AE.Com: Its Business Models and Its Evaluation - Case Study Example

Business Introduction of "AE.Com", Its Business Models and Its Evaluation Table of Contents Introduction of the Business 3 Business Models (E-Business Models) 4 Evaluation of Certain e-Commerce Aspects 6 AEO’s Unique Selling Point When Compared to its Competitors 6 Revenue Generating Mechanism of AEO through Web Portal 7 Potential Business Opportunities and Concerns for Future 8 Reflective Conclusions and Recommendations 10 References 12 Introduction of the Business AE. com is the commercial business website of American Eagle Outfitters (AEO), which was established with a single store in Michigan in 1977. Within a period of over 30 years, the company has expanded its business throughout the global markets and there are as many as 77 iterations of vernacular, imagery and clothing in its assortment. The organisation aims to follow innovativeness and sheer dedication regarding offering quality services to the customers along with offering highly admired products. The organisation mainly offers branded products to the customers in global markets for younger population as well as for infants. Moreover, the organisation also possesses its online site named AE.com, through which various individuals are capable to purchase products and services on an extensive basis. It is also observed that for the previous few years, the company has also expanded its business activities in the global marketplace. It had launched outlets in Canada during the year 2001 and three franchise stores in Middle East, during the year 2010. The franchise stores in Hong Kong, Russia and China were founded in the year 2011. The company is also planning to expand its business in Israel and Japan in the coming years. It possesses 30,000 associates and around 1000 outlets all over the world (AE Better World, n.d.). There are a number of competitors in the market for the organisation, among them The Gap Inc., Abercrombie & Fitch Co. and Pacific Sunwear of California Inc. deserve special mention. The company is also committed extensively towards providing affordable services to its customers. Moreover, in order to uphold safety standards, the products that are offered to the customers are tested in the laboratory to maintain hygienic process (AEO Management Co., 2013). The paper intends to discuss E- Business models and revenue generation mechanisms through web portal of AEO as well as the future business opportunities for the organisation in a detailed basis along with providing certain recommendations. Business Models (E-Business Models) E- Business models are vital components for an organisation which aims to conduct business activities through online basis. These models enable a company to direct information flow on the basis of which product as well as service related activities of the company can be maintained within the framework of internet. AEO generally uses e-Commerce business model within the periphery of e-business model. A few of the leading e-Commerce business models include storefront model, dynamic pricing model, portal model and auction model among others. The e-business model used by AEO is storefront model, as it is observed with the assistance of storefront model the customers are able to purchase a variety of products through online sources or sites. The key facets that are involved in the storefront model encompass the features such as security policies, transaction processing, storage of information as well as payment through online mode (Catedra Inginerie Software, 2002). In this similar context, it is also recognised that the organisation provides the facility of transaction processing through its website as customers are facilitated to make payments through online sources and also through mobile phones. The company is also providing auction rate securities to the organisation and securities to the customers regarding theft of products in the outlets. However, negative conditions and respondents in Auction Rate Security (ARS) market, could provide a drastic impact on the investment process of the organization for a long term basis. The use of e- Commerce helps an organisation such as AEO to sell various products in extensive markets to customers worldwide. Moreover, customers through online purchasing are able to conceive products, as well as can make use of AEO Direct, where customers are able to receive products from Store – to-Door. Store–to-Door facilitates employees to sell any product through online sources in one-time transaction. The organisation offers Pay Pal and Bill Me Later as a mode of payment for its worldwide customers (AEO Management Co., 2013). The organisation is also focusing on improving the efficiency of the online sources to deliver products and ensuring to make the check out system to be efficient. Moreover, the facility of online purchasing is also aimed to be made unique by the company, irrespective of its customers in the markets (Libby, n.d.). The company is also offering credit cards facility to its US customers which are issued by third party banks. It can be stated that giving in-store credit through propriety credit cards facilitates to increase the volume of sales of the organisation as along with enhancing the loyalty of the customers. The customers receiving credit cards are eligible for obtaining special promotional discounts on the products purchased by them. Through easy accessing of credit cards offered by the organisation, the customers are able to purchase desired products through online facilities. The online business of the organisation primarily facilitates customers having credit cards. The customers having AEO credit cards can conveniently pay the bills for the products purchased as well as update the information accordingly. Moreover, the organisation provides ample opportunities for the online customers to purchase a variety of products by using any gift cards which the company offers. These cards are free of charges and are always active at any point of time. These cards are available at the company’s website i.e. AE. com. These gifts cards are send to the customers through email facilities (AEO Management Co., 2013). Evaluation of Certain e-Commerce Aspects AEO’s Unique Selling Point When Compared to its Competitors AEO is primarily known for its jeans, t-shirts and sweatshirts. The company mostly relies on the availability of quality cottons for producing highly efficient products which in turn enables it to enlarge the sales volume and satisfy customers with their extensive end-products. However, to uphold this unique selling point (USP) with regard to quality and to mitigate any negative consequences in case of rise in prices of raw materials, the organisation would have to elevate the overall prices of the products (Bhattacharjee, 2011). Moreover, it can be viewed that the organisation in order to be competitive and sustainable, it is required to adapt new fashion trends as well as enhance the frequency of delivery of products on an extensive basis. AEO’s biggest competitor in the market, Gap Inc., also manufactures jeans, t-shirts and other casual accessories. Gap Inc. producing such casual outfits in extensive global markets creates excessive competition for AEO in the global market to maintain its customers and sustainability at the same time (Hoovers Inc, 2013). In this similar context, the comprehensive use of storefront business model is also an USP for the company as it enables to draw a number of customers to obtain the offerings of AEO. Conversely, Gap does not significantly implement e-Commerce business models which can be a significant differentiator. Revenue Generating Mechanism of AEO through Web Portal It has been observed that AEO comprises efficient supply chain management system for supplying products which enables to generate greater sales and profitability to the organisation. The organisation also possesses dedicated employees who efficiently work for the organisation and supplies quality products and apparels to the customers. It has been evidently observed that the sales and revenue of the organisation is enhancing year after year. According to an assessment made in recent times, it was predicted that around US$3.4 billion revenues would be generated in 2013, which is quite higher than 2012 (Market Watch, Inc., 2013). The organisation is currently generating a substantial portion of its revenue by selling products through online basis to customers. In this context, it can also be stated that the organisation provides various promotional offerings for selling products in the national and international markets. Direct sales are received from the website of the organisation and publication of lifestyles that doubles a catalogue. The growth of sales has enhanced by 10% which enables the organisation to generate additional revenue by selling quality apparels and clothing to the customers. It is observed that the company has earned around total revenue of around US$1,117.05 million as per recent statistics against US$ 1,028 million in 2012 (Hoovers Inc, 2013). The company’s aim to provide ample facilities to the customers through their products and services has helped it to generate greater profits and revenues out of it. It has been further observed that from the past few years, the revenue income of AEO has increased by a considerable extent according to the reports presented by Bloomberg Business Week, which includes net income of the company to be around US$ 232.1 million in 2013, from US$151.7 million in 2012. This suggests that the company is in right direction for making or maintaining a competitive advantage over its competitors in coming years. As mentioned above, the revenue has also increased quite drastically for the organisation by selling quality casual wear products to the online customers in the national as well as in the global context (Bloomberg BusinessWeek, 2013). AEO is also providing its customers attractive discounts of around 15% for extensive purchasing through emails during birthday or any festive occasion. There are also certain discounts for exclusive products especially for women section at any time of their purchase (AEO Management Co., 2013). As mentioned earlier, AEO also generates greater amount of revenue by enabling its customers with credit cards facilities, which offers them an exclusive shopping experience through online source or web portal. The gift cards are also available for AEO customers in the US. The gift cards offered to the customers comprise an additional facility of checking the balance through swapping the card as well as through mobile connectivity. There are also electronic gift cards which are available through which customers are able to purchase products instantly (AEO Management Co., 2013). Potential Business Opportunities and Concerns for Future The business opportunities which the organisation possess include expansion in online sales, remodelling of the outlets in order to increase and provide greater shopping experience for customers and expansion of business by opening new outlets in global markets along with the establishment of fresh brands for attracting customers. It has been observed that according to the management body of AEO, there are areas for the organisation for improvement. In this context, it can be stated that the organisation is looking for strengthening the effectiveness of the stores by providing different variety of products in the stores along with shutting down around 15 to 20 outlets in 2013. The organisation is also planning for fortifying the brands as well as re-strategising the collection of products and providing flexibility to the customers by offering them quality products at affordable prices (Seeking Alpha, 2013). According to a study conducted, it reflects that the organisation i.e. AEO is looking for operating with 6 stores in China and Hong Kong. The management is looking ahead in terms of its future expansion in the global market by operating in China and Hong Kong which would be beneficial for the organisation for boosting their sales as well as augmenting the profitability of the business. This would enlarge the growth of the company and generated profits. The organisation is also looking to ensure future growth and sales volume, irrespective of the risks associated with the performance provided by the business. The future of the organisation depends on the performance of AEO in the financial as well as in the operation of the business in the national and global markets. The concerning factors of AEO can arrive from risks and uncertainties such as economic downturn, downgraded quality of products and misuse of services or forgery of customer information in the online mode of operations (Dow Jones & Company, Inc., 2013). These concerning factors need to be addressed by the company for sustaining its growth in the future. Reflective Conclusions and Recommendations From the above mentioned observations, it can be comprehended that AEO, one of the leading companies in the branded apparel section, was established in 1977 with a single outlet. As time passed by, the operations process has enhanced and various new stores have been opened by the organisation. It is observed that the organisation is maintaining its business strategies within the aspect of storefront model, where the e-business operations are handled efficiently through online or web portal aspects. With regard to the attributes of storefront model, AEO has the facility of transaction processing where customers are able to provide payments through online sources. Through AEO Direct facility, the customers are able to receive any product from Store – to Door, at single transaction. Other facilities such as Bill Me Later are also available for e-business customers for purchasing products extensively. The USP of the organisation lies in the offered casual products to its online customers as well as other users. The company also faces relative competition from Gap Inc. as well from Pacific Sunwear of California, Inc. These organisations are also selling products related to casual wear category giving tough competition to AEO. Thus, AEO needs to be efficient in its production process in order to maintain greater competitive advantage in the market with respect to its competitors. In order to maintain effective sales and profitability, the organisation needs to inject greater efficiency in the operations process as well as incorporate skilled employees along with greater facilities of online shopping processes for customers in the national and international contexts. The organisation further needs to focus more on producing a variety of products at affordable prices for all sections of customers in the national and global markets, rather than focusing on expansion which would help it to generate greater profits and revenues along with assisting to maintain their sustainability in the global markets. In terms of e-business activities, it can be recommended that the process of transaction can be made even more convenient for consumers which can enable them to attract a wider section of users to purchase the products. Additionally, the aspect of security of information needs to be strictly maintained by company for its consumers who are transacting through online mode. References AEO Management Co., 2013. Our Products. AE Better World. [Online] Available at: http://www.ae.com/web/corpResp/about/our_products.jsp?_requestid=177869 [Accessed March 16, 2013]. AE Better World, No Date. About Us. American Eagle Outfitters. [Online] Available at: http://www.ae.com/Images/corpResp/AEBetterWorld.pdf [Accessed March 16, 2013]. AEO Management Co., 2013. Gift Cards. American Eagle Outfitters. [Online] Available at: http://www.ae.com/web/checkout/giftcards/giftCard.jsp?_requestid=178751 [Accessed March 16, 2013]. AEO Management Co., 2013. Accepted Forms of Payment. Help. [Online] Available at: http://www.ae.com/web/help/payment_options.jsp?topic=1&_requestid=264208 [Accessed March 16, 2013]. AEO Management Co., 2013. Get Rewarded For Shopping The Two Brands You Love. American Eagle Outfitters. [Online] Available at: https://www.ae.com/web/myaccount/aerewards.jsp?_requestid=180918 [Accessed March 16, 2013]. Bhattacharjee, N., 2011. Refile-Buy Or Sell-American Eagle: Winds Of Change Keep Investors Guessing. Article. [Online] Available at: http://www.reuters.com/article/2011/03/29/buyorsell-americaneagle-idUSL3E7ET1TF20110329 [Accessed March 16, 2013]. Bloomberg BusinessWeek, 2013. American Eagle Outfitters. Financial Statements for American Eagle Outfitters (AEO). [Online] Available at: http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=AEO [Accessed March 16, 2013]. Catedra Inginerie Software, 2002. e-Business Models. Documents. [Online] Available at: http://software.ucv.ro/~cbadica/didactic/ce/documente/ModeleEBusiness.pdf [Accessed March 16, 2013]. Dow Jones & Company, Inc., 2013. American Eagle Outfitters Reports Record Annual Sales of $3.5 Billion and 43% Growth in Adjusted EPS. Future Concerns. [Online] Available at: http://online.barrons.com/article/PR-CO-20130306-907351.html [Accessed March 16, 2013]. Hoovers Inc, 2013. The Gap, Inc. Company Profile [Online] Available at: http://www.hoovers.com/company-information/cs/company-profile.The_Gap_Inc.5b8839480138c8d6.html [Accessed March 16, 2013]. Hoovers Inc, 2013. American Eagle Outfitters, Inc. Revenue and Financial Data. Company Profile. [Online] Available at: http://www.hoovers.com/company-information/cs/revenue-financial.American_Eagle_Outfitters_Inc.b053d9f251729e59.html [Accessed March 16, 2013]. Libby, No Date. Financial Accounting. Tata McGraw-Hill Education Market Watch, Inc., 2013. American Eagle Outfitters Inc. Annual Financials for American Eagle Outfitters Inc. [Online] Available at: http://www.marketwatch.com/investing/stock/aeo/financials [Accessed March 16, 2013]. Seeking Alpha, 2013. American Eagle Outfitters Management Discusses Q4 2012 Results - Earnings Call Transcript. Home. [Online] Available at: http://seekingalpha.com/article/1251911-american-eagle-outfitters-management-discusses-q4-2012-results-earnings-call-transcript [Accessed March 16, 2013]. Read More