Abercrombie & Fitch 2013 Annual Report Download - page 5

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All product sources, including independent manufacturers and suppliers, must achieve and maintain the Company’s high
quality standards, which are an integral part of the Company’s identity. The Company has established supplier product quality
standards to ensure the high quality of fabrics and other materials used in the Company’s products. The Company utilizes both
home office and field employees to help monitor compliance with the Company’s product quality standards.
Before the Company begins production with any factory, the factory must first go through a quality assurance inspection
to ensure it meets Company standards. This includes factories that are subcontractors to the factories and vendors with whom
the Company works. All business partners are contractually required to adhere to our vendor Code of Conduct, and all new
factories go through an initial social audit, which includes a factory walk-through to appraise the physical working conditions
and health and safety practices, as well as payroll and age document review. Social audits on the factories are also performed
once a year after the initial audit. The Company strives to partner with suppliers who respect local laws and share our
dedication to utilize best practices in human rights, labor rights, environmental practices and workplace safety.
DISTRIBUTION AND MERCHANDISE INVENTORY.
The Company’s merchandise is shipped to the Company’s distribution centers (“DCs”) where it is received and inspected
before being shipped to stores or direct-to-consumer customers. The Company uses its two DCs in New Albany, Ohio to
support its North American stores, and direct-to-consumer customers outside of Europe. The Company uses a third-party DC in
the Netherlands for the distribution of merchandise to stores and direct-to-consumer customers located in Europe, and a third-
party DC in Hong Kong for the distribution of merchandise to stores located in Asia. The Company utilizes primarily one
contract carrier to ship merchandise and related materials to its North American stores and direct-to-consumer customers, and a
separate contract carrier for its European and Asian stores and direct-to-consumer customers.
The Company strives to maintain sufficient quantities of inventory in its retail stores and DCs to offer customers a full
selection of current merchandise. The Company attempts to balance in-stock levels and inventory turnover, and to take
markdowns when required to keep merchandise fresh and current with fashion trends.
INFORMATION SYSTEMS.
The Company’s management information systems consist of a full range of retail, merchandising and financial systems.
The systems include applications related to point-of-sale, direct-to-consumer, inventory management, supply chain, planning,
sourcing, merchandising and financial reporting. The Company continues to invest in technology to upgrade core systems to
make the Company scalable, efficient, and more accurate, including support of its international expansion.
SEASONAL BUSINESS.
The retail apparel market has two principal selling seasons: the Spring season which includes the first and second fiscal
quarters (“Spring”); and the Fall season which includes the third and fourth fiscal quarters (“Fall”). As is typical in the apparel
industry, the Company experiences its greatest sales activity during the Fall season due to the Back-to-School (August) and
Holiday (November and December) selling periods, particularly in the U.S.
TRADEMARKS.
The Abercrombie & Fitch®, abercrombie®, Hollister®, Gilly Hicks®, “Moose” and “Seagull” trademarks are registered
with the U.S. Patent and Trademark Office and the registries of countries where stores are located or likely to be located in the
future. In addition, these trademarks are either registered, or the Company has applications for registration pending, with the
registries of many of the foreign countries in which the manufacturers of the Company’s products are located. The Company
has also registered, or has applied to register, certain other trademarks in the U.S. and around the world. The Company believes
its products are identified by its trademarks and, therefore, its trademarks are of significant value. Each registered trademark
has a duration of ten to 20 years, depending on the date it was registered, and the country in which it is registered, and is
subject to an indefinite number of renewals for a like period upon continued use and appropriate application. The Company
intends to continue using its core trademarks and to renew each of its registered trademarks that remain in use.
OTHER INFORMATION.
Additional information about the Company’s business, including its revenues and profits for the last three fiscal years and
gross square footage of stores, is set forth under “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS” of this Annual Report on Form 10-K.
COMPETITION.
The sale of apparel, accessories and personal care products through stores and direct-to-consumer channels is a highly
competitive business with numerous participants, including individual and chain fashion specialty stores, as well as regional
and national department stores. As the Company continues expanding internationally, it also faces competition in local markets
from established chains, as well as local specialty stores. Brand recognition, fashion, price, service, store location, selection and
quality are the principal competitive factors in retail store and direct-to-consumer sales.
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