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VIDEOAeropostale's Come-from-Behind Victory
Lower prices leave Abercrombie, AE in the dust.
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Brands that once occupied Olympus in the mall hierarchy -- Abercrombie & Fitch (ANF) and American Eagle (AEO), for example -- are now leading the way into an abyss of uncertainty. The former is at a 52-week low; the latter is close.
In August, Abercrombie -- once the undisputed Zeus on that mountaintop -- reported an 11% same-store sales drop, the worst of top retailers. American Eagle reported a 5% drop. Pacific Sunwear (PSUN) ended down 6%, Limited Brands (LTD) 7%.
Abercrombie rose to the top despite its notorious squeamishness about sales, discounts and promotions. Indeed, that seems to have bolstered its appeal for so long. The company has always been an unapologetically elitist clothier for frat boys, cheerleaders, and pre-pubescent boys and girls; not to mention perhaps the greatest marketer of mainstream teen fashion we have seen. (Of course, their ads -- often featuring half-naked teenage boys tugging at each other’s underpants -- have drawn more than a little fire from cultural critics on both the right and the left.)
Regardless, the very philosophy that enhanced their image has now dented it. Consumers want cheaper goods. Think Wal-Mart.
Teenagers are tapped out because of fewer summer jobs and higher gas prices, and so they’re spending less on back-to-school clothes. Recent surveys have shown that kids are either waiting for bargains or turning to cheaper brands. Aeropostale (ARO) -- the down-market third of teen retail’s 3 A’s-- has entered through that door.
Aeropostale has slashed prices, offering significant discounts daily; customers have responded to the company’s value play. Its products are generally 25% cheaper than Abercrombie and American Eagle. Aeropostale directly took market share from its competitors: In August, same-store sales rose an astonishing 13% against a net loss in the group.
By that measure, Aerospostale has been outpacing the other 2 A’s each month since September 2007, according to Retail Metrics. And the stock price has increased more than 80% this year. Teens have a new logo on their polo shirts of choice, and in the end, isn’t that what you pay for?
However, the teenage mind is fickle. While Aeropostale may continue its current winning streak, the list of survivors in this retail environment is very short indeed. To stay at its newfound Olympian heights, Aeropostale will have to watch out for lightning bolts from below.
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