The First American Eagle Outfitters Store

The First American Eagle Outfitters Store After a stagnant market in 1991 which American Eagle had felt the effect of Retail Ventures, Inc. sold the rest of its fifty percent of its ownership of American Eagle to the Schottenstein family making them the complete controllers of the company. In 1992, under new management American Eagle slightly moved its focus on private label casual apparel for men and women keeping the outdoor look. During one of its best years American Eagle went public in April 1994 with a high of $0.91 for the first day of the initial public offering. Most of the earnings from the IPO was invested into the company and during the rest of 1994, fifty-five new American Eagle stores opened and at the one year mark of the IPO a total of 90 new stores had been opened. This rapid expansion caused some problems and forced the closing of all its outlet stores and focus on the mall locations as primary locations. In 1996, American Eagle moved to focus more on womens clothing, because it has proven to be more profitable. After the move American Eagle saw a big jump in sales and coupled with the integration of an apparel manufacture owned by the Schottenstein family, American Eagle became more vertically integrated. Through gained attention and high sales competitor Abercrombie Fitch saw a threat and filed three lawsuits against American Eagle Outfitters for copying their designs. All three times American Eagle won the suit due to the fact that designs cant be copyrighted. In 2000 American Eagle started to refine its marketing strategies and got a deal to provide clothing for the series Dawsons Creek and MTVs Road Rules. In the same year American Eagle went international when it bought a 172 store chain and warehouse operations in Canada, converting many of the stores into American Eagle Outfitters stores. Today American Eagle operates 938 AE stores, 137 Aerie stores and 28 M+O stores  [1]  , which are planned to be closed during the 2010 fiscal year. American Eagle is in all fifty states, Canada, Puerto Rico, and now Kuwait and Dubai. Deals are being made to open stores in Israel, China, and Japan. External Analysis The general environment of American Eagle Outfitters consists of multiple external industry factors that are beyond AEs control, yet significantly affect AEs, as well as the industrys, strategies. Those factors are demographic, sociocultural, political, technological, economic, and global. The aspect of the demographic segment that most notably affects AE is the aging population. With AEs key demographic focused on 15-25 year olds, the aging population results in a lower percentage of the overall population being included in their target market. With a lower percentage of the population included in the target market, a lower percentage of that populations consumer spending will be directed at AE. One factor in the sociocultural segment is an increase in dual-income families. This increase leads to a higher household income, thus, a higher disposable income that can be spent on shopping. Another sociocultural factor that affects AE is the style factor. Specific styles and trends in apparel are constantly changing depending on the latest fashion or current time of year and retailers have to keep up with the changes by having a variety of options available. In Elizabeth Holmess article Abercrombie Fitchs Style Sense Wears Thin with Some Shoppers, the importance of variety is emphasized when she says American Eagle, of Pittsburgh, Pa., is bringing in new merchandise every four weeks, up from every six weeks. Increased variety and choices will be critical and crucial as part of regaining market share (for Abercrombie).  [1]  Increased sales taxes in certain areas and rising sales taxes across the general population is the main political factor affecting AE. Any increase in ta xes results in a decrease in disposable income, which typically leads to less consumer spending. The technological aspect of the general environment in the retail industry is addressed by Jordan Speer in her article Apparels TOP 50 when she says Technology, too, continues to open possibilities like never before, as apparel companies implement ever more capable systems to refine merchandise planning and allocation, or to track consumer behavior in real time.  [2]  The recent increased use of radio frequency identification (RFID) tags in the apparel retail industry could revolutionize the supply chain management process. The most obvious factor in the general environment is in the economic segment. The current suffering economy has impacted even the retail industry, as stated in Datamonitors SWOT analysis of AE, Clothing sales fell 3.9% in April 2010 from April 2009, and the sales that month were 8.2% below April 2008. Worst affected is the womens clothing as 4.1% drop in womens fashions was witnessed while mens declined by a mere 0.5%. In terms of American Eagle specifically, the article stated that teen unemployment is also on the rise impacting their spending and as the cautious American consumers cut down on the discretionary spending, the demand for American Eagles products is likely to see a setback.  [3]   The global segment of the general environment includes any influences from foreign countries. While the amount of foreign substitutes for moderately priced, fashionable apparel is relatively low, the opportunities for globalization in the apparel retail industry are prevalent. American Eagle is based primarily in North America, but has opened a couple stores overseas and look to expand into the Asian market in the near future. American Eagles competitive environment can be broken down using Michael E. Porters five forces model, which consists of the following forces that affect a companys ability to compete: The threat of new entrants, The bargaining power of buyers, The bargaining power of suppliers, The threat of substitute products and services, and The intensity of rivalry among competitors.  [4]   We have determined that the threat of new entrants in the retail industry is relatively low. Although there are low capital requirements to start up a new business in retail and there are little to no switching costs for the consumer, we believe that American Eagle is relatively safe in terms of new entrants. First, and most importantly, the retail industry has had very modest growth in the past few years due to the lagging economy, limiting the industrys attractiveness to any new entrants. Next, the existence of economies of scale in the industry is a significant barrier to entry. For a new entrant to be successful, they would either have to come in at a large scale to utilize the economies of scale or come in at a smaller scale and have higher prices. The last factor limiting the threat to new entrants is consumer brand loyalty. Many consumers have certain preferences to select retail establishments and would not be willing to try out a new store.  [5]   The threat of substitution in the apparel retail industry in general is viewed as weak because most consumers prefer the ease of retailers to buying directly from manufacturers, making their own clothes, or settling for counterfeits. In terms of AE specifically, there is a fairly significant threat of substitute products with the various industry competitors, such as GAP, Pacific Sunwear, or Abercrombie Fitch, producing similar products at similar prices. Although some customers tend to have certain brand loyalties, when style is a factor, substitute products are always an option. We believe that the bargaining power of buyers is low in the retail industry. Although switching costs from AE to another competitor are negligible, there arent many more factors that give a buyer power. The buyers, in regards to American Eagle, are typically individual customers. This means that a single buyer does not represent a large percentage of AEs sales, so losing one customer does not significantly affect their profits. Since style varies, retail firms can become very differentiated by being the first on the market to provide the latest trends, thus, weakening buyer power.  [6]  Buyer power is also limited by the fact that consumers are very partial to the retail environment and prefer buying their clothing to making their own clothes or buying directly from manufacturers. The bargaining power of suppliers in the retail industry is also low. Garment manufacturers rely heavily on the retail industry to purchase their goods. There are low switching costs to a different manufacturer because there are numerous low-wage manufacturing facilities worldwide. Another reason why the bargaining power of suppliers is low in terms of American Eagle is that they own and operate their own manufacturing facility so there is no need for the supplier to bargain. We have determined that intense rivalry among competitors, such as GAP, Pacific Sunwear, and Abercrombie Fitch, in the industry is very prevalent. There are numerous balanced competitors in the retail industry, which has experienced slow growth. These factors, coupled with low switching costs and the always-changing fashion, result in a battle for market share. Internal Analysis American Eagles mission seems to be to provide high quality, on trend clothing, accessories, and personal care products at affordable prices.  [1]  Since we opened our first store in 1977, AE has focused on innovation.  [7]  The core value behind the American Eagle brand is people. People, whether they are customers, employees or business partners, are the key to a sustainable and successful company and are the heart of everything they do. We value and respect differing backgrounds, unique talents and eclectic tastes2American Eagle also lists integrity, passion, innovation and teamwork as core values that sustain the American Eagle brand. The American Eagle Slogan, Live your Life is meant to encourage everyone involved with the company, whether customer or associate to be individuals and to bring that uniqueness to the company. Even though American Eagle emphasizes being a value brand in their mission statement, they have decided to underscore the value position in their promotion campaigns by focusing on other sources of value such as quality and style.1 American Eagle is neither the lowest cost or the most differentiated in the market. Customers have been gravitating towards lower priced stores such as Aeropostale and Forever 21 and so the company has shifted the focus away from discounting in a move to strengthen the quality of the brand and therefore focus on a differentiation approach. Customers in their target market seem to be confused; however as to how American Eagle is differentiating itself from many other similar brands. The company sites diversity as a characteristic they value in their company, but it seems that they are trying to brand a lifestyle that is hard to understand.  [8]  Other competitors such as Hollister (which is part of Abercrombie and Fitch) choose more of a focus strategy, aiming towards the California style niche market. The company is focusing on growing market share in core product categories such as graphic t-shirts and fleece and to maintain its market leadership in denim. 1 American Eagles core competencies arise from the execution and combination of its resources. As a company, American Eagle considers its distribution a core competency. American Eagle successfully uses its distribution centers to best supply its retail stores as well as fulfill customer orders from its website and catalog by taking over logistic processes that it had previously outsourced to a third party.  [9]  Three things contribute to the success of their distribution at their Ottawa, Kansas distribution center, high speed shipping and receiving, multiple picking technologies and integrated warehouse management and warehouse control software systems. American Eagle had to develop an innovative way to balance the workload over three concepts (AE, aerie and Martin +Osa). One of the unique features is that we believe we have created the first waveless dynamic picking system in a direct-to-consumer operation for a specialty retailerà ¢Ã¢â€š ¬Ã‚ ¦instead of queuing up orders into a wave based on what was received overnight, were able to prioritize orders in the picking pool based on delivery dates in real-time as those orders are received over the Internet. 9 American Eagle has a high market share in denim 1 which suggests the company has a core competency in the production and marketing of its denim product line. The majority of direct mail sales promotions the company produces targeted towards loyalty and credit card holders use each seasons new denim line to showcase other new seasonal items.  [10]  American Eagle uses brand recognition to tie jean sales with other promotional offers such as free movie tickets and free graphic tees from the brands expanding line.  [11]  Jeans are the most easily recognized and first thought of when thinking about the American Eagle Brand. I can easily tell when someone is wearing American Eagle jeans because they have a certain design on the back pockets. 8 Another core competency of American Eagle is its entertainment marketing campaigns. A series of 30 second episodes embedded in the CWs shows Veronica Mars and Gilmore Girls featured 12 real girls wearing the new aerie line, a line of dorm wear and intimates for women, talking about how they relate to show themes to their lives and the aerie brand. The mini episodes were also shown online and the website allowed viewers to see exclusive content from aerie Tuesdays and to enter contests to win an American Eagle shopping spree. That particular campaign also included advertising the two shows on in store video screens and surprise visits from show stars.  [12]  American Eagle has also teamed up with multiple MTV shows such as the Real World: Austin and Spring Break as well as collaborating with the musical group The Black Eyed Peas to launch their new album in AE stores.  [13]  More recently, American Eagle became one of the first companies to offer Facebook deals, in an effort t o take advantage of the rising popularity of social marketing. The deal offers customers who check in at American Eagle on Facebook with their smart phones 20% off their entire purchase. American Eagle customers are avid users of Facebook and mobile technology so the company has created an aggressive plan to exploit that opportunity. Facebook Deals enables American Eagle Outfitters to offer our customers even more value, as well as strengthen their connection with our brand in their preferred mode of communication.  [14]   As part of the retail industry, it is difficult for a retailer to develop sustainable competitive advantages since many business processes are easily imitated and low brand loyalty exists among consumers. American Eagle Outfitters possesses three things that are sources of competitive advantage in such an industry. American Eagle possesses its dedicated work force, a well recognized brand name, an employee generated intranet and a high amount of cash and low debt ratios. The company possesses its brand name, which exemplifies a culture of fun, variety, individualism, realness and honesty.1 The American Eagle brand is about being trendy and individualistic. American Eagle uses a small, stitched on eagle emblem on the majority of their clothing and most people from their target market recognize it as the symbol of American Eagle. Members of their target 15-25 year old market feel the brand is casual, laidback, breezy and cozy.8 American Eagle stores are tangible representations of thei r brand and so they are engaging and dynamic but reflect the laid back nature of the brand. Plasma screens in every store provide an exciting playlist of current hits as a backdrop to the shopping experience. 10 American Eagle is upgrading many of its stores to include newer technology (such as televisions that display product collections to shoppers in store). The company opened a flagship store in Times Square that includes a giant electronic billboard similar to the Times Square Landscape. The store will also offer mobile POS devices that allow customers purchase anywhere in the store as well as offer customers who make a purchase a chance to take a photo-booth picture that can be displayed on the giant Times Square Billboard.  [15]  Merchandise turns over quickly in response to customer preference also adding to the perceived trendiness of the brands clothing and accessories.8 Executives, using information from research and from the companys own intranet, have successfully i ntegrated entertainment with the American Eagles product offerings in order to relate to the companys target 15-25 year old market. By continuing to stay on trend with its target market, American Eagle products become featured in magazines popular with women in the 15-25 age segment such as Seventeen and Cosmopolitan.10 American Eagle Outfitters employees are a source of competitive advantage. AEO associates were diverse, hard-working, and loyal to the company; passionate about its brand; and lived the companys values of people, integrity, passion, innovation, and teamwork.  [16]  American Eagle hires employees who are similar on many demographic variables to that of its target market.16 By doing this, management ensures that associate generated content is relevant to the company and can be analyzed to understand its core customers. Walking into an American Eagle store feels unintimidating and relatable because the associates belong to the same core demographic segments that customers do By hiring associates similar to the members of the core target market, management also ensures that associate generated content is relevant to the company and can be analyzed to understand its core customers.8 The career website, liveyourlifeloveyourjob.com, exemplifies American Eagles intense focus on providing a rewarding employee culture. Its compensation and benefit programs are individually based on performance to encourage individuality. At liveyourlifeloveyourjob.com, outsiders can view employee accounts of responsibilities and personal growth afforded to them by being part of the American Eagle community. Interactive videos and photos guide the everyday user through the ins and outs of daily life at American Eagle and encourages them to apply for available positions. Here, students can also discover how to get involved with internships and college recruiting. Internships are designed to introduce college age students to the fast paced retail industry as well as the culture and style of American Eagle.7 American Eagle has developed an associate generated intranet system called AE life-the intranet. The purpose of the intranet is to showcase these employee values in a venue that also provides up to date information and industry news. The intranet allows associates at many locations to share and create a common experience of what is like to work at American Eagle.16 The intranets exciting and interactive format was designed to reflect the companys culture of fun and variety and to encourage employees to visit and update the system frequently. According to American Eagle Executives, their number one competitive advantage is the innovation of their associates. AEOs associates continue to connect to the values and the mission of the company, it can be assured that they will produce an intranet with appropriate and relevant information.16 Financially, American Eagle is a company with large amounts of cash on hand and low debt .1 This affords the company the ability to invest quickly in any market opportunities it may perceive, and would give it a competitive advantage. With large amounts of cash on hand, AE is more resilient to economic and other external environment changes. American Eagle may also be able to take bigger risks in the market, which may lead to large increases in sales and preference among their target market. Because of the nature of the fashion retail industry, American Eagle has a tough time sustaining its competitive advantages. Although American Eagle has a high brand awareness and liking among people in its target market, it does not seem to have a high preference among those consumers, especially among college aged men.8 This suggests that American Eagle could strengthen its brand name and positioning because of the confusion concerning what the brand is about and the lack of the quintessential American Eagle look. American Eagles clothing seems to be overpriced for the kind of quality received, with many in the focus group saying that their garments have fallen apart easily and they felt like they had overpaid for them because of it.10 Even though American Eagle cites innovation as a competitive advantage, very few of their products are unique enough to qualify as new and innovative to their consumers.8 Even though American Eagle locates their stores mostly in trendy, accessible ma lls, this is easily imitated by other competitors since they rent locations in malls as well. Also, the increase of internet purchases has made store locations less of a competitive advantage by substituting for them. Another disadvantage is the Martin +Osa brand name, which failed to gain much awareness and performed poorly financially. In fact the company hopes to increase shareholder equity by closing down the brand completely.1 American Eagle seems be trying to increase its resonance with the target market and maintain its individualistic company culture in order to develop competitive advantages. American Eagle increases its resonance by reducing product lead times to better react to consumer tastes and current fashion trends and by continuing to exploit the opportunity of mobile and social marketing. AE maintains its culture and values by creating exciting career and internship opportunities and by focusing on a user generated intranet. American Eagles presence in the retail market is threatened because of the perceptions about them in their target market. Although some people enjoy and find the clothing to be fashionable and affordable, lack of a differentiated brand name will really hurt American Eagle in the long run. If they choose to focus on a differentiation strategy as opposed to focusing on low cost, they need to get their customers to believe all the things their employees do about the American Eagle brand. Comparison to Competition American Eagle has placed itself in the middle of the fashion industry where they cannot compete on price nor are they a high fashion brand, and they tailor toward a relatively small market segment. They have been able to successfully compete, to this point, by indentifying trends in fashion, positioning the company with a strong and recognizable brand name and maintaining a world class supply chain network. American Eagle most directly competes with Abercrombie and Fitch and The Gap but they have also seen increased market pressure from fast-fashion retailers like Forever 21.4 American Eagle has been very successful at identifying trends in fashion. A fashion retail company that could not would be out of business because of the nature of the fashion industry. This is an advantage that is tough to maintain because a few bad seasons could sink a successful retailer because it ruins their brand name and their revenues. There are two keys to being successful in fashion trending, the first is forecasting and identifying the newest fashion trends, and the second is getting those products through design, purchasing, manufacturing, distribution and to the store while they are still relevant. AE does a good job at both tasks and they are on par with their competitors in this sense. They are losing in these positions with fast fashion retailers, like Forever 21, which offer trendier clothes, cheaper, and faster from design. The fast fashion industry has been in boom as of late because they offer a greater degree of affordability than American Eagle and other traditi onal retail stores, while being trendier.4 American Eagle prides itself on how competitive their supply chain has become and, as we discussed previously, the distribution process is critical to success in fashion. When American Eagle sought to expand their business in 1999 they began by improving their distribution process. The goal was to lower inventory levels and increase the amount of flow in the distribution centers, a strategy often called Just-in-time distribution. They had two reasons to move toward this strategy, the first was discussed above, which was to shorten lead times from design to store shelves. This allowed them to create a store atmosphere of fresh, clean and hip clothes. This was supposed to compliment the overall theme of their clothing, which was supposed to be preppy and young. Short lead times also work to decrease sales lost to stock outs. The other goal was to decrease the cost of holding excess inventory, which will create better profit margins that they would not otherwise realize.  [17]   American Eagle has also been profitable because the way they have developed their brand name. They currently rank number 36 in the top 50 most valuable retail brand name list. The GAP is number 23 and Abercrombie and Fitch is at number 49.  [18]  The value of the brand name is based on how much it will likely earn them in the future. This is the result of both quality product and marketing efforts. AE has worked to market through socially hip medians, such as hip TV shows, and Facebook. The result has been that they are able to spend less on marketing while being as effective as other industry leaders. For instance AE spends 3.2% of total assets on marketing1 while Abercrombie and Fitch spends 12.1%  [19]  , despite Abercrombies much lower ranking. In fashion a brand is everything, two identical shirts with two different brands are going to be perceived as different. Since, American Eagle has placed themselves in a good position when it comes to their brand name, but they are not industry leaders, with the GAP, Polo Ralph Lauren and even Aeropostale coming in above them. The general conclusion has been that American Eagle has been successful due to the defined key metrics for success but at the same time they have consistently fallen short of the top position each category. This is consistent when looking through the stock price of each company, with American Eagle falling well behind Abercrombie and Fitch, Urban Outfitters, The Buckle, and short of The Gap, Aeropostale. Recommendations As American Eagle enters the international market using a wider variety of currencies one of the biggest problems that they will face is the movement of exchange rates. With the change of exchange rates they might have to show a loss of millions of dollars just because of an unfavorable exchange rate. The most important thing that American Eagle needs to develop is a clear and thorough way to hedge this risk. One way could be to set up a manufacturing site in those areas that the company is looking to enter, this will set the costs in the same currency as the revenue hedging that risk. Another recommendation for American Eagle in the aspect of its failed line of M+O stores, is to develop a store in a number of years that will transition its current American Eagle customers into a more adult look. The reason that M+O failed could be that older people now have already had a set look and company that they buy from and its hard to get those people to change and try something new. By wait ing a number of years and having its current customers grow into adulthood they can put out a line or store that fits that customer because they are already used to the American Eagle name and store. Looking through American Eagles 2009 statement of cash flows it is evident that the company has a lot of cash sitting there not being put towards an investment which is almost like losing money. And with advertising as a percentage of sales only being 2.3% compared to Abercrombie Fitch having 12.1%19 American Eagle could put that money towards an advertising campaign. American Eagle is in a unique position from most of their competitors because they are flushed with cash and can afford to invest the money into company growth. The greatest potential for market growth exists overseas, with 90.8% of revenue coming from the United States.4 American Eagle does have online sales overseas, but there are only a few store locations outside of North America. We believe AE would be best served by investing in countries where the economy is struggling and where the brand name would not have heavy negative connotations. These markets would mostly be China, Japan, and other Asian countries. Success overseas is not a given and AE will have to be careful to differentiate themselves from foreign competitors. It may even be necessary to change the brand name depending on market research performed on a country and their reaction to a brand that is so American. If they are able to compete overseas they will be able to take advantage of two huge strategic benefits. The first is accomplishing economies of size by increasing manufacturing demands from a global market, an objective their competitors have already begun to work toward. The second benefit is that ability to weather economic depressions in different companies by being diversified across foreign markets. We suggest that American Eagle differentiate itself from its major competitors, since our focus group research has suggested that members of their core market tend to be c