SOZZI: End of 2025. Where are you going to be in five years?

FRAN HOROWITZ: We are going to be the leading global omnichannel retailer. We're going to have an amazing customer experience and a continued fantastic family of brands.

BRIAN SOZZI: Good to see you, as always.

FRAN HOROWITZ: Always good to see you too.

BRIAN SOZZI: Fran Horowitz. I've not seen you in person for a while.

FRAN HOROWITZ: I know. Thanks for coming to--

BRIAN SOZZI: It's good to be back in person and see human beings.

FRAN HOROWITZ: Awesome. Cheers. Thank you.

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