Why Is Mike Jeffries Still the CEO of Abercrombie & Fitch?

By Josh Wolonick  DEC 13, 2013 12:42 PM

The teenage-marketed clothing retail company has renewed its contract with the controversial executive, causing its stock price to drop.

 


On Tuesday morning, Abercrombie & Fitch (NYSE:ANF) announced it would be renewing the contract of CEO Michael Jeffries, a figure who has proven quite controversial over the last few years, predominantly for comments and policies meant to keep his company accessible only to "cool kids." Those exclusionary policies, which included not selling sizes XL or XXL in Women's clothing, are now being revoked: In November, the company announced it would expand its offer of sizes, colors, and, most importantly, fits, by spring 2014. (For more on that, see my story from last month, Facing Financial Woes, Abercrombie Will Offer Larger Sizes).

With the company's stock price having plummeted 26% in the last year, and with sales continuing to fall, many shareholders were relieved to find Abercrombie dealing appropriately with the controversy, but still wanted Jeffries kicked out. As one investor, Glenn Welling, the Managing Director of Engaged Capital, wrote in an open letter to the Abercrombie board, "Given the Company's history of operational missteps, taken together with Mr. Jeffries' age [69] and his increasingly controversial reputation, the Board must not let this opportunity pass."

Given Tuesday's news, many shareholders and concerned citizens are wondering why Jeffries is still the CEO of Abercrombie. We interviewed several experts to find out.

"The Board Has Been Asleep at the Wheel"

That's what Dave Wakeman, Principal at the Wakeman Consulting Group, had to say. He feels the Abercrombie board let a questionable situation become worse without taking any kind of corrective action. Wakeman told Minyanville,

The board seems to have found themselves in a position where they might not have wanted to retain Jeffries, but they also didn't have any long-term solutions. In a lot of companies, they might have gone with a short-term placeholder CEO, but my feeling from having worked in situations where a company is faltering and leadership needs to be changed is that Abercrombie & Fitch is having a brand identity crisis and [board members] can't quite wrap their heads around what they want to be.

The offensive and exclusionary things Jeffries has said are by no means new: He's been claiming Abercrombie is for the "cool kids" since the beginning of his tenure, and the board failed to realize that this might eventually cause a backlash to the company's brand appeal, and to its stock price, said Wakeman.

Jeffries Made the Company What It Is

When Mike Jeffries became the CEO of Abercrombie & Fitch in 1992, the company generated approximately $50 million in sales. Today, the company sells in excess of $4 billion annually. That's obviously a huge amount of growth in two decades, and it has not gone unnoticed in this time of controversy for the company.

According to Andrew Schrage, founder of the personal finance website Money Crashers,"At least one of the main directors at ANF still believes in Jeffries. Craig Stapleton recently stated that Jeffries has a long-term game plan in place which will use previous successes for future growth, and that he has taken aim at some of the specific challenges facing the brand." In fact, Stapleton went so far as to call Jeffries a "visionary.

Jeffries Is the Cheapest Option Now

Monique Tatum, the CEO of Beautiful Planning Marketing & PR, believes that financial consideration may also play a part in why Jeffries has not yet been given the boot. She told Minyanville the following:

At this point, Mike Jeffries' pay is dependent upon company earnings. I honestly believe that they see an opportunity where, at this point, with the declining stock price, it is apparent that they may not make those sales, and that they have him in position for very low cost. Also the company has received more press, though negative, than it has in recent years.

Tatum does acknowledge, however, that the savings the board is making on its CEO are likely not worth the negative impact on the brand. As she told us, "Renewing his contract does scream to the public that they indeed agree with his previous comments and public viewpoints of who the company cares about as customers."

Is the Company's Demographic Less Outraged Than the Media?

Dave Wakeman suggested to Minyanville that Abercrombie consumers are perhaps responding with less outrage to Jeffries' statements than the general media because they don't find his ideas or opinions offensive. "A&F did an exceptional job of marketing themselves to a certain consumer within a certain age bracket that might find Jeffries' view consistent with their own world view," he told us. Then again, Wakeman also added that Jeffries' behavior is bully-like, and that our society is now "very focused on any type of bullying or perceived bullying behavior." Teenagers may be narcissistic, but Wakeman believes that even they are more critical of bullying now than they once were. He suggests that the proliferation of social media may have something to do with this, but that's a topic for another story.

Moving Forward

Everyone we spoke with agreed that Abercrombie cannot simply offer larger sizes and hope to improve its sales, but it must embrace a real sense of inclusion for new consumers. As Andrew Schrage told us, the company "has taken a few steps in the right direction -- it recently held meetings with leaders of an eating-disorder organization as well as a teen empowerment group, but it will need to continue to ramp up efforts in that area if it plans on being around for the long haul."

Dave Wakeman believes that a true remodeling of the company and its demographic will ultimately prove impossible for the current leadership. "They've always been a brand that portrayed a narcissistic world view that's just not in line with expanding their size offerings," he said. He feels any significant shifts in Abercrombie's business will have to happen without Jeffries and the rest of the company's current leadership.

The board of Abercrombie seems to agree with him: The heads of the company's three main brands are being replaced, and a major part of Jeffries' new contract stipulates that there must be a succession plan for a new CEO in place within the next few years.

Follow me on Twitter: @JoshWolonick and @Minyanville

No positions in stocks mentioned.