A pitch letter was written based off of Professor Tony Gao's knowledge and comments on Abercrombie & Fitch versus the competition:

"On relative performance of Abercrombie & Fitch vis-à-vis the competition:Abercrombie and Fitch’s (AF) inventory turnover for the nine months ending Oct. 1 2006 is lower than its competitors such as American Eagle Outfitters, Eddie Bauer, and Gap. Its asset turnover for the same time period is comparable to that of the mentioned competitors. The areas where AF’s performance is most remarkable in the whole industry are with the high gross margin and low overhead to sales ratio. Its gross margin, at 66% for 2006, is much higher than all of its competitors examined including Aeropostale (30% in 2005), American Eagle (48% for 2006), Eddie Bauer (44% for 2005), Federated Department (41% for 2006), Gap (35% for 2006), J. Crew (43% for 2006), and Limited Brands (38% for 2006). This contrast shows that AF is doing a better job than the competition at maintaining a healthy difference between its sale price and the cost of goods, which is origin of all profit. This level of gross margin is higher than most specialty apparel retailers, department stores, and is on a par with or reaching the level of gross margin of many luxury jewelry retailers such as Coach (at 77% for 2006). AF’s overhead (selling, administrative, and general expenses) of 2006 is 11% of their sales, also much lower than the percentages of Aeropostale (19% in 2005), American Eagle (24% for 2006), Eddie Bauer (38% for 2005), Federated Department (32% for 2006), Gap (28% for 2006), J. Crew (33% for 2006), and Limited Brands (27% for 2006). What’s driving all of these? I believe the free publicity that AF generates from its controversial hiring practices and provocative promotional images has not played a small role in helping them get more target customers into the store and get more store traffic. This is a case where the negative publicity for a firm may have offended many people in the broader society but has prompted more patronage from their target customers. In a way, free publicity and corresponding saving of advertising dollars may have been components of a deliberate promotional strategy for Abercrombie and Fitch. Once in the store, the combination of its higher end merchandise, “cool” shopping environment, and an adequate amount of in-store service help convert more customers into buyers and further help illicit its buyers to spend more money on a per transaction basis. Even though it doesn’t turn over its inventory as fast as its competitors do, it’s quite possible that the lower inventory turnover performance comes from a lesser need for AF to mark down their merchandise to generate more sales."


Below is Prof. Gao’s bio.
Tao (Tony) Gao, Assistant Professor, Marketing Group. Professor Gao received a Ph.D. in marketing from Virginia Polytechnic Institute and State University, an M.E. in business management from Harbin Institute of Technology (Harbin, China), and a B.E. in industrial and management engineering from Hebei University of Technology (Tianjin, China). Previously, he held faculty positions at Washburn University, Hofstra University, College of William and Mary, and Hebei University of Technology (China). He also worked with the China branch of Mitsubishi Corporation (a general trading company in Japan) in the areas of international trade and joint venture developments. Professor Gao conducts research primarily on the development, governance, and consequences of buyer-seller relationships, customer value and risk perceptions, international business strategies, and business ethics. He has published in Journal of Business Research, Journal of Business Ethics, Research in Marketing, International Review of Retail, Distribution and Consumer Research, Journal of Relationship Marketing, Journal of International Business and Economy, Latin American Business Review, and Multinational Business Review. For his dissertation work on industrial buyer-seller relationships, he was a former winner of the National Association of Purchasing Management (now Institute for Supply Management) Doctoral Dissertation Competition.