Many of ARO’s stores are currently advertising 70% discounts off the entire store, which is an increase of discounts of 50% in November. Due to a lack of trendy items in its stores, comparable store sales have slowed for five consecutive quarters. This has led to a loss of market share to close competitors, ANF and AEO. Its comparable store sales performed well in 2009, ranging from 9% to 12% increases due to consumers’ demands for lower prices; however, as discretionary purchases have eased with the improving economy and greater retail spending, consumers now demand trendy items with less emphasis on low prices. As a result, ARO is currently losing out to strong traffic and conversion trends at Hollister and Abercrombie & Fitch, as well as American Eagle’s better designs in shirts and denim.
ARO, like many other small-medium retailers, borrows its short-term revolving credit line from the ailing bank CIT, which filed for Chapter 11 bankruptcy on November 1, 2009. CIT's bankruptcy process will likely place a freeze on all lendable assets and cut off funds for its borrowers like ARO. The financing hit for the retailer also comes right before the important holiday season, during which time short-term financing is indispensable for stocking inventory and other cash needs.
As the credit markets in the U.S. are weak and outlook for the holiday shopping season is poor, Aeropostale will have a tough time launching its new brand in 2009.
Aeropostale went international with the launch of 12 stores in Canada in 2007, but the company is far behind American Eagle which operates over 75 stores in Canada. This puts Aeropostale at a disadvantage in securing a place for its brand in the minds and wallets of Canadian consumers.
