UPDATE: American Eagle Seeks To Grow By Opening Kids Stores
July 14 2010 - 3:43PM
Dow Jones News
Teen retailer American Eagle Outfitters Inc. (AEO) on Thursday
will open a store in a Pittsburgh mall with clothes for children
and babies in a move that will increase its "77kids" product line
beyond its limited website, moving more fully into the growing
business of selling togs for youngsters and toddlers.
The move mirrors fellow teen retailer Aeropostale Inc. (ARO),
which found more success expanding last year to a younger
demographic after failing at going after adults. And adult retailer
Gap Inc. (GPS) is in the midst of expanding its kids' and baby
lines.
Teen and even adult retailers, running out of areas to open more
of their traditional stores, have been trying to increase sales by
expanding their customer base. After the U.S. has experienced what
some analysts say is something of a baby boom, the opportunity is
seen as ripe. Parents have to buy clothing for their growing
children even if they don't make apparel purchases for themselves
because of the still-soft economy. Even grandparents are buying up
clothes for youngsters and infants, trying to help out their own
children.
The baby-to-young-teen market is roughly $34 billion, a slice of
the overall apparel market, which has $190 billion in annual sales,
according to NPD Group.
American Eagle can use a boost in business. Same-store sales
have been struggling and the teen retailer indicated that pressures
from markdowns will wear on its current quarter's results, with
American Eagle earlier this month saying that second-quarter
earnings-per-share would be on the low end of its projected
range.
American Eagle also turned in a poor first-quarter performance,
hurt by closing costs for its Martin + Osa chain, which was aimed
at adults. Aeropostale and fellow teen retailer Abercrombie &
Fitch Co. (ANF) all failed at attracting an older crowd to their
attire and ended up, or are in the process of, shutting down their
adult stores.
Kids and babies might be easier to connect with. "There are
natural synergies," said Betsy Schumacher, chief merchandising
officer for American Eagle's 77kids unit. "We like to be able to
have a customer start with us at birth and stay right through
college."
77kids, which takes its name from the year American Eagle
started, started out a year-and-a-half ago as an online offering,
with American Eagle preferring to go slow with its new line as its
4-year-old adult Martin + Osa stores were failing.
This month, 77kids will open five stores in malls, all where
American Eagle Outfitters stores are already located. One 77kids
will be right next to an American Eagle store. Another three will
open by the end of this year.
The openings are timed to capture back-to-school business.
Schumacher declined to disclose the online sales for 77kids but
said the decision to go with stores was based on the successful
reception the line received over the Web. The website also served
as a way to experiment so that the stores will be well turned out,
Schumacher said.
"We got to see what styles were popular," she said.
77kids will feature clothing for infants, designed along the
lines of American Eagle's own casual preppy look, featuring plenty
of denim, fleece and graphic tee-shirts. In contrast to what
Aeropostale is doing--going after youngsters age seven through 12
with its P.S. from Aeropostale stores--American Eagle is targeting
all kids, from newborns on up.
While Aeropostale declined to provide sales figures, the company
said in its first-quarter earnings call in late May that the P.S.
stores are doing well, having exceeded expectations for the
period.
As the teen retailers said when they created their adult concept
stores, the move into kids is key to their further success. "Kids
is an important part of our overall growth strategy," Schumacher
said.
Gap stores are in the midst of receiving shipments for the
retailer's Kid's and Baby's lines, including a fuller array of
denims and even varsity jackets and lettermen sweaters. "Gap Kids
and Baby Gap continue to be a priority and a business we want to
grow," Gap spokeswoman Louise Callagy said.
Callagy said that while Gap doesn't break out sales for its
different units, parents do feel an obligation to spend to keep
their children well dressed. Clothes are bought as kids grow out of
old apparel, for different seasons and special occasions and
parents also want their children to look good in their own eyes and
those of people they meet, Callagy said. "There is a real emotional
component."
-By Karen Talley, Dow Jones Newswires; 212-416-2196;
karen.talley@dowjones.com
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