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WIKI ANALYSIS
Aeropostale (NYSE: ARO) sells its own brand of apparel and accessories to the highly targeted 14 to 17 year old demographic. ARO sells its relatively mid- and lower-priced merchandise via its namesake Aeropostale stores, which are mostly mall-based. Aeropostale is one of the smaller firms in the youth apparel retail sub-market.[1]
ARO has moved to expanding in Canada, where it has generated positive sales. ARO has also ridden the internet wave very well compared to its competitors. However, with the cotton shortage and rising commodity prices, ARO is expected to raise clothing prices which can lead to decreased net sales and lower net income as consumers are turned away by the higher clothing prices.
Company Overview
Aeropostale runs a value-based business model which sells its own brand of lower-priced apparel and accessories to teenagers. While companies such as Abercrombie & Fitch Company (ANF) try to preserve a "luxury" image in order to charge a premium for their goods, Aeropostale produces similar apparel at a lower price, attracting consumers who either cannot afford higher-priced brands or who want a similar style but also want to save money. Since Aeropostale's prices are generally lower than those of competing chains, the amount of money it makes on each garment it sells is lower than a premium-priced brand would make.
Business Segments
Aeropostale's sales come from its Aeropostale retail stores, P.S. from Aeropostale retail stores, our Aéropostale e-commerce site, and licensing revenue.[2]
Merchandising Categories:
- Young Women's (70% of sales)
- Young Men's (30% of sales)[3]
Business Growth
FY 2010 (ended January 29, 2011)
- Net income increased 0.82% to $231 million.
- Net sales increased 8% t $2.4 billion.[4]
Trends and Forces
Expansion in Canada returns positive sales
Like many similar apparel companies, Aeropostale has also moved towards expanding in Canada, where it currently operates 44 stores.[6][1] Several early entrants to this market such as American Eagle Outfitters (AEO) and Abercrombie & Fitch Company (ANF) have generated much higher per store revenue compared to their respective American outlets, suggesting a potentially unsaturated opportunity in the country. With more growth globally, ARO can capture more sales than from America's saturated retail market.
Aeropostale Expanding E-commerce Sales
Retail e-commerce has become more and more important in the retail industry. Increasing over 4% each quarter, the retail e-commerce industry is $35 billion industry that is still projected to increase.[7] With more emphasis in e-commerce in the years to come, Aeropostale stands to make more money riding this wave.
Increases in Commodity Prices Will Raise Clothing Retailer Prices
Cotton consumption exceeded cotton production for the fifth year in the row, making cotton prices increase by 80.5% from last year.[8] [9] Natural disasters also severely damaged crops in many large cotton producer countries, such as China, India, and Pakistan. This led to decreases in cotton exports from these countries and increases in cotton imports as these countries sought to supplement their supply of cotton. [10][11] With limited cotton supplies and rising prices, retailers will either have to absorb these higher material costs, restructure the composition of their clothing to have less cotton, or pass these higher costs to its consumers. Higher clothing prices or lower quality clothing could discourage consumer spending, resulting in decreased net sales. However, adult or teen clothing retailers may not be too adversely affected as their clothing (which is usually 30-40% cotton based) has more flexibility in their composition and thus, costs. In addition, raising commodity prices in other areas will also raise costs for retailers. While premium price and established brands may be able to pass their higher costs to their consumers, value based companies may not fare as well and may suffer from lower profit margins.[8]
Competition
Aeropostale fights for apparel and accessory spending with many other retailers in the highly competitive 14-25 year old fashion market. Aeropostale is one of the smaller members of its sector in terms of sales and it ranks fairly low in gross margin profitability due to its positioning as a mid- to lower-priced merchandiser.[12]
Most of Aeropostale's major competitors operate multiple in-house sub-branded concept stores (such as the Hollister and abercrombie concepts by Abercrombie & Fitch and American Eagle Outfitter's aerie concept), while virtually all of Aeropostale's sales come from its one chain of Aeropostale stores. Aeropostale is attempting to catch up with its larger competitors by expanding its operations throughout the U.S. and Canada and by growing the P.S. from Aeropostale retail concept.
Aeropostale's major competitors include:
- Abercrombie & Fitch Company (ANF): Abercrombie & Fitch is the leader of the youth apparel retail market by nearly all measures. ANF is a larger company than ARO, with a greater store base and much higher net sales than ARO. Abercrombie & Fitch also operates three brands: Abercrombie & Fitch, Hollister, abercrombie; all of which target different subsets of the 8-30 age range. While ARO's namesake stores compete with A&F and Hollister stores and ARO's new P.S. from Aeropostale concept competes directly with ANF's A&F, ARO has no match for post-college merchandise concept abercrombie. Although ANF is one of ARO's most direct competitors, the two company's operate with different strategies: Abercrombie maintains a premium brand with high price points while Aeropostale focuses on providing its customers, primarily high school students, with trend-smart fashion at value prices.
- American Eagle Outfitters (AEO): American Eagle competes directly for the same customers (young men and women between the ages of 15 and 25)[13] with Aeropostale's namesake stores; however, Aeropostale does not have a direct match for AE's new aerie sub brand. AEO is larger than Aeropostale in terms of total sales and profits, however, it is hard to directly compare the two retailers because of AEO's higher price points and larger store base.
- Gap (GPS): Similarly to AEO and ANF, GPS competes with ARO for the same target customers (15-25 year-old males and females). Although, Gap has clothing lines for the 25-40 year-old age group, in which it competes with J. Crew Group (JCG) and AnnTaylor Stores (ANN), amongst others. In addition, Gap has a strong Baby Gap clothing line for toddlers.
News
- Aeropostale announced on July 19,2011 a free loyalty points program for its children's retailer P.S. The program is titled "P.S. rewards".[18]
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References
- ↑ 1.0 1.1 ARO Q4 and Annual Earnings
- ↑ http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MzgwODcwfENoaWxkSUQ9MzgxMDQwfFR5cGU9MQ==&t=1
- ↑ http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MzgwODcwfENoaWxkSUQ9MzgxMDQwfFR5cGU9MQ==&t=1
- ↑ http://phx.corporate-ir.net/phoenix.zhtml?c=131103&p=irol-newsArticle&ID=1538289&highlight=
- ↑
- ↑ ARO 2008 Annual Report pg. 3
- ↑ Census E-Commerce Data
- ↑ 8.0 8.1 http://seekingalpha.com/article/238731-more-evidence-of-inflation-retailers-report-escalating-commodity-prices
- ↑ Gap, Wal-Mart Clothing Costs Rise on ‘Terrifying’ Cotton Prices
- ↑ http://www.thegovmonitor.com/world_news/asia/recession-drought-hail-reduce-cotton-acreage-in-china-12256.html
- ↑ CNN Money - Cotton Shortage Could Inflate Clothing Prices
- ↑
- ↑ AEO 2008 Annual Report pg. 2
- ↑ Abercrombie and Fitch Annual Report 2009 10k
- ↑ Gap Annual Report 2009 10k
- ↑ Abercrombie and Fitch Annual Report 2009
- ↑ Aeropostale Annual Report 2009
- ↑ [1]
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