American Eagle Outfitters (American Eagle) has had an outstanding year in terms of its fiscal condition. Sales increased 31%, reaching a record $1.9 billion US[1]. This is due in large part to the changes made within corporate policy.

     One notable change is the company’s decision to significantly reduce its markdowns. That is, American Eagle has decided to focus on strong full-priced selling. The benefits of this decision show in the increase in income from continuing operations, which rose to $224 million, a 170% increase from last year1. It is important to note here, that a reduction in markdowns does not reflect a change in the company’s promotional strategy.

     American Eagle has always been, and continues to be, a company that places high value on promotional activities. Gift cards for 15% off the next purchase, and coupons via e-mail or home delivery, remain part of American Eagle’s core strategy. These loyalty programs help encourage repeat visits by consumers and increase the company’s overall sales.

     Other changes within the organization include upgrading systems and reconnecting with core customers (15 – 25 year olds). In fact, American Eagle is one of the first companies to invest in markdown optimization software, a tool that will allow the company to more efficiently manage and reduce markdowns. In addition, American Eagle also seeks to increase store productivity by analyzing store traffic trends and transaction data. The data is collected by traffic counters which are fully installed across the chain.

     In terms of reconnecting with their core customers, American Eagle has targeted their recent advertising efforts toward the younger crowd. The commercials and billboards feature teenagers dancing and having a good time on various beaches or at house parties. The key here is that the ads do not focus on the clothing, rather they focus on the young, fun and energetic lifestyle that the brand hopes to represent.

     At the heart of American Eagle’s revitalization policy is a continuing effort to expand its operations. Since 2000, the company has opened 220 “A” stores (in prime locations), and renovated an additional 257 stores. The store renovations reflect an increase from an average of 4,000 gross square feet per store, to an average of 6,000 gross square feet per store[2]. This expansion allows the company to better accommodate both customers and new merchandise. In the coming years, American Eagle hopes to continue upgrading stores and penetrate important existing markets, such as the West Coast.

     American Eagle competes with a number of similar brands, including Abercrombie & Fitch and Aeropostale. Although all of these retailers sell similarly styled clothing, the point that makes American Eagle stand out is that their clothing is of high-quality and is offered at a reasonable price. This is in contrast to their competitors: Abercrombie & Fitch, which sells high-quality products at a high-price, and Aeropostale, which sells low-quality products at a low price. American Eagle is great for the young adult who wants to look trendy while working with a budget.

The Clothing

     American Eagle sells clothing that reflects a casual, trendy lifestyle. Their collection includes basics, such as jeans and t-shirts, as well as a variety of trendy accessories and footwear. This core style has remained the same ever since the store’s inauguration in 1977. It does not seem as though the recent trend of young people buying expensive designer clothing has hurt American Eagle’s sales. For the most part, the two markets are not the same – the people who are paying upwards of $300 for a pair of jeans are probably not the ones who would do the bulk of their shopping at American Eagle in the first place. As a result of not changing their core style or price-point decisions, American Eagle has been able to maintain a large following of devoted buyers.

     In 2004, the company made key changes to fits and styles, making them more tailored to the customer’s body[3]. This change was well accepted by consumers, as noted by the vast increase in sales this past year. In addition to the regular jeans and t-shirts, this season’s line includes hot trends, such as short denim mini-skirts and longer (knee-length or below) bohemian inspired skirts. Bermuda shorts are also being shown, paired with casual tanks or polo t-shirts.

The Acquisitions

     In November 2000, American Eagle acquired three Canadian businesses – Bluenotes, Braemar, and National Logistics Service – a 400,000 square foot distribution center near Toronto. After poor financial performance, American Eagle decided to dispose of Bluenotes in December 2004[4]. The Braemar chain, which was purchased for its prime mall locations, has been managed closely by American Eagle; 46 of the “prime locations” were converted to American Eagle stores in 2001 with the remainder still operating as the original brand. The National Logistics Service remains under the American Eagle corporate name, and handles all of the distribution needs for Canadian stores while providing service to third parties.

New Stores & Other Growth Opportunities

     Over the past year, American Eagle has strengthened its store base by adding 41 new stores. Same store sales performance was strong, rising over 21%[5], indicating a positive customer response. As a result of this, American Eagle has decided to push ahead with their aggressive expansion policy. In the coming year, the company plans to enter Alaska with two new stores. This will expand their operations into all 50 states.

     Noting the strong performance of the Canadian stores, American Eagle decided to open five new branches in Canada this past year, including four in the province of Quebec. This move increased the Canadian store base to 70 stores, rapidly approaching the long-term potential of approximately 80 locations[6]. There is some uncertainty as to whether or not Quebecois will buy into the “preppie American” style. Quebecois are typically known for dressing well, and wearing fancier and more expensive pieces than American Eagle offers. It is too early to say whether or not American Eagle will succeed in this market; we’ll have to wait and see.

     American Eagle continues to sell merchandise through its website, www.ae.com. During 2004, the company began shipping internationally to 24 countries, allowing it to effectively penetrate regions where it does not currently have store locations.

     Also this past year, the company announced plans to develop a new brand that will target a different demographic than American Eagle[7]. The brand name and other details are currently being decided upon by creative and operational teams. The company expects to open test stores for the new brand early in 2006.

Conclusion

     American Eagle has always been known as a company that can hold its own within in the marketplace. Although in direct competition with Abercrombie & Fitch, various divisions of The Gap and countless department stores, American Eagle has been able to consistently increase its sales from year to year. Employing an aggressive growth strategy, focusing on strong customer relations and keeping with its core values and style, American Eagle is a company that is here to stay.