How The U.K. Fits In American Eagle Outfitters’ European Expansion Plans

Pittsburgh-based specialty apparel retailer American Eagle Outfitters (NYSE:AEO) opened its first stores in the U.K. last fall, and introduced a region specific e-commerce website last month. ^{[1] [2]} Expansion into the U.K. builds on the company’s international expansion plans in two ways. Firstly, the market holds enough potential (huge size and positive growth forecast) for American Eagle to grow strongly and generate desired returns over the next several years. Secondly, it is the entry ticket for the retailer into Western Europe, which is relatively barren at the moment. American Eagle believes that its success in the U.K. can set the precedent for its seamless expansion in other countries in Western Europe. And, given that the retailer has gone after the most lucrative locations to initiate its expansion in the country, it can somewhat ensure a strong first impression on buyers. Moreover, its rejuvenated product mix will help American Eagle build a strong brand image in the country, which bodes very well for its expansion in the western part of the continent.

Our price estimate for American Eagle Outfitters stands at $16.14, which is slightly ahead of the current market price.

See our complete analysis for American Eagle Outfitters

Decent Potential For Long Term Growth

Due to low disposable income, high promotions and changing shopping trends, the apparel market in the U.K. witnessed only marginal growth in 2012. Shoppers 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 has grown steadily since, driven by sustained high demand for latest designs and fashion, though buyers still remain conscious of their spending. ^[3] Nevertheless, the apparel and footwear industry stands large at over $60 billion. ^[4] Going forward, improving disposable income and higher consumer spending are likely to drive volume growth. Also, improved material costs and low inflation are expected to play an important role in boosting value growth. This bodes very well for American Eagle’s retail expansion in the U.K.

Ina further benefit, Internet retailing is thriving in the country, which has one of the best developed e-commerce landscapes in the world. In 2014, pure-play online retailers witnessed double digit growth in their sales. 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 the shopping experience more convenient. This move makes sense given that the U.K. is the biggest online retail market in Europe (~$70 billion), holding a share of about 15% in the European e-commerce market. ^[5] This should encourage American Eagle to promote its e-commerce business, which was launched last month.

Initial Success Can Pave The Way For Western Europe Expansion

American Eagle’s initial plans included a store each in the Bluewater premier mall in Kent, and at Westfield Group’s London and Stratford City shopping centers. These three locations account for the heaviest footfall in the U.K., and serve the most fashion conscious crowd of the country. Bluewater caters to one of the largest and most affluent retail geographies in the U.K., serving more than 28 million shoppers every year. The Westfield Group is the owner of Europe’s largest urban shopping centers and its London shopping center alone attracts 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. Though foot traffic would have declined in subsequent years with consistent online shift, it still remains huge enough to attract retailers. ^[6]

Strong customer response here can set the precedent for customers in the other parts of the country and other Western European markets. American Eagle believes that its expansion in the U.K. is critical for its launch in Western Europe. The company’s chief commercial officer said in an interview with CNBC that they regard British customers as the ones who lead a trend and others follow. ^[2] Building a strong foundation here can make it much easier for the American company to expand its footprint in other crucial Western European countries such as France and Germany, which have a huge apparel market.

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1. American Eagle Outfitters Announces Entry Into United Kingdom, American Eagle Outfitters, Jun 30 2014 [↩] [↩]
2. American Eagle Outfitters wants its slice in Western Europe, CNBC, Sep 16 2015 [↩] [↩]
3. Apparel and Footwear in the United Kingdom, Euromonitor, Apr 2015 [↩]
4. United Kingdom – Apparel, Accessories & Luxury Goods, Datamonitor Research Store, Mar 12 2013 [↩]
5. Online Retailing: Britain, Europe, US and Canada 2015, Centre For Retail Research [↩]
6. Westfield Stratford City shopping centre draws record 47m visitors in its first year, Standard, Sept 13 2012 [↩]