The Alpha Teenager Remember when getting in with the in-crowd was all that mattered? At Abercrombie & Fitch, it still is.
By Lauren Goldstein

(FORTUNE Magazine) – The popular kids at Montgomery Blair High School in Silver Spring, Md., are pretty much like the popular kids of their parents' generation. The boys are athletic and good-looking; the girls are perky and good-looking. They have their own cars. They stir envy or hatred in the kids who don't qualify for their ranks. But unlike their parents' generation, these kids aren't just called jocks. The popular kids at this school--and many others around the country--are identified by where they shop. At Blair High they are called the Abercrombie crew.

When my mother was a teenager, the clothing brand du jour was Levi's. When I was in high school, it was Guess acid-washed designer jeans. We stood by our brands, but no one ever called my mother's friends the Levi's crew or referred to the popular kids in my school as the Guess gang. It would have seemed absurd. That it does not seem absurd to call popular Blair High kids the Abercrombie crew is a testament to the shrewd marketing of Michael Jeffries, the CEO of Abercrombie & Fitch. Like every youth clothing maker, Jeffries tells consumers his product will make them cool. But he does more than that. By hiring the coolest kids and paying them to have fun, he has found a way to package, market, and sell popularity.

When Jeffries joined Abercrombie in 1992, the company had already abandoned its roots as a high-wasp travel emporium and was selling conservative men's wear to customers "from 60 to death," he says--not exactly a bunch of big spenders. Jeffries saw an opportunity. Where there had been dress shirts and paisley ties, Jeffries placed faded jeans and T's to appeal to the nation's fastest-growing demographic--14 to 24. He pulled it off. Abercrombie, which completed a spinoff from the Limited in 1998, just announced its 29th consecutive quarter of record profits. Revenues last year were $816 million. The company now has some 230 stores; there were just 35 when Jeffries arrived. Wall Street enjoyed the ride--the stock went from $6 in early 1997 to a high of $50 this April, splitting once in June. And Jeffries isn't resting. Last year he launched a children's store called abercrombie--get it? Next year he'll spin out a third store concept, reportedly centered on California surf culture.

"Fast blooming, fast fading" is what my grandmother would say in consolation when my mother doubted her own popularity. Fast blooming, fast fading is what has happened to scores of popular youth-oriented retail stocks as well. Remember Merry-Go-Round? Wet Seal? Wall Street does. As eager as investors are to get in on a hot retail stock, they're even more eager to get out before what has come to be seen as the inevitable crash. Nervous investors have been watching closely for signs that the brand is fading. And in October, they thought they had found one. Wall Street, spoiled by same-store sales increases of nearly 20% to 40% quarter after quarter, pummeled the stock down to $28 when third-quarter same-store sales grew just 11%.

So as Abercrombie goes into the holiday season, the big question on investors' minds is, Is it still in with the in-crowd? At Abercrombie it's the eternal question. The company's success depends on the teenager's basic psychological yearning to belong. (Remember, the Columbine shootings happened at a school some reportedly called "Abercrombie High.") And that means more than just selling the right kind of clothes.

If you look closely, you can see all the secrets of Abercrombie's success as soon as you enter the store. The first thing you'll notice is a couple of really great-looking kids--every bit as great-looking as the models posing in the huge, fun-loving photos mounted on the wall behind them. They are dressed, of course, in the Abercrombie they bought with the company's 30% to 40% discount. Plaid shirts worn open over faded T's, vibrant red sweaters over faded denim jeans. The beautiful people don't do much--the four young studs standing in the doorway of the Montgomery Mall store in Bethesda, Md., last month spent most of their time ribbing and tickling each other and saying "Hey" to entering shoppers. That's their job. Greeters get minimum wage to have fun--to listen to Smash Mouth, to be carefree and breezy, to radiate charm. Why? As Jeffries put it, "Cool, great-looking guys attract cool, great-looking girls, who attract...Get it?" It sounds simple, and it is. And it works.

"No one wants to admit that they shop at a store because it is cool," says Caitlin Gibson, a Blair High School junior picking through the Abercrombie sale racks with two friends. "But when I saw those guys out there, my jaw just dropped."

Of course, it's not as easy as it looks. Every single aspect of the seemingly casual scene is strictly controlled by Jeffries and the home office in Columbus, Ohio. On the polished concrete entrance, an "A" and an "F" have been embossed to mark the spots where the beautiful people stand. A shoe map in the storage room spells out which shoes (Abercrombie doesn't make its own) employees are allowed to wear with which pants--Birkenstock sandals with denim or twill; Converse or Pumas with paratrooper pants. Never, under any circumstances, should black shoes be worn. Black shoes are urban streets. Abercrombie is college campus.

During peak selling periods like Christmas, other workers--less cool and less good-looking--come in after hours to do the grunt work of counting inventory, restacking tables, and unpacking boxes, lest these mundane chores get in the way of the beautiful people radiating a good time. "They're not here to fold clothes or to make money," says director of stores David Leino about his hip helpers. "It's a status thing. They can say, 'I work at Abercrombie.'"

Because Michael Jeffries is about as boyishly charming as it is possible for a 55-year-old man to be, and because he looks completely at home in his Abercrombie Destroyed Carpenter pants, Muscle Crew sweater, and Birkenstock sandals, it would be easy to write him off as an executive who happened to be in the right clothes at the right time. But that would be selling him short. In 1984, as legions of women were struggling to find stylish work clothes, he founded Alcott & Andrews and gave them a place to turn. The stores were successful, but Jeffries ran into trouble trying to expand the private company--it filed for Chapter 11 bankruptcy in 1989. Jeffries was consulting for another chain, Paul Harris, when he was tapped to head Abercrombie. If the plight of working women who didn't know what to wear inspired him to open Alcott & Andrews, it's the attitudes of a new generation of kids that inspires him now. "These young people want to be with one another. That is totally different," he says. "My generation grew up as loners."

The desire to be together--to be with other cool kids--is as important to the workings of the Abercrombie home office as it is to the stores. Abercrombie executives must be the 450 best-looking people in Columbus. Any one of them could take a spot in front of the store as a greeter in a pinch. That wasn't an accident. Jeffries wants executives who closely resemble his target market. "The wonderful thing about this business," Jeffries says, "is that the young people we have here are our customers, so we're not sitting around saying, 'What do those people want?'" Abercrombie is adding about five new employees a week in the home office. Those in merchandising and design are recruited straight from college campuses--ensuring a steady flow of young blood and fresh ideas.

It is in Columbus that Abercrombie's happy-go-lucky version of teen life is manufactured. Four times a year Jeffries and his team create what he calls his "movies." The store displays, the Website, the magalog--much sought-after thanks to the erotic photography of Bruce Weber and the sometimes scandalous topics (the current issue includes sex tips from porn star Jenna Jameson)--are all coordinated to revolve around a new theme. For the holiday season the theme is Naughty or Nice. (Jameson's page is labeled Really Naughty, and in response to a complaint from the Michigan attorney general, the company has reiterated its promised to sell the magalog only to people over 18.)

It is this ability of specialty stores to control their environment that has made Jeffries the envy of the department store designers with whom he competes. To fully grasp the advantage that Jeffries has, consider the position of Ralph Lauren. Lauren is every bit the control freak that Jeffries is. He also uses photographer Bruce Weber, also sells distressed preppy clothes, but after Lauren packages up his season's wares he has to sell them to department stores. He can't, like Jeffries, control how his area smells, or what music is playing, or the clerks' appearance. And don't think that Lauren isn't just a tiny bit jealous. "Ralph is obsessed with what Abercrombie is doing," admits one Polo Ralph Lauren executive. He should be. Specialty stores claimed about 44% of the $4.6 billion that teens spent on clothing last year, according to the retail tracking firm NPD Group; department stores got only 13%.

But if Jeffries loses control, even for a minute, sales suffer--and so does the brand. Take women's sweaters. For five years Abercrombie did a good business selling a hip version of the preppy Fair Isle sweaters usually found in the pages of the L.L. Bean catalog. Then, last fall, women suddenly stopped buying them. The sweaters hit the sale racks, and Jeffries asked his design team to pay more attention to trends. They did, putting sheer sweaters and embroidered jeans into stores for this fall. But the Abercrombie customer wasn't buying those either. Suddenly Abercrombie's seams began to pull apart. "Our customer looked at those sweaters and said, 'That's not casual; that's dress-up.' We've got no business doing dress-up," Jeffries said. So Jeffries put Lisa Converse, a young designer who had risen through the Abercrombie ranks, in charge of women's wear, with the instruction to get back in touch with the Abercrombie girl. Some of the new efforts--chunky sweaters with hoods and pouch pockets, boyish paratrooper pants--are in stores for the holiday rush.

Still, Abercrombie paid a price for women's wear slip-ups. Its stock fell 19% in early October after an investor-relations officer left a message on an analyst's voice mail--before the official release of third-quarter numbers--saying that same-store sales would not meet analysts' expectations. In the wake of the stock's decline, dozens of shareholder suits were filed, the SEC began an investigation, and industry watchers rushed to predict the death of Abercrombie. But while the grownups were answering briefs and downgrading the stock, oblivious Abercrombie customers continued to shop--lining up 12 deep on weekends to buy those chunky wool sweaters. As it turned out, overall third-quarter results--which don't include the women's design changes--weren't horrible. Sales were up 25%; net income was up 56%. In a conference call, Jeffries reminded analysts that the company has always planned for moderate, 5% to 6% annual increases in same-store sales, putting its big bets on expansion into new stores--and new ideas, like abercrombie for children. If investors weren't happy with that, he said, they should leave the stock.

Many already had. Some are still holding out. "They may be losing their ultrahip customers," says Kindra Hix, an analyst for NationBanc Montgomery Securities. "But there's a second and third wave of kids just beginning to access the brand." The question is, of course, are those kids in with the in-crowd?