Chapter 1: Introduction
1.1 The business model and
business model innovation
Nowadays, the market power has smoothly passed from
manufacturer to consumer and this should not be ignored in building a business
model. Therefore, the basis of success of any enterprise is the creation of a decent customer value, which should bring the
profit to the business. Thus, firms try to maximize the customer’s expectations
in order to increase sales and profits, respectively. Creation of consumer value, as a rule, is based on
innovations. Modernization is a guarantee of leadership, as they provide a
competitive advantage to the enterprise.
According to the Alexander Osterwalder &
Yves Pigneur’s book “Business Model Generation”, the business model
describes the rationale of how an organization creates, delivers, and captures
BM (Business Model) is a simplified representation of a complex object or
process and their most essential characteristics. The business model is the
potential of the company; its commercial partners, which are necessary for
creation, promotion and delivery the product/service to the target market, for
instance, Hollister Co.
and Zalando are the key partners of Abercrombie & Fitch; relationship with the company’s consumers and formation
of investments for a steady stream of income.
Business model innovation,
Chapter 2: A company summary
of the company
The story of Abercrombie & Fitch began in 1892,
when David Abercrombie opened his first sports equipment store in New York. Today,
it is the speciality retailer company that has over 350 stores all over the
world. Moreover, A (Abercrombie & Fitch) sells its production direct-to-consumer
operations (e-commerce portal) and through various
wholesale, franchise and licensing agreements. The company has business operations on four continents: Asia,
Europe, the Middle East and North America. The headquarters of the company locates
in New Albany, Ohio, United States of America. 311 stores are located in US and
only 44 stores in various international markets.
Figure 1 represents the statistical graph about the number of Abercrombie &
Fitch stores worldwide from 1998 to 2016. The data on histogram shows the gradual decline in the number of stores in the
period from 2007 to 2013 and the
sharp rise after.
Figure 1. The number of Abercrombie & Fitch store a
worldwide from 1998 to 2016.
The retailer is mainly focused on young people (both, men and women)
aged 16 to 25 years who value comfort and quality and lead an active lifestyle.
In addition, Abercrombie kids, – clothing brand owned by Abercrombie & Fitch, produces
clothes for children aged 3-14. A has a fairly wide range of products, such as
following: sportswear (track suits, shorts, T-shirts etc.), intimate and swimwear, sleepwear, coats
and jackets, accessories (scarves, hats, bags, belts etc.), personal care
products (perfumes and candles). Furthermore, the brand offers few services
like gift cards and purchase delivery.
2.2 Market position and
The main focus of the company is on the USA. The American market has
63.8% of the total sales. Geographically, 23.1% of the total revenue belongs to
Europe and 13.1% to the rest of the international markets (for
Abercrombie & Fitch Co. has a high competition
since the ready to wear retail market is full of large and successful companies. The key direct competitors of the A are fashion group Inditex which includes
such famous brands as Zara, Massimo Dutti, Pull and Bear and others; H;
Gap Inc.; Nike Inc. and Adidas AG. According to CSIMarket, the market share of
Abercrombie & Fitch fell to 1.22% in 2017 (See the Figure 2).
Figure 2. Total Segment Market Share Q3 2017.
The company reported revenues of
(US Dollars) US$3,326.7 million for the fiscal year ended January 2017
(FY2017), a decrease of 5.5% over FY2016. In FY2017, the company’s operating
margin was 0.5%, compared to an operating margin of 2.1% in FY2016. In FY2017,
the company recorded a net margin of 0.1%, compared to a net margin of 1% in