Even in the best of economic times, Aeropostale’s performance over the last 18 months would be considered impressive. When you take into account the fact they were posting these results in the worst retail environment in decades, it becomes that much more unbelievable: they have posted positive same-store sales results in 21 of the last 22 months, and for 7 consecutive quarters:
The company has been the clear standout among teen retailers, as rivals Abercrombie & Fitch and American Eagle Outfitters have struggled to retain brand loyalty – both have posted negative same-store sales results for 13 consecutive months and 6 consecutive quarters. As a matter of fact, besides stellar performer The Buckle, you would be hard-pressed to find a better performing company than Aeropostale, not just in the teen retail or apparel segments, but in the whole retail industry. And this is not just a recent phenomenon:
So what’s their secret? Well, actually it’s no secret at all – top executives have been very open about their formula, both in interviews and on conference calls. The core idea is to give shoppers what they want at prices they can afford – Aeropostale doesn’t consider themselves a trend-setter, but rather a fashion follower. Instead of worrying about what’s on the shelves of their competitors, they look at what’s on the backs of their target consumers. As CEO Julian Geiger put it:
“We genuinely listen to our customers and give them what they want more so than our competitors. We do not superimpose on them what we think they should wear. They tell us what they want to wear.”
Price and promotion have been extremely important as well. While Geiger credits a the recent success to a focus on fashion rather than an obsession on price, luring frugal shoppers certainly hasn’t hurt. The company’s price point is about 50% less than Abercrombie and 30% less than American Eagle. They perfected their promotional merchandising strategy long before the recession hit, with pre-planned sales signs and two-for-one deals throughout the stores. However, besides 4th quarter mark-downs late last year, they have been able to expand gross margins in 10 out of the last 11 quarters:
The company is not resting on its laurels, either. At a time when most retailers are shutting brands and scaling back growth plans, such as Abercrombie’s RUEHL, Aeropostale is launching a new brand – PS – aimed at the tween market. While the Aeropostale brand is fairly narrowly targeted to the 14-17 yr old demographic, PS will cater to 7-12 yr old kids. With plans to open 9-10 stores this year as well as an e-commerce site, PS hopes to capture a piece of the estimated $14 Billion tween market, with the goal of eventually opening up to 500 stores.
While store sales growth has been exceptional, e-commerce growth is the channel that could really drive growth in the future. While the company didn’t launch online operations until late 2005, they posted internet sales of $79.1 Million in fiscal 2008, which was 85% higher than the prior year. This will be an important outlet not only for growth but for reaching customers more directly through promotional and direct marketing campaigns. One example is the “Teens for Jeans” charity project launched earlier this year, where over 200,000 teen customers donated “gently used” jeans to their homeless peers. Campaigns such as this not only boost the company’s profile, but provide better viral publicity than advertising ever could.
Past performance doesn’t guarantee future success, and the company realizes there is a long line of faded teen retail stars and customers’ tastes can change overnight. They are among the most diligent users of market research, and have leveraged the internet to communicate directly with their best customers to solicit feedback on new styles. With the wind at their back, look for the company to continue to succeed no matter what the environment.
“You really have to look back in time. Nothing in retail happens quickly. We have been willing to look at ourselves and realize what we like about ourselves and what we don’t and make appropriate changes. It’s about a balance of assortment and store design. What you see now is the cumulative affects of adding fashion merchandise to our assortment, while maintaining a promotional stance.” – Aeropostale CEO Julian Geiger, interview with TheStreet.com in May 2009
As retail M&A activity has picked up in recent months, there has been no shortage of speculation around who the next target will be. Many suggest teen retailers Abercombie & Fitch, American Eagle Outfitters and Aeropostale are attractive buyout candidates.
