Today's crowded teen market targets subsectors ranging from skaters to punks to preppies, but the most crowded field is the suburban prep/athlete. Three popular players — American Eagle Outfitters, Abercrombie & Fitch and Aeropostale — vie to capture fickle customers, who change brands and trends at random. “Competing on price alone doesn't work for this group as they are brand sensitive,” says Merrill Lynch analyst Mark Friedman. “However, they are not stupid and understand value. Thus, pricing that is not consistent with this equation is not appealing either.” So how are these retailers faring in the fight for popularity? Read on.
Last year, American Eagle made a wrong turn as it shifted from an all-American image to an edgier look. Now the retailer is retooling its fashions and expanding its consumer base to target 15- to 25-year-olds rather than just 20-year-olds. About 30 percent of the store base needs to be remodeled, primarily in the Midwest and Northeast, says CIBC World Markets analyst Dorothy Lakner. For 2004, the company plans to open 50 stores, and remodel 50 for a total square footage growth of 8 percent to 9 percent.
The Prognosis: “The fact that competitor Abercrombie is raising prices and looking to return to its more aspirational roots should help relieve some, though not all, the competitive pressure AE has been feeling,” Lakner says.
American Eagle Outfitters
Total Stores: 777 (+10%)
Avg. Size: 5,242 sq. ft.
Comp Sales Growth 2003: -6.6%
Total Annual Sales: $1.721 billion
Rather than resorting to discounts, Abercrombie's management has resolved to take price points even higher to stop sagging comp store sales. A new VP of men's design from Banana Republic hopes to rejuvenate the lackluster men's line, and the stores will introduce a level of premium product at premium prices (i.e. $98 for a pair of jeans) during the back-to-school season in an attempt to regain its premium brand image. But the retailer needs to rethink its staffing policies to avoid its notorious long lines for registers and dressing rooms if it wants to amp its image, Lakner says. In 2004, 15 Abercrombie & Fitch stores will open, an increase of 4 percent.
The Prognosis: “The introduction of selected premium pricing and certain fit modifications can fuel improved comp trends,” says SG Cowen analyst Lauren Cooks Levitan. “The real ‘deal-seeker’ customer is already out of the comp customer base, so positive trends can occur without meaningful recapture of lapsed customers.”
Abercrombie & Fitch
Total Stores 2004: 372 (+4%)
Avg. Size: 8,000 sq. ft.
Comp Sales Growth 2003: -1%
Sales Per Sq. Ft. 2003: $418
(for entire company)
Total Annual Sales: $1.08 billion
(for entire company)
Sometimes sniffed at by older teens, Aeropostale has become a mainstay among younger ones with smaller allowances. “Most teenagers come to the mall with $25 to $35 in spending money,” says JP Morgan analyst Brian Tunick. “Management's strategy is to price items so that a typical teenage consumer could purchase at least two items.” Total sales were up 33.4 percent for 2003. Real estate plans include 95 new stores in 2004 with 40 percent of the openings in the high-density teen markets of Texas, Florida and California. The retailer is interested in lifestyle center locations but will open almost all new stores in malls. Aeropostale will open at least 80 stores per year in both new and existing markets moving forward, and JP Morgan estimates that square footage will grow approximately 21 percent in 2004 and 17 percent in 2005.
The Prognosis: “Aeropostale is well positioned to compete effectively with solid brand momentum, growth prospects and a consistent message offering teens great style, value and quality,” says Merrill Lynch's Mark Friedman.
Aeropostale
Total Stores: 459 stores
Avg. Size: 3,500 sq. ft.
Comp Sales Growth: 6%
Sales Per Sq. Ft. 2003: $491
Total Annual Sales: $735 million