Inside the digital transformation of Abercrombie & Fitch

Episode transcript, edited for clarity

Bill Thorne: Welcome to Retail Gets Real, where we hear from retail’s most fascinating leaders about the industry that impacts everyone everywhere, every day. I’m Bill Thorne from the National Retail Federation, coming to you from NRF 2024: Retail’s Big Show in New York City. On today’s episode, we’re talking to Samir Desai, chief digital and technology officer, Abercrombie and Fitch Company.

We’re going to talk to Samir about his career journey, the digital revolution underway at Abercrombie and Fitch, and what the future of retail looks like.

Samir Desai, welcome to Retail Get Real.

Samir Desai: Thanks for having me. Excited to be here.

Thorne: I want to know what the Samir journey has been. I mean, how did you get into retail, and just as importantly, how did you get into retail technology?

Desai: My technology journey kind of dates back into the early part of my life. Back in high school I was always having a really kind of strong passion and affinity for computers. I’d go to these computer shows on the weekends, build my own computer at home, tinkering with software development.

So [I] just had this passion with technology and then had the opportunity to attend University of Michigan and study computer engineering there. And then graduated right at the tail end of the dot-com bubble burst. So lucky me, I come out, you know, not a lot of jobs in technology at the time, so it took me a little bit to kind of land somewhere.

And I ultimately ended up at a company called Equinox, based in New York City, and Equinox was very early in their growth trajectory. At the time, only about 18 or 20 locations, really based out of New York City. And you know, they had just raised the private equity capital and really started a big growth trajectory. They grew their business double digits, year over year, for north of a decade. And through that journey, I had the opportunity to learn a tremendous amount of different things.

The thing that I took away probably the most was really kind of focusing on the member experience as we called it there, or customer experience in retail. But beyond that, really kind of built a passion for an entrepreneurial mindset — learned the importance of brand, and more than anything, just kind of this concept of servant leadership.

Really, the folks in a corporate office are there to serve the folks in the field, which, you know, people in retail know really well, I’m sure. I spent about 15 years of my career there, playing leadership roles in a variety of different types of businesses, from spas to hotels to on-demand streaming business toward the kind of tail end of my time there.

But then ultimately, COVID hit and the gym business and fitness business really was shuttered, frankly, so it gave me an opportunity to lift up my head and say, ‘OK, I think it’s an opportunity in time for me to learn something else, push myself to do something different.’

And knowing what I had a passion for — around the customer, around work that can be impacted almost immediately and really kind of this omnichannel experience that I had built at Equinox, kind of bridging digital and physical between the in club and at home — retail felt like the perfect place for me to go next. And got a call from A&F and the rest is history. I’m here.

Thorne: That’s pretty awesome. But what drew you to the opportunity at A&F? I mean, was there something in particular that they just presented to you and you were like, I got to do it?

Desai: Absolutely. There are a few different things. So first and foremost, I talked a little bit about brand. The Abercrombie and Hollister brands are global, iconic household names, so that was a big draw. The Abercrombie and Fitch Company business through COVID saw their business become 50%, almost 60% digital, so a big spike in digital. The CEO and the board really kind of took note of this, and saw an opportunity to really intently invest in this space. And so, it was an opportunity for me to kind of come in, and be a part of this transformation journey, and really build out a more mature digital capability. And then Abercrombie has 800-plus stores globally, so if you have a strong digital business and then a fleet of 800-plus stores, it makes for a tremendous omnichannel business opportunity.

And finally, I say the culture, right? So I heard a lot about the culture through the interview process and other people who had worked there in the past, and the culture under the leadership of Fran Horowitz, the new CEO — or the new-ish, I guess, she’s been there for a long time now — and the leadership team, it’s a very different company than the company it was maybe 20 years ago. I think all those things together really kind of motivated me to take the opportunity.

Thorne: Oh, I think there, there are those that say, and I believe that is correct, that Abercrombie and Fitch is in the middle of a company-wide digital revolution. Let’s talk about that, and what ‘Always Forward’ is.

Desai: Yeah. In June of 2022, we had the opportunity to host an Investor Day in New York City, and we were able to, that Investor Day, share out our long-range plan, which we’ve labeled the ‘Always Forward’ plan.

The ‘Always Forward’ plan is really rooted in three core pillars. One: really focused brand growth, so, which brands are we focusing on growing disproportionately more than others? Operating the company with financial discipline, which is always important. And then, as you mentioned, the third pillar was this enterprise-wide digital revolution.

And the words enterprise-wide, we were very intentional with. It wasn’t just something that we had kind of slapped on in the sense that, you know, a lot of companies are going through digital transformation and digital revolutions, but very rooted in their customer and the customer experience. And while that’s important, you know, for us it’s also been equally important to look inside of our company and how our company operates to make sure that we’re infusing these digital technologies in a way where, top to bottom, we are operating in a more efficient, more automated manner. That’s been a big part of this strategy.

And the strategy, the digital revolution strategy itself is really focused on three core pillars in itself. One is modernizing our core platforms — moving into the cloud and really kind of upgrading and modernizing our core technology because, you know, we can’t deliver a best-in-class customer experience if we’re operating on a brittle, shaky foundation. We recognize that and we’re investing in that.

Second is knowing our customer better across every touch point. And then third is what we call wowing our customer everywhere. That that’s really been the kind of … those are the pillars of the strategy.

And then how we’re going about unlocking those strategies is, you know, starting with the talent. I joined the company about two and a half years ago. A lot of the talent in the company around digital either didn’t exist or was outsourced or was being leaned on through partners. And if we really wanted to be a winner in this space, we knew that we had to insource and build the capability inside the company.

We’ve hired north of 125 people in various digital and technology roles like product managers, data scientists, engineers. These are just kind of capabilities that really didn’t exist with a lot of depth inside the company. So, so really bringing in the right talent inside the company.

The second part was around evolving the operating model. We were very project-based. Somebody would say, ‘I want to do this project. Well, how much would it cost? How long will it take me to get it done?’ And now we’re operating in a, what I call, a product-based model, where we’ve got product teams that are focused on different aspects of the customer journey, end to end, and they’re maniacally focused on that element of the journey.

If somebody is focused, if a team is focused on product discovery and helping the customer find the right product, then, day and night, that’s all they think about and dream about is: How do I make that experience the best it can be? And they’ve got a dedicated team of engineers that they’re paired up with that allow them to have the autonomy to be able to keep going and experimenting and building new capabilities in that space. So that was a kind of evolution of our operating model, to be more data-led, customer feedback-led and more iterative versus this kind of long six-to-nine-month project cycle.

And then finally, I talked about modernizing our platform. Moving a lot of our technology into the cloud and all those things are really important, including unifying our data and really having a centralized repository of all of our data so that we can leverage a lot of the new technologies that are obviously, you know, out right now.

Thorne: Your session here at the NRF Big Show, I believe, is all about harnessing data to stay connected to the customer. How is Abercrombie and Fitch using that data to drive growth, and to not only maybe start that connection, but maintain that connection with the customer?

Desai: Data has been a big, big focus for us. As I said, it was one of the core pillars of our digital revolution program. It starts with, you know, for us, modernizing the data platform. So, we moved all, moving all of our data into the cloud and centralizing that — that‘s kind of table stakes.

For our business, we‘ve got this, I‘d say, relatively unique advantage in that, 98%, maybe 99% of our customers, we’re interacting with directly. Meaning we have first-party customer data. We’re not going through a wholesaler or franchise operator where, you know, we lose a lot of that customer data.

So, we’re transacting directly with the customer, and we’ve got a loyalty program that has a very high penetration — 70% to 80% of our customers are members in our loyalty program, which gives us even more first-party customer data. Layer on top of all that, the fact that our business is almost 50% digital. When you have a business that’s that heavily penetrating digital, you get to learn a lot more about the customer journey that you wouldn’t learn in a brick-and-mortar experience, right?

When somebody comes into a store, they’re looking at different products, you only really know about them until they come to the register. Now we can see what type of products people are browsing, even if they don’t buy. We’ve taken all of that data to then kind of create what we call these behavior segments, and so we’re able to start to create segments based on what people are telling us: whether they’re low spenders, medium spenders, high spenders, what kind of product they have an affinity for.

Are they dress shoppers? Are they denim shoppers? Do they like to shop online more? Do they like to shop in-store more? We’re taking all these attributes and creating these cohorts and slotting our customers into those segments, and then being able to craft really kind of personalizing unique journeys based on which segment they fall into, and then crafting strategies to be able to kind of migrate them from one segment to the next. So that’s been really important.

But going back to the point on data. I think one other point I want to make is there’s different types of data, and we’d like to summarize it as kind of performance data and perception data. Performance data is, you know, what we’re observing on how the customer is transacting, what the hard data is on the actual transaction, and the analytics around that.

Perception data is how the customer feels about our brand and our experience, right? The voice of customer. And we’ve made a big investment in maturing our voice of customer program, really capturing net promoter score, not just after a transaction, but earlier up the funnel — when somebody’s browsing products on our site, we’ll pop up something that asks them for the customer satisfaction score, net promoter score there, so we get an idea of how that experience is going. And all of that data is also translating into how we’re evolving the experience and where we’re focusing.

Finally, I’ll give one example on how we’re leveraging some of this. The mobile app has been a big focus for us and pushing customers into the mobile app. And one of the pain points we observed earlier on with our Hollister brand was that, you know, the primary target customer is a high school teenager. They love browsing our app. They look at product, but then they don’t have a credit card to buy. And so, they kind of hit a wall and they’re not able to transact. So they take screenshots, they text their parents and there’s a lot of this offline activity (offline meaning off of our app activity) that’s happening.

We thought, how do we make this process seamless? How do we make it less, remove the friction from it? And so, we introduced this concept called ‘share to pay’ inside of our Hollister app, where the customer can pick a couple different products (the teen effectively) and then share them with their parent through the app. And the parent can either approve or reject and then kind of buy on their behalf. Now, that solved the customer friction point, but what it also did was give us a lot of data on what products are customers really interested in buying, but you know, they just don’t have the buying power versus them adding to their cart or adding to their bag and not checking out. So really kind of a twofold approach there, and, you know, the data is the kind of common denominator.

Thorne: A teen is always going to find a way to get his or her parents to pay, and so it’s really nice that you’ve set it up that it’s easier without the arguing. So, you’ve been around the convention center. You’ve seen that a lot of the emphasis by the vendors, a lot of the content that is being provided really focuses on the future of AI, and we’ve talked a lot about it on Retail Gets Real, the impact that it’s having on retail, on consumers, even on products. So how is Abercrombie and Fitch looking at AI?

Desai: Yes, AI is … almost every session here at NRF and I’m sure it’ll be at every session and every technology-based conference for the rest of the year. But AI is definitely not a flash in the pan and so for us, you know, again, there’s got two big buckets of AI, right? There’s traditional AI that’s been around for a long time. A lot of companies have been using it. Abercrombie’s been using it for sure as well.

And then there’s the generative AI that’s a little bit more newer to the scene. I’ll talk a little bit about both.

But before I do that, I want to go back and kind of underscore the point I made earlier around the data foundation and the data platform. Because while all this AI technology is great and sexy, and it sounds like it’ll solve a lot of problems, if you don’t have your data organized in the right way and centralized with the right level of governance and quality, you really won’t be able to unlock any of this value.

It’s really important to invest first and foremost on the kind of infrastructure and the kind of foundation. As it relates to traditional AI, we’ve been focused on that for a number of years, as I said, and the things that we’ve been doing with that technology are things like product recommendations, you know, on our product detail page, using it to better forecast demand of product inside of our stores. So that’s something a little bit more recent where we’re looking not only at transactional data of the past, but also looking at other data sets like weather, like social media engagement, like clickstream data to get a better idea of how much demand there’ll be for a certain style of product in a certain zip code. It’s allowing us to be a lot more precise about how we allocate inventory, which in turn leads to less redlines and markdowns, i.e., higher margin, and also less out of stocks, right? Ultimately inventory is the kind of most expensive asset that any retailer has, and so that’s been a big focus for us.

And then finally, with traditional AI, we’ve also really been thinking about customer lifetime value for customers we have, but using that to then create what we call a predictive customer lifetime value. We’re able to look at historical data and say, ‘OK, we’ve acquired a new customer. What do we predict the lifetime value of this customer will be?’ And based on that lifetime value, if it’s very high, then obviously we can put them down a journey that will work a little bit harder and spend a little bit more money to be able to convert them and hold onto them, versus maybe somebody who might shop once and then not come back to us.

So those are examples of what I’d call traditional AI. Nothing revolutionary there, but all good work.

Then on the generative side, we’ve been learning a lot and just kind of staying curious. The way we’re thinking about generative AI in our business is really through three lenses. First, I would say it’s what we call our global home office associate, so people who are working in our “corporate office.” Then we have our store associate as like the second lens, and the third is the customer. So how does generative AI, you know, be applied to all three of these different cohorts or constituencies?

In the home office, it’s very much right now about efficiency and productivity. How do we help people do their jobs a little bit better? How do we automate things in a bigger way? And we’re seeing some fruits of that labor in our marketing function where product copy copywriters can spend a little bit less time, you know, with the cold start and more editing copy that the AI produces with images, things like that.

In the home office, it’s also about education though, because this is such a new topic and there’s a lot of curiosity outside of the technology team in the organization, which is a great thing, right? It’s a great point in time to be a technologist where folks and planning and merchandising and marketing are all asking questions about technology. Usually, it’s the other way around and you’re kind of pushing technology onto the other parts of the organization. It’s a great time and a great space, and so what we’re trying to do is figure out how do we help educate the other parts of the organization on how this technology works and how they should be thinking about it in their space. We are focused on building a kind of a lightweight curriculum on how to help people learn a little bit more. That’s in the home office.

And the store associate side, we think about AI as associate intelligence inside of our stores. So, how do we augment and empower our store associates with more information using AI tools to better service our customers? A lot of our associates are new to the job. There’s a higher amount of turnover in retail in general, and we’re no different than that. And so, our associates don’t have a tremendous amount of expertise on our products, and there’s a lot of new product that keeps getting set.

We’re starting to build capabilities where our associates can go into an app and use a natural language-based interface where they can ask questions about a certain product and they can get some feedback from the AI on what that product looks like, tapping into ratings and review data that might be on our website, and a variety of other data sources, so the associate feels a little bit more empowered on how to answer questions and get smarter about the product.

And then finally on the customer side, you know, we’ve been doing a lot of experimentation and testing. One of the things that I’m excited about is this concept of an AI stylist. We introduced this AI stylist in our Abercrombie app last year and it’s a different way for our customers to find our product. Normally you go into any kind of ecommerce site or app, and you see a big box on the top and you start typing in keywords, and it sounds like you’re a caveman, ‘black leather jacket.’ And then you expect to see a whole bunch of products. Then you’re sifting through everything versus a more natural language way of talking.

So, the AI stylist will ask you questions and you’ll say, ‘hey, I’m going on a bachelorette party in Nashville in April. I’m curious what kind of outfits you’d recommend.’ And then the AI engine will spit back, you know, ‘Here are a couple of different products.’ If you like those, great, you can engage with them, go to the product detail page. If you think ‘no, didn’t hit the mark,’ ask it again, give it a little bit more context. And so that’s a new experience for the customer, but what it also is, is giving us a lot more data and a lot more insight on that customer, the intent of that customer, context, so even if they don’t buy there, we now learn a lot more about why that person came to the Abercrombie app or that Abercrombie site. So the next time they come, hopefully we can give them an even better, more personalized experience. Or if a product that they were looking for wasn’t available at that time and it comes back in stock a couple weeks later. So we’ve learned a lot about that customer and that interaction, which is how we’re using it there.

And what I’ll wrap on this generative AI topic with is: What we are seeing today and what we’re experiencing today, you just have to remind ourselves that this is the worst this technology will ever be, right? Today it’s only getting better. Every day it’s getting better and better, so it’s already pretty amazing and impressive. I’m really excited about what’ll unfold throughout this year in this space.

Thorne: I like the AI stylist. I think that’s absolutely brilliant because it’s going to take into consideration weather, it’s going to take into consideration all these different things that you wouldn’t necessarily think about. Or if you think about it, it’ll take you forever to track it down. And this way, it just does the work for you.

Desai: Yeah, and it’s … if you think about the experience you have inside of a store, when you come into a store and you talk to an associate, you don’t give them keywords. That’s not how you talk to somebody. Right? So, the way … but yet, when you come to our app or site, we expect you to talk to us in keywords.

Being able to talk to our app or our site in a way you would talk to a store associate, feels like merging or bridging the kind of physical and digital in a bigger way than we’ve had historically.

Thorne: It’s exciting. So, your leadership approach. You’ve got a team and it’s in technology and it’s a time of such rapid change. Creativity is important but also, implementation is also very important because things are changing so quickly. You can’t just, you know, think about it for a long time. You’ve got to think about it, figure out the efficacy, and then move quickly before somebody else does and has the competitive advantage. What is your approach to that as a leader?

Desai: On this topic of change, I mean, I think you’re spot on. Our CEO Fran Horowitz says all the time, the only constant in retail is change.

Thorne: That’s what I say. I say, oh my God, if you go back on, we’ve got 330 episodes of Retail Gets Real. If I’ve said it, I probably said it on 295.

Desai: Oh, you’re inspiring her.

Thorne: I don’t know that it’s just, it, you know, retail, you know, that is the one thing that’s the constant. It changes.

Desai: Absolutely, and for Abercrombie and Fitch, there’s been obviously a tremendous amount of change over the last several years from our brand positioning to our target customer, the store footprint, our digital and physical mix. So, we’ve been going through a whole lot of change and, you know, we believe, we’re obviously a lot better for it coming out of the other end of that change.

But the change is not over. We’ve really adopted, as others I think have as well, this test/learn/rate mindset. And that’s a philosophy that we absolutely have adopted in our merchandising process, but also in our digital and technology teams as well.

So, I’d say the technology is at a place now where, with the cloud and all that, you can very quickly develop prototypes and put them in the hands of customers, get feedback and iterate, versus before you had really had to think hard and long about, do I want to make this investment in this capability because it’s going to cost me X amount of dollars and six months of time to go build. I feel like the tools and technology have come a long way.

Beyond that, I’d say, really encouraging the teams to stay focused on the customer pain points and the problems. It’s very easy to look at new technology and start to get excited and carried away on building capabilities that nobody really wants to use. We really need to be rooted in, what’s the customer pain point? What’s the friction point? How is this going to help the customer in a bigger way? So, that’s been a little bit of the mindset.

Beyond that, from my own kind of leadership perspective. You know, we are a … our digital and technology team at Abercrombie and Fitch is a remote hybrid team still. It was like that in Covid — obviously a lot of companies were — we continued to maintain that operating model for our teams. And while that obviously provides a tremendous amount of flexibility for our teammates, it makes it harder to build trust. It makes it harder. You have to work harder to foster relationships, right?

So, we really rely heavily on async communication. We do these things called Team Up Weeks, where a few times a year we’ll bring everybody onto campus in Columbus, Ohio, and we’ll organize an entire week around a variety of different activities.

And then finally, I talked a little bit about the culture when you asked me, you know, why I chose to come to Abercrombie and Fitch. Coming on the other side of this, you know, obviously, I see the culture, I live the culture now, but the culture is something that we all at A&F lean into very heavily.

And it’s not just a piece of paper with a bunch of leadership standards you get on day one when you join the company, but it’s leadership standards and vocabulary that we hear and use every single day in multiple meetings. And so, you know, the words of ‘team up’ and ‘build up’ and ‘aim high,’ ‘stay curious’ — these are leadership standards that help keep the teams connected and help us persevere through a lot of the change because, you know, we‘re much more aligned as a result.

Thorne: What is the — this is always a hard question — what is the best piece of career advice you’ve ever gotten?

Desai: Yeah, so, it’s hard to come up with just one piece of advice, like you said. But I’d say one of the best pieces of advice that I’ve received and I practice, I learned very early on in my career at Equinox. And that was to take advantage of white space opportunities. And really not waiting for somebody to kind of task you or ask you to do something. But if you see, you know, there’s an opportunity to do something better or there’s something that can be done differently, and you have the capability of helping or solving that, then jump in on it and get it done.

You know, Equinox, as I said, was through a very high growth curve and there was a lot of things to do and not a lot of, not enough people to do it. And frankly, all companies, I think, have more things to do than people they have to do them.

So that’s been a really helpful thing for me, and as a result of being able to grab those white space opportunities and doing more, it helped me build my personal brand inside the company in a bigger way and continue to propel me further and further up to connect career ladder, so to say.

So, you know, that’s one that stuck with me and I kind of pass along to others who are earlier in their career is — you know, don’t just stay in your lane or stick to your kind of assignment. You know, it’s better to ask for forgiveness sometimes than permission, and go out there and get stuff done.

Thorne: That’s great. So last question, I promise. What excites you most about the future of retail?

Desai: I might be a little bit biased being a technologist, but really I think, just the evolution of technology is getting to a place where the ability to transact and frankly kind of deliver a commerce experience is becoming just really seamless and kind of infinitely wide. And it’s not limited to just one channel of one store in one way.

Obviously digital has introduced that social media layers on, and now with this kind of next wave of generative AI, it just feels like the technology is going to get better and better, and in place where it’ll help the customer or the consumer really kind of understand what they need before they even know it, and, then really kind of make it seamless for them. So. That’s exciting. And I think being able to be a part of that and having a seat at the table around driving the technology change and transformation is exciting.

Thorne: It is exciting, and I really do appreciate your insights into this. For a long time, it’s like, somebody asked Jeff Bezos one time, ‘Are you a retailer or a technologist?’ He said, ‘Well, I’m a technologist. I’m not a retailer.’ And today you can’t be a retailer unless you are a technologist. And technology plays such an important role, not only in our success today, but moving forward and it’s moving at the fast speed of change. And so, you’re in a great place doing great work for a great brand. And congratulations and thank you so much, Samir, for spending time with us.

Desai: Of course. Thank you. This has been a lot of fun.

Thorne: And thank you all for listening to another episode of Retail Gets Real. You can find more about this episode and more at retail gets real dot com. From Retail’s Big Show at the Javits Center in New York City. I’m Bill Thorne. This is Retail Gets Real. Thanks for listening. Until next time.