American Eagle Outfitters - Essay Example

1 Introduction American Eagle Outfitters (AE), set up in 1977, is the number 2 US clothing brand in terms of sales. It sells under its own labels and targets 15 to 25 year olds. It is primarily a teenage brand that markets quality casual and formalwear at affordable price. Its original collections consist of jeans, graphic T’s, accessories, outerwear, footwear, basics and swimwear. Currently it operates 846 stores in 50 states as well as District of Columbia and Puerto Rico besides another 74 stores in Canada. AE also operates trough its B2C website ae.com that sells the same clothing but in a wider range of sizes, for discrete buyers, those are not available generally in physical stores. It also ships them worldwide through the website. AE has introduced a new label called “aerie by American Eagle” targeting young female customers with a collection of dormwear and intimates that includes bras, undies, camis, hoodies, robes, boxers, sweats and leggings. They are specifically designed to be sweetly sexy for everyday stylish wear. These are currently sold in 19 exclusive stores as well as on its website called Apart from this AE has now targeted 25 to 40 year old customers with yet another brand called MARTIN+OSA using denim and sportswear as a base covering apparel, accessories and footwear. This is sold in 13 stores as well through its website www.martinandosa.com. AE had a sale of $ 2.98523 billion with profits of $ 411 million during the last financial year and expects a slight fall this year due to extended warm weather. A SWOT analysis displays the company outlook in detail. 2 American Eagle Inc. SWOT Analysis STRENGTHS 1. It is the second largest retailer in the US of apparel and accessories targeting 15 to 25 year olds. 2. It has successfully introduced a brand of intimate wear for girls and young women under name aerie and it has been received very well in the market. 3. A new segment of 25 to 40 year old men and women has been tapped through the brand MARTIN+OSA and has been a success. 4. It has own stores and exclusive stores where the customers are served with high quality and affordable apparel and accessories. 5. It adds on between 35 to 50 stores every year and is able to add to footfalls regularly. 6. Compared with competition it has fared better in the 2nd quarter of 2007 as it suffered a fall in sales of only 2% compared to industry suffering between 2 and 11 per cent. This shows that it is more popular than others. 7. American Eagle has already commenced to cater to the Baby Boomers segment and this will open up new markets for additional sales and profits. WEAKNESSES 1. Due to Global Warming warm weather has been extended in 2007 resulting in a longer summer. This resulted in a fall in sale of abut 2% in the 2nd quarter and the forecast of sales in 3rd quarter has been reduced. This will impact year on year sales and profitability. 2 Apparently the company is not geared up for weather and other changes and is vulnerable to such events resulting in lower sales and profits. 3. It went on expansion through the takeover and merger route and in one case it backfired badly. Bluenotes of Canada with 100 stores was acquired in 2001 but since this too served nearly the same segment, 12-22 year olds, it failed and had to be sold off in 2004. 4. Its mainstay brand American Eagle is reaching saturation point as is seen in stagnation in this brand’s sale. It is possible that this may lead to a decline. 5. Due to competition and customer shifting their attention and loyalty elsewhere there is a possibility of decline of American Eagle as a brand. 6. By sticking to one demographic segment (15-25 year) predominantly has made the company kaleidoscopic and the market also perceives it as a one segment player. Fresh competition will eat away into this segment as is beginning to become evident by stagnation in sales. OPPORTUNITIES 1. People of all ages and demography are increasingly becoming conscious of good apparels and accompanying accessories at affordable prices. There is a huge market in each segment. With proper segmentation American Eagle can introduce quality products for each segment. 2. A very important segment is the new-born segment. The new parents of the modern age are very keen to show their newest members of the family with pride. This segment is also very sentimental and emotional and will certainly lap up new ideas and products. 3. This is also by far the most profitable segment as the kids grow fast and outgrow their sizes very fast. They need far more clothes than adults. Hence it offers a great opportunity for growth. 4. American Eagle would do well to introduce toys for toddlers as additional accessories. This has great potential as the market both ordinary and educational toys are growing by leaps and bounds. Additionally cheaper toys imported from Far Eastern countries have lately been rejected by consumers due to toxic content. Parents are health conscious and this presents and opportunity to American Eagle to diversify to stave off stagnating sales in its original demographic concentration. THREATS 1. American Eagle is known for its laidback or casual clothing for the teens but its laidback and casual attitude will be its undoing. The greatest threat to its sale and profitability is sticking to its one segment. The late start it has made in other segments such as 25-40 range and the aerie range of intimate wear is too little and too late. It has opened a mere 19 stores for the MARTIN+OSA label and 13 stores for the “aerie” label are too feeble to make an impact. The competition is already there and in a big way. The attempt is half hearted and is not likely to make a large enough influence on the market. 2. High Fashion and high quality clothing at lower prices is being outsourced from India, China, Vietnam, and similar countries as they have cheap labour as their input. AE is under threat by competition who procure their products from overseas. 3 Current Strategies American Eagle is perusing an old strategy of expansion through opening of stores in Malls and Shopping Centres and concentrating its activities to the North American Continent. It is also continuing to target the 15 to 25 year old men and young men and women with quality clothing and accessories at affordable prices. It has made an attempt to add on another two segments to its product lines. They are 25 to 40 year olds and the intimate wear for the female customers. It has started to think actively about the Baby Boomers who are between the ages of 44 and 62. They comprise nearly 28% of the adult US population, and have reached an age when they have become great spenders. Among them, those who have reached retirement or carefree age, are looking for pleasure and fun and are a great potential for business. Those who are still working have reached new heights in their careers and are becoming big spenders due to greater disposable incomes. 4 Recommendations Stagnation or reaching a plateau des not signify reaching of a milestone except that from there only a decline takes place. It is indeed a cause of great worry and no complacency can be entertained. AE has reached a stage where natural progression has stopped and there is urgent need to both expand and diversify. The expansion by way of creation of new outlets is acceptable but the geographies need a change. Today the emerging economies are a target for any company of repute. These emerging economies offer a never-before kind of opportunity. They have a burgeoning population that has the capacity to buy and the hunger to be seen alongside their worldwide brethren on equal footing. These are big and new markets of Latin America and Asia. AE should first venture into Latin America as it is congruous in nature and they just have to move south, like they moved north into Canada. The economies there can absorb their current line of products as they too have an aspiring 15-25 year old section of the population that will gleefully buy this line. It is a ready made market as culturally to there is great affinity between the two continents. The distances are also not to long and shipping is well organized. AE should also consider the booming Asian economies, who are the current drivers of the developed world. Here too the 15-25 year olds have become prosperous with spread of education and huge employment opportunities. They too have a great need to dress well and are keen on fun and pleasure as well as sports. AE will find ready acceptability and can move in here in the second stage. A new strategy can be developed to outsource the brand and create franchises in these areas and this will in effect offer huge economic advantage. The AE label can be commercially and economically exploited at low investment and the returns will be both substantial and healthy. The final recommendation is that AE should outsource their manufacturing to the emerging economies to get pricing advantage to face growing competition. Read More