Question
Abercrombie & Fitch, once a favorite of loyal teens, is considering lowering prices on all items it sells in an effort to win them back
Abercrombie & Fitch, once a favorite of loyal teens, is considering lowering prices on all items it sells in an effort to win them back after several years of sales declines. A&Fs total sales were $4 billion last year, but they have been declining in face of a weak economy and an intensively competitive retail environment. Price reductions are often effective in increasing sales, but marketers need to analyze how much sales must go up before a price reduction pays off and increases revenue enough to make it worth doing. Refer to Appendix 3: Marketing by the Numbers (and the notes below) to answer the following questions. Question 1) Assuming A&Fs contribution margin (aka, gross profit margin) is 60% and cost of goods sold represents the only variable cost, by how much must sales increase to maintain the same gross profit margin (in terms of absolute dollars) if A&F lowers prices by 10%. *Note this is a multi-step problem. Question 2) By what percentage must costs decrease if A&F wants to maintain the gross margin percentage of 60%?
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