Source: AEO

American Eagle’s Story on Its Firm Stand in the Gen Z Market Share

American Eagle Outfitters the teen-focused retailer is in a strong financial position, ending 2019 with no debt and $417 million in cash with short-term investments. What are its secrets to thrive amidst this chaotic retail environment?
By Ally Nguyen | 10 min read
on January 19, 2021
Source: AEO

As a lifestyle retailer, American Eagle Outfitters’ designs, markets and sells its own brand of relaxed, ready-to-go clothing for 16 to 34-year-olds, at the same time provides high-quality merchandise at affordable prices. At American Eagle, you can find basic items in various price ranges and styles like khakis, cargos, especially jeans, or functional items like swimwear, or athleisure.

Founded in 1977, by the two brothers Jerry and Mark Silverman. However, long until 1998 with the west coast expansion, new sale strategy and web site development, AEO’s business has finally took off. Continue, from 2000 to 2010 the company launched several new ventures. They started with Aerie – a collection of dorm wear, intimates, and personal care products for the 15 to 25 years old American Eagle girls. Then following is 77 Kids – an online-only which offers on-trend, high-quality clothing, and accessories for kids ages two to ten. As a leading apparel and accessories retailer in United States, the brand has 1015 stores in United States located in all 50 states,

American Eagle Outfitters on Operation Fields and Its Share in the Market

In no doubt, AEO holds an intensely sensitive position in the specialty-retailing marketplace. As a brand name apparel retailer, its customers unfortunately very price sensitive. Especially, when the economy is not doing good, AEO's customers can make the switch to any other rivals that sell similar products at a much more favorable rate, which would make it difficult for a huge company like AEO to compete.

As of the past, the company tried to target ages from 15 to 25 middle class men and women with a “clean-cut" American clothing line. However, for now, AEO is shifting more of their focus on younger demographic and are working to broaden their “Aerie" for teens and “77 Kids" for children across the United States.

The retail industry that AEO is a part of contains a large number of substitutes; however, there are a few giant players in the particular market niche that dominate much of the sales, including Abercrombie and Fitch, J Crew, Aeropostale, Gap, Ralph Lauren, and Tommy Hilfiger, who are trying to target the same type of customers.

Today as it has a strong market in denim, fleece, and graphic tees, most the brand’s stores are located in either malls or at freestanding locations in some kind of strip mall along with extremely high foot traffic.

Besides, merchandise supplier is another aspect to discuss. As you known, customer bargaining power is not extremely high, but customers do have many options available. Although the customer cannot physically bargain on the price with an AEO salesclerks, they can easily walk into a competitor’s store and find a close substitute for cheaper.

AEO owns their own distribution centers but do not own their own foreign suppliers. However, their merchandise suppliers receive a vendor compliance standard manual that describes quality standards and shipping instructions which implies that the suppliers do not have a great deal of supplier bargaining power with such strict procedures.

4 Key Success Factors AEO Is Sticking to for Ever-Lasting Growth

American Eagle banner in a shopping center
Source: AEO

While facing the ongoing race that exists in the retailing industry, it is a must to have your own rules and cohere to some of the key success factors, such as product adversity, product innovation, customer services, etc. In other to not only survive but to thrive in this particularly tough environment, American Eagle has picked up and really is acing it!

First, and possibly most important, if a company wants to be able to succeed, they have to have outstanding customer service. It is crucial to achieve complete customer satisfaction when customers are offered many different options of brands to choose from. If a shopper is satisfied with the clothing but without the companion of good services, it very likely that they may never shop at the particular store again.

To put it best, “Customer loyalty is a major contributor to sustainable profit growth. To achieve success, a retailer must make superior service second nature of the organization. A seamless integration of all components in the service-profit chain – employee satisfaction, value creation, customer satisfaction, customer loyalty, and profit and growth – links all the critical dynamics of top customer service.”

At AEO, when a customer walks into the store all of the employees should be hitting on all cylinders and should be well trained to be able to give the customer exactly what they want and how they want it. Does not just apply to in-store sales, customer services also apply to e-purchases, catalog purchases, etc.

Another key success factor, you can see at AOE’s service is that it is varied in options. The brand is famous as it satisfied all kind of style needed, or in another way – it gives customer great options when it comes to purchasing particular clothing.

Not only different colors but distinctive styles can help set the company apart from the competitors. When a business extends or creates a new product line you are putting out more items for customers to choose from which obviously keeps customers happy and in turn drives sales. Customers should have the option to buy certain styles of a product in several distinct colors or decide that a new, trendy style is the right way to go. A customer always wants a variety of choices to choose from and this is the easiest way to achieve just that.

Convenience is a very important key success factor because it ties all of the previous ones together. Convenience eases the hardship of going through the purchasing routine. When customers can purchase things in a convenient manner, they are more than likely to become repeat purchasers. From multiple cashiers in a particular store to a clean, sleek design on a webpage can make the customer experience more valuable for them. A customer should not have difficulty finding an item in the store (customer service) nor should they have issues with finding a particular color/size (product diversity) that best suits them. It has never been so important then today, to have a website that keeps things simple and easy for the buyer from beginning to end purchase.

American Eagle website
Courtesy: AEO

And the last essential part, AEO is doing best to generate sales is on how they use their house. For retailers, space inside their store is a hot commodity and how they use it to generate sales is very important. This is why sales per square foot of retail space is an important metric. Retailers can improve this metric over time by closing underperforming locations and opening new ones in more profitable areas. For example, AEO did just that in 2009 when they opened 29 new stores and offset this with 24 store closings. During that year they had sales per square foot of $519. This is a far cry from their high in 2006 of $642, but still well above the peer average of $384. As with the margin and net income stories it is Aeropostale that is at the top of the metric with $624 in sales per square foot of retail space. This metric seems to be completely dominated by the low-priced retailers.

Product Innovation

Asides from that product innovation is also another aspect to address mentioning the success of American Eagle!

American Eagle store
Source: AEO

Ordinary denim is necessary to the closet as sugar to the cupboard. Each is a staple that could work on its own, but both items become more interesting once they are mixed with something else. With this in mind, in 2017, AEO rolled out the Next Level 360 style jeans. 

One of the newest members of AEO’s denim repertoire, these jeans are made from a combination of denim and a stretchable fabric that conforms to the curves of their owner’s body. This feature dovetails nicely with AEO’s commitment to body positivity, as these jeans are not only designed in a variety of washes, fits, and wears to suit a person’s unique style, but also designed to comfortably be worn by all shapes and sizes.  

Innovation can often lead retailers to needlessly spend resources pursuing an opportunity that does not fit within the brand’s ethos. Instead of practicing innovation for its own sake, AEO devised a way to create a product built around its brand persona and what it stands behind —individuality and inclusivity —and delivered a product that physically encapsulates both. 

So, just like you cannot have a cake without sugar, you cannot be a multifaceted apparel retailer without plain denim. In each case, a simple, vital ingredient acts as a building-block for the creation of a far more interesting end-product. Thus, AEO became a top denim brand by innovating on the basics to produce exciting new products that capture maximum market share.

Some of Aeo’s Unique Strategies to Explain the Success of Aerie

While apparel retailers still lagging behind waiting for reopening of its brick and mortals, one brand is coming back stronger than expected!

Attracting Customers through SMS Game 

When the market is crowded with more choices and prices than ever before, and your competitors are flashing sales in all level, what could be done to draw attention back to your brand? American Eagle Outfitters have the answer, and it is quite of an interesting one: Leverage the power of SMS and give customers the chance to bring home $10,000.

To take part in, customers or anyone could fill form or text to AEO. After being enrolled, they will receive daily emails or text messages where provided a personalized URL for customers to “unwrap the daily gift.” Whether they won a prize or offered a discount on merchandise ware entirely up to chance.

The brand's director of marketing, Erica Dudash claimed that SMS was an essential part to the campaign’s success. Nearly 60% of the company's mobile subscribers were ““engaging with the prize pages just minutes after receiving their text messages” – Dudash addressed in case study by Experian Marketing Services.

In brief, in less than half a month, the campaign helped American Eagle Outfitters reach more than 8 million emails and SMS subscribers. Moreover, the campaign prioritized cross-channel promotion, as contacted via SMS could through Facebook, Twitter shares what they have won.

Seeing such power, AEO keep on planning to leverage its growing list of SMS subscribers to drive online and in-store sales in the future. With this the brand just proved how SMS and multi-channel marketing can drive deeper connection from customers. This campaign not only had a record response rate, but also gave the company a repository of data it can leverage to optimize future marketing campaigns.

Capturing the Youth by Thinking Out-of-the-Box

Similar to other teen brands, American Eagle was careful to cast actual youths in its advertising, too. But then, it recognized to be outstanding, the brand must take risks, by taking a gamble: It put the juveniles in charge of the entire marketing campaign—the concept, the clothes, the shoot, the script, everything. For instance, the most popular recently #AerieREAL.

Aeriereal Life website homepage
Courtesy: American Eagle

“We turned the whole thing over to the kids,” said global brand president Chad Kessler. Young shoppers, he added, “want to support brands that support them, and they feel like they have a voice in creating what the brand has been all about.”

At a time when brands like Gap, J Crew and Guess shutter stores and attempt to redefine themselves, American Eagle has become a $3 billion brand. Its parent company, American Eagle Outfitters (which includes the popular intimate-apparel brand Aerie) has logged 16 straight quarters of positive comp sales as of Q4 2018. By itself, AE.com cranks north of $1 billion in annual sales.

And, obviously once American Eagle successfully conquered this teen market, it basically never let go of. Its formula of moderate prices, quality clothes, and friendly stores keeps Gen Z in brick and mortars. Moreover, by putting its corporate voice behind important issues such as diversity, mental health and LGBT awareness, the brand demonstrates that it is philosophically in Gen Z’s corner, too.

“We try to reflect the customer and celebrate them for who they are,” Kessler said. “We want everyone to feel good in their own skin and express themselves with what we offer. That’s allowed us to stay relevant and current over the decades.”

How Much AEO Understand Gen Zers?

So, what does Gen Z seek at fashion brands? That is a controversial and important as well for not only American Eagle but also the rest of retail industry. As whose spending power to be expected to increase by 70% by 2025, making it a key member to the global economic recovery.

Jennifer Foyle, AEO’s chief creative officer and Aerie’s global brand president, says the company’s research points to one clear reality: Today’s young people want comfort, and she means that in every sense of the word. “They want their clothes to be soft and comfortable, but they also want marketing campaigns to make them feel comfortable in their own skin,” she says. “This is now at the forefront of everything we do.”

AEO director of marketing in a talk
Source: Zimbio

Consuming surveys have shown that while there is a 12 second attention span at Millennials, for Gen Z there are only 8 second which means that whatever social content a brand is composing, its first 8 second better be very amazing to able to make it through!

With a huge amount of new content streaming into nearly every corner of their lives, these digital natives have adapted in a way that allows them to filter through information at a faster rate than generations past. But they are also increasingly seeking out brands that align with their views and lifestyles—almost as if they are an extension of their own identities.

“In our research, 93 percent of Gen Zers say they believe in standing up for and helping others. And they also have this sense of independence and confidence. 88 percent of them believe in their individual ability to be, do, and achieve anything.” – Ken Wincko, vice president of marketing at Barnes & Noble College, revealed his perspective on Generation Z might be telling as to why brands like Aerie are doing well among young consumers while brands like Victoria’s Secret are struggling to survive. As Aerie promotes body positivity, self-love, and features models of various body shapes and ethnic backgrounds in its stores and marketing campaigns.

AEO diversified models in a photoshoot
Source: Fast Company

Now accounting for nearly 40 percent of all consumers, Generation Z is on pace to be the largest generational group in the United States along with millennials. If retailers are smart, they will use these findings to create authentic content that will capture this demographic—and, in the end, will get a loyal fan-base for decades to come.

The Bottom Lines

American Eagle did not just lead the denim game overnight. For decades, the brand’s continued ascendance has kept on the tradition to thoroughly understand its customer, which has allowed it to capitalize on emerging trends and phase out the out-dates and make impacts.

Sure, after the pandemic, customers will resume their daily routine and will then in need to expand their wardrobe. People will want to look good again, and it is going to be an exciting time coming out of Covid for retailers as well!

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