Archive for Monday, October 4, 2004

American Eagle gets back on track

Retailer’s profits improve after reconnecting with teen fashion trends

October 4, 2004

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— Teen clothing retailer American Eagle Outfitters Inc., which stumbled last year trying to be too cool, is winning back its fickle customers.

American Eagle outdistanced the competition in August, having abandoned bare midriffs and low-rise pants and returned wholeheartedly to its classic preppy looks of denim and rugby shirts, which happen to be fashion's current trend.

"I think even their management is surprised with themselves and the home run they just hit," said Jennifer Black, head of Jennifer Black & Associates, an independent research firm in Lake Oswego, Ore. "You only see this once in a while where a company steps on the gas, hits all the cylinders and just flies. They are really flying."

In August, when the overall retail industry posted an anemic 1.1 percent sales pace, the Warrendale, Pa.-based chain enjoyed a nearly 24 percent surge in same-store sales from a year ago. Same-store sales -- sales at stores opened at least a year-- are considered the best indicator of a retailer's health.

American Eagle executives said part of their problems last year came from trying to be too far out front, predicting what customers would want to wear but not actually asking them.

"You can't get ahead of these kids; you've got to be in step," said Susan McGalla, executive vice president and chief merchandising officer at American Eagle. "We are clearly not smarter than our customers."

Their stores were also poorly laid out and confusing.

New strategies

To remedy the problems, the company put key officers in a position where they would be closer to market testing and research, moving Roger Markfield from the co-CEO job he shared with Jim O'Donnell, and making him vice chairman and president of the company, overseeing merchandising and design.

Analysts say Markfield and McGalla are two big reasons why teenagers are heading to American Eagle stores this year, snubbing many of its competitors including Abercrombie & Fitch Inc., Limited Brands, Gap Inc. and Wet Seal Inc.

The glass ceiling of the atrium from The Mall at Robinson is
reflected in the window displaying jeans and jerseys at the
American Eagle Outfitters store in Robinson Township, Pa. After a
drop in back-to-school sales last year, American Eagle has
rebounded with nearly a 24 percent surge by offering classic styles
like rugby shirts and denim for teens.

The glass ceiling of the atrium from The Mall at Robinson is reflected in the window displaying jeans and jerseys at the American Eagle Outfitters store in Robinson Township, Pa. After a drop in back-to-school sales last year, American Eagle has rebounded with nearly a 24 percent surge by offering classic styles like rugby shirts and denim for teens.

"I just think each of us is focusing on what we're good at," McGalla said in an interview. "We have clearer roles in the company. We've redefined the roles where Jim is the CEO of the company and Roger is spending more time in New York with the design team. They are both heavily involved."

Display makeovers

American Eagle also simplified its stores and revamped its displays, making the new styles easier to find. Entire tables have been dedicated to polo shirts, whereas last year the company tried to be more of a boutique, with a mishmash of merchandise sharing space.

The overhaul seems to have worked. Teen shoppers said they like this season's clothes, and the fact that it's easier to find what they're looking for inside the stores.

"I don't know why I didn't buy much stuff here last year -- I just bought it somewhere else," said Mark Gilliam, 17. Now, however, "I've found exactly what I've wanted here pretty quick."

Wall Street is also happy with the company's turnaround. American Eagle's stock is trading at about $37 a share, not far from its 52-week high of $38.22 and well above its 52-week low of $14.44.

Bad bohemian bet

Last year, American Eagle's clothes were less about the classic all-American athletic look and more about fast moving and trendy lines. For a retailer that made its image in classic looks, that turned out to be a big misstep -- in August of last year, as students were shopping for the school year, American Eagle reported a 10.4 percent drop in same-store sales.

"The merchandise was all bohemian and it looked bad," analyst Black said. "When companies go through a bad time they tend to look deeply into themselves and ask what went wrong. They totally figured it out and who their customer was."

Back to classics

American Eagle is still dabbling in trendier items, like a line of ponchos and other fringe wear that teenagers will experiment with. But the focus is solidly on denim, rugby shirts and other classic lines that helped the company grow to its current 760 stores in 49 states, said Michael James Leedy, chief marketing officer.

This fall, with the football season under way, the company is running an advertising campaign in 25 stadiums across the country, promising that AE jeans "will rock you" -- borrowing the classic song from the rock group Queen.

The company has also increased its offerings of jeans, righting one of the wrongs it committed last year, when it had cut back its inventory of such basics.

"We are dominating in denim in a way that we haven't," Leedy said.

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