Aerie Bucking The Store Closure Trend

Declining mall traffic and low prices offered by fast fashion retailers have been crushing apparel retailers. Recent years have been hard for teen retailers, with some even filing for Chapter 11 bankruptcy, such as Quicksilver in September 2015, Pacific Sunwear in April 2016, and Aeropostale in May 2016. Earlier in the year, news also surfaced regarding the shuttering of The Limited. Others have hobbled along, including Abercrombie & Fitch (NYSE:ANF), and Gap Inc (NYSE:GPS). These once sought-after brands, among high school kids in the US, have been blighted as a result of their over-reliance on the footfall at shopping malls, and the rise of fast-fashion brands, such as H&M and Zara. In the face of the realization that millennials don’t want to go to malls, many mall-based retailers have announced several rounds of store closures in recent times. Mall stores aren’t alone in following the closure trend, department stores themselves have been shuttering in droves. Macy’s announced it was planning to close 100 stores or 15% of its fleet; the number for J.C. Penney is 138, while that for Sears has been revised from 42 to a minimum of 150. Retail analyst Jan Rogers Kniffen told CNBC in May of last year that he predicts 400 of the 1,100 enclosed malls in the US will close in the coming years, and only 250 of the remaining will thrive. The US has 23.5 square feet of retail space per capita, in comparison to 16.4 square feet in Canada, and 11.1 square feet in Australia — the next two countries with the highest retail space per capita, according to a Morningstar report from October. Given this statistic, Kniffen further noted that the footprint is poised to decline “pretty fast.”

In the face of this trend, Aerie is one of the few retailers still in the expansion phase. According to a list compiled by IHL Consulting Group, 22 such companies are defying the death knell for the retail industry by increasing their store count. This list is dominated by discount stores, such as TJ Maxx, Costco, Aldi, Dollar Tree, and Ross Stores. This move towards discount stores by Americans makes the growth of a full-price store such as Aerie even more surprising.

The Rise Of Online Shopping

With growing internet penetration, a consistent customer shift from store to web shopping, and the proliferation of smartphones and tablets, the growth in online shopping has been massive. Online retail sales in the US have grown at a rapid pace over the past several years, thanks to growing internet usage in the country; internet penetration in the U.S. has gone up from 44% in 2000 to 88.5% currently. Furthermore, facilitated by the convenience of constant access, 92% of teens today go online daily, including 24% who are online constantly, according to a study conducted by Pew Research Center. Over half of the teens (aged 13 to 17 years) go online several times a day, aided by the presence of smartphones, which are available to nearly three-quarters of teens. The smartphone usage will only increase in the future, and this will likely result in a steady rise in online sales. This is evidenced by research which predicts online apparel sales in the US to increase its revenue from $63.3 billion in 2016 to almost $100 billion by 2021. The US apparel industry is gradually shifting towards omni-channel retailing, which refers to providing a seamless shopping experience across stores and the online channel. This is becoming an inevitable move for US apparel retailers, including American Eagle Outfitters (NYSE:AEO), which is working hard to develop its omni-channel platform and has shown significant progress so far. The company’s digital sales accounted for 27% of its total sales in the fourth quarter of 2016. This lends credence to its decision to develop its omni-channel presence by investing in digital marketing, and improve its website and mobile app.

Strong Growth For Aerie

American Eagle’s Aerie brand, which is the company’s lingerie and activewear segment, has been performing strongly for the past several quarters. The last quarter of 2016 was another breakout one, with comparable sales increasing 17%, amid a tough retail environment. This represented the 12th consecutive quarter of double-digit growth, driven by strength in the digital business. The ability to incorporate the latest trends and best fabrics have helped the company to build a strong foundation, ensuring that the company continues to attract new Aerie customers. Going forward, the company’s sports and yoga line – Chill. Play. Move. — launched in 2016, as well as a new swimwear line, to be released in the next several weeks, will continue to drive growth for the brand. Aerie currently operates approximately 190 stores in 13 states, including the recent expansions into new markets of Denver and Hawaii. The company sees an opportunity to increase this number to 300 plus stores over time. While weak mall traffic and a soft macro environment have negatively impacted other brands, Aerie has been gaining market share. According to Jen Foyle, Global Brand President of Aerie, the company wants to be “a real player in the intimates sector.”

See our complete analysis for American Eagle Outfitters

Have more questions about American Eagle Outfitters? See the links below:

• American Eagle’s Stock Falls Over Poor Quarter And Weak Guidance
• Investors Overlooking American Eagle’s Growth Potential
• What Is American Eagle Doing To Bolster Its Direct Business?

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