Abercrombie sticks to its guns on prices

Abercombie & Fitch (NYSE: ANF) is resisting the tidal wave of discounting that is hitting malls, and is sticking to its retail prices. On a recent conference call, CEO Michael Jeffries called aggressive discounting a "short-term solution with dreadful long-term effects."

The idea behind the fear of discounting is that it kills margins and causes irreparable damage to a brand: If Abercrombie starts selling shirts for $30 instead of $60, will it be able to jack prices back up when the tide turns?

Here's the problem for Abercrombie: If the recession lasts awhile, which most experts predict it will, consumers will continue to flock to lower-priced stores that are embracing discounting like Aeropostale (NYSE: ARO) and H&M. At some point, teens may realize that wearing cheaper t-shirts from Aeropostale won't prevent them from being cool or getting into college. Abercrombie could then become the Gap (NYSE: GPS) of the second decade of the millennium.

For now, though, Abercrombie's strategy seems prudent even if it does batter the stock price with hideous same-store sales numbers. The company can always change its mind and begin discounting aggressively. It's much harder to go back.