American Eagle Outfitters To Debut In The U.K. This Fall

Pittsburgh based specialty apparel retailer, American Eagle Outfitters (NYSE:AEO) recently announced its entry into the United Kingdom. The company stated that it will open its first three mainline retail stores in the region this fall, with one of them including an Aerie shop-in-shop location. ^[1] Most of American Eagle’s stores outside North America are operated by its franchise partners and the U.K. is only the second market after Mexico where the company will have a retail presence.

With its domestic business not yielding fruitful results, American Eagle appears to have turned its attention to international markets. Choosing the U.K. for retail expansion seems a valid move considering that it is one of the few European countries that hold decent growth potential for foreign retailers. Even though unfavorable economic headwinds still impact the U.K.’s apparel market, its large size and positive growth forecast look favorable for American Eagle. The retailer’s initial stores in the region will be located in key locations with heavy footfall, that can help it leave a strong first impression on buyers.

Our price estimate for American Eagle Outfitters stands at $14.74, implying a premium of close to 30% to the market price.

See our complete analysis for American Eagle Outfitters

The Market Holds Good Potential For Continued Expansion

Due to low disposable income, high promotions and changing shopping trends, the apparel market in the U.K. witnessed only marginal growth in 2012. ^[2] Shopper’s not only lowered their spending on apparel products, but also started buying clothing and footwear that can be used for multiple occasions. However, the market remains large at around $59 billion and has seen positive growth for the past four years despite the economic downturn. Growth is likely to accelerate going forward fueled by growing online retail sales. The U.K. apparel market is expected to grow at a compound annual growth rate (CAGR) of 3% through to 2017. ^[3]

Lately, a number of brands in the U.K. have focused on multi-channel retailing by primarily targeting e-commerce as a channel. They have been updating their websites to handle more traffic and make shopping experience more convenient. This move makes sense given that about 72% of adults used Internet for shopping in 2013, compared to only 53% in 2008. Moreover, Internet access through mobile devices has doubled over the last three years. ^[4] This should encourage American Eagle to promote its e-commerce business along with its retail store expansion.

American Eagle Has Gone After Lucrative Locations

American Eagle will open a store each in the Bluewater premier mall in Kent, and at Westfield group’s London and Stratford City shopping centers. Bluewater caters to one of the largest and most affluent retail geographies in the U.K. serving more than 28 million shoppers every year. Westfield Group is the owner of Europe’s largest urban shopping centers and its London shopping center alone accounts for over 66 million visitors per year. ^[1] Westfield opened its Stratford City shopping center in 2011 and registered record footfall during its first year of operation. With close to 250 shops, the shopping center served over 47 million visitors in 2012. ^[5]

American Eagle will begin its operations this fall in the three locations having a cumulative footfall of over 140 million per year. The retailer’s store traffic is likely to remain high if it can effectively understand buyers’ tastes and deliver on their expectations. Doing so will help it build brand loyalty for itself from the outset. However, it will face stiff competition from other players, including its counterpart Abercrombie & Fitch (NYSE:ANF), which has been in the market for over six years and operates stores in all the three locations.

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1. American Eagle Outfitters Announces Entry Into United Kingdom, American Eagle Outfitters, Jun 30 2014 [↩] [↩]
2. Apparel in the United Kingdom, Euromonitor International, Aug 2013 [↩]
3. United Kingdom – Apparel, Accessories & Luxury Goods, Datamonitor Research Store, Mar 12 2013 [↩]
4. Internet Access – Households & Individuals, 2013, Office For National Statistics, Aug 8 2013 [↩]
5. Westfield Stratford City shopping centre draws record 47m visitors in its first year, Standard, Sept 13 2012 [↩]