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Shopping Centers Today -> May 2003
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FLYING HIGH
American Eagle Outfitters defies retail slump
BY MAURA K. AMMENHEUSER
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Who knew a bunch of inexpensive khakis, jeans and T-shirts could be so hot?
American Eagle Outfitters did. The chain is a darling of mall landlords, investors and consumers alike, racking up net sales increases of 25 percent to 44 percent annually from 1998 to 2001. Even last year, as retailers struggled under a sluggish U.S. economy and talk of war, Warrendale, Pa.-based American Eagle saw an overall 6.7 percent rise with sales of $1.46 billion.
American Eagle’s merchandise — casual clothes and accessories ranging from jeans and sweaters to undies and handbags — isn’t unique. Its stores are clean, nicely lit and comfortable (seating areas feature generously sized chairs, coffee tables and TV), but by no means revolutionary. And American Eagle markets to a demographic that half the retailers in North America also chase: free-spending, style-conscious youth.
So what’s the attraction?
“They have a great look, great presentation,” said Lloyd Miller, general manager of the 600,000-square-foot Southgate Mall, Missoula, La. “Kids just seem to love it.”
Brian Giffin, manager of the 900,000-square-foot Westgate Mall, Amarillo, Texas, credits American Eagle’s popular, private-label duds and a remerchandising effort from about five years ago with doubling the store’s sales there, to about $420 per square foot. Today American Eagle is “one of the best performing stores in [the apparel] category,” Giffin said. “Their price points are more reasonable than some of the other private-label guys.” His 16-year-old daughter, he adds, “can’t get enough of that store.”
“Part of it is [that] kids are just consuming like crazy,” said Jennifer Hale, marketing coordinator of San Antonio’s Rivercenter, a mixed-use project that includes 500,000 square feet of retail, a hotel and an Imax theater. “American Eagle is obviously putting out clothes they want.”
American Eagle opened three years ago on Rivercenter’s upper level, historically a poor draw, but the store helped boost sales there, Hale said. Its sales at the center grew 12 percent last year, and the retailer is Rivercenter’s second-strongest performer among nine family clothiers in per-square-foot sales, she said. (Gadzooks was first.) Hale and most other managers in this story declined to reveal specific sales figures.
At Lansing (Mich.) Mall, American Eagle doubled its shop floor space to 6,000 square feet.
“It’s beautiful,” said Dawn Caron, Lansing Mall’s assistant marketing manager. “The store is always immaculate,” well organized and stocked with trendy items. “It makes for easy shopping.”
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Why have American Eagle’s sales grown so strongly (a rough start to 2003 notwithstanding) at a time when retailing in general and apparel in particular are so spotty?
“American Eagle went to school on Abercrombie & Fitch,” said retail consultant Howard Davidowitz, chairman of New York City-based Davidowitz & Associates. “They knocked off Abercrombie & Fitch and sold it cheaper.”
Abercrombie thought so too. The retailer unsuccessfully sued American Eagle in 1998, claiming it had copied its clothes, decor, catalogs and advertising.
Mall managers point to American Eagle’s fashion sense for its longtime sales streak. Hale says she is particularly taken with American Eagle’s “cute” skirts and snazzy, original jewelry. In late February the shops were packed with retro, 1970s-style peasant blouses and patchwork skirts, $30 women’s solid-cotton pullover sweaters, cargo pants everywhere you look and, to get shoppers thinking ahead to summer, a wall-size display of flip-flops priced at $12.50 to $29.50.
American Eagle executives did not respond to interview requests for this article. The company is 26 percent owned by the Schottenstein family, whose Schottenstein Stores Corp. owns interests in several other retail chains. Jay L. Schottenstein is chairman of Eagle’s board.
American Eagle was launched as a sportswear and outdoor-gear shop in 1977. Eventually, overexpansion hurt sales. So in the mid-1990s, the chain tinkered with its merchandise mix, focused more on women and increased its reliance on private-label goods (SCT, June 1999).
Today the chain considers itself a lifestyle retailer peddling “relaxed, versatile clothing” for customers 16 to 34 years old, according to the company’s literature, though the upper end of that range may be a stretch. President and co-CEO Roger S. Markfield, when announcing fourth-quarter 2002 financial results in a conference call with analysts, said that “everything we’re doing is clearly focused on the 20-year-old. It’s working big-time for us on the women’s side.”
Said Davidowitz, “The key issue is fit” — a hip, thin 30-something can wear American Eagle’s stuff.
The company operates 754 American Eagle shops, 698 of them in the United States and 56 in Canada, and 111 Bluenotes/Thriftys in Canada. The latter are denim-heavy shops for 12-to-22-year-olds. The company plans to open 60 more American Eagle stores this year, 10 of them in Canada, and wants to have as many as 1,200 in the United States within “several years,” according to American Eagle’s 2001 annual report.
Besides enclosed malls, the company is also considering opening five units in lifestyle centers — “the wave of the future, with real estate costs being what they are,” said co-CEO Jim O’Donnell in the Feb. 25 conference call. American Eagle also sells through a catalog and its Web site, www.ae.com.
Despite a long, strong flight, American Eagle has lost some altitude recently, according to the most recent results that were available at press time. The company announced that same-store sales dropped by 5.7 percent in 2002, while gross profit dropped to $542.2 million from $547.3 million in 2001. And though fourth-quarter sales rose 5.9 percent to $491.6 million over the previous year’s quarter, O’Donnell in the conference call described the performance as “disappointing.” He blamed sluggish men’s wear sales and the general economy for a slowdown. That single-digit growth contrasts with the much larger increases of recent years.
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As for February itself, total sales were up 4.5 percent over the same month a year previously, to $74.3 million. Same-store sales, however, were down 7.8 percent for the month, for both American Eagle stores and Bluenotes/Thriftys combined.
“Nothing is forever with fashion apparel,” Davidowitz said. Foxmoor, Gap, The Limited and Merry Go Round, he pointed out, all achieved astronomical success before plateauing and, in some cases, burning out. “The history of this business is volatility.” He added that American Eagle, like any retailer, can ensure long-term success only with “fashion genius.”
CEO Markfield also expressed frustration that a planned repositioning for Bluenotes, which the company acquired in 2000, hasn’t come to fruition.
“We didn’t want it to be a jeans store,” he said in the conference call. “We wanted it to be a lifestyle store. … We made a commitment to fix this business because it’s a high school [market], which we want,” he said, but the chain is “not performing. … We’ve done a lousy job of executing the process.” To jump-start things, American Eagle promoted Fred Grover, head of its men’s merchandising division, to president of Bluenotes early this year.
American Eagle stores will lean even more heavily on women’s goods to make up for weak men’s sales, executives said. And the company is in the midst of a 60-to-70-store renovation effort, enlarging stores from 4,800 to about 6,000 square feet. Markfield also mentioned the possibility of a new concept store, but would not elaborate.
Despite its challenges, shopping center managers continue to rave about American Eagle and say its only challenge will be maintaining the huge sales growth of recent years.
“If they can keep up with [fashion trends], they may be able to hang in there a long time,” Rivercenter’s Hale said.
American Eagle’s winning formula is “contemporary but classic,” said Lansing Mall’s Caron. “They stick with the classics and tweak it just enough to make it hot. … They seem to do everything right.”
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