Abercrombie takes the high (margin) road

While practically every other retailer is cutting prices, Abercrombie & Fitch expresses fears that price-cutting would damage its brand image. I'm a big believer in maintaining the brand, but I must admit that I'd probably be willing to compromise my principles in the face of sales figures like these:

While just about everybody was down in November, I don't think anyone else was -28%. The positive, though is that A&F has maintained not just their brand image, but also their margins:

Gross margins at American Eagle slid 6.4 percentage points to 41% of sales in the third quarter, while at Pacific Sunwear they fell 4.9 percentage points to 28.7% of sales. Abercrombie, meanwhile, closed the quarter with relatively high gross margins of 66% of sales, with a much smaller decline of 0.2 percentage point.

So maybe A&F's bottom line isn't suffering much more than it would with price-cutting, in which case protecting the brand makes sense. A question remaining to be answered, though, is what happens when the inventory backs up. The WSJ article says A&F is maintaining normal inventory levels, but if sales are down so sharply, then there's going to be a lot of stuff gathering dust on the shelves in January, meaning either huge sales or stale merchandise.

It will be interesting to see how this works out.