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Abercrombie's Flagship Brand Arrives at the Alibaba's Tmall

Abercrombie & Fitch Co. ANF looks forward to expand its business in China by opening a store in Alibaba Group Holding Limited’s BABA Tmall.

Slated to open doors on Jul 26, the store will include the entire range of products from Abercrombie’s namesake brand and abercrombie kids. Currently, Abercrombie owns 10 physical stores in Mainland China and a local website.

The extension of this partnership agreement between Abercrombie and Alibaba will help strengthen the former’s customer base across China, with nearly 454 million active buyers in a year. Moreover, Alibaba is likely to aid Abercrombie in adapting to the ever-changing requirements of the Chinese shoppers.

Notably, the demographics on Alibaba’s China retail marketplaces matched up well with the Abercrombie brand’s projected customers in the twenties. Also, Tmall facilitates the retailer’s brands to tap into the huge Chinese demography.

In fact, the link between Abercrombie and Tmall, the giant shopping platform for brands and retailers in China, dates back to 2014, when Abercrombie’s successful Hollister brand entered it. Currently, management at Abercrombie is aggressively expanding its Hollister stores in newer markets in order to enhance overall performance.

Abercrombie’s Performance

We note that Abercrombie has been in troubled waters for quite some time now, mainly due to the sluggish store and mall traffic as consumers are shifting to online shopping. In addition, lack of efficient control and incompetent marketing for its products remain potent challenges. Also, a tough retail environment characterized by heightened promotional activity and soft comparable store sales are weighing on its performance. Evidently, its earnings and sales lagged estimates in four of the last five quarters.

Recently, Abercrombie halted talks regarding selling itself, and opted to pursue its strategic plans to spark a turnaround. Shares of this Zacks Rank #3 (Hold) company have declined 21.1% in the last one month, while the industry fell 2.1%. In fact, the industry is currently placed at bottom 15% of the Zacks Classified industries (218 out of 256).

Bottom Line

Abercrombie is implementing several strategies like cost saving efforts, capital investments, loyalty and marketing programs. Also, it remains on track with reviving its brands, enhancing performance, and returning to profitable growth.

Coming back to the launch of the new China outlet, we believe this is going to contribute meaningfully in expanding the company’s reach by providing exclusive brand and seamless shopping experience to customers. Furthermore, Abercrombie and Alibaba’s Tmall are likely to enhance the omni-channel services, and put greater emphasis on the buyers’ shopping preferences.

A few better-ranked stocks in the same space are J.Jill, Inc. JILL and Tilly's, Inc. TLYS, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

J.Jill, with a long-term earnings growth rate of 19.8%, delivered positive earnings surprise of 33.3% in the last reported quarter.

Tilly's, with a long-term earnings growth rate of 13%, pulled off an impressive average positive earnings surprise of 120.4% in the trailing four quarters.

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