May 21, 2012
American Eagle Getting Out of Kids Business
When American Eagle Outfitters launched its 77kids business for younger children, in 2008 it was determined to take it slow and test the brand’s appeal online before incurring the expenses associated with operating physical stores.
By 2010, the company had decided it saw enough to lay down some bricks and the first of 22 stores were opened.
"There are natural synergies," Betsy Schumacher, senior VP merchandising at American Eagle Outfitters, told The Wall Street Journal back in 2010. "We like to be able to have a customer start with us at birth and stay right through college."
Many others agreed. A 2010 RetailWire poll found that 68 percent of respondents believed there was a "large" or "medium" growth potential for teen retailers such as American Eagle launching kids concepts such as 77kids.
By the end of last year, however, 77kids had lost $24 million on sales of $40 million. Now, the decision has been made to get out of the business, possibly selling some or all of 77kids’ assets to a third party.
"Although making this decision is disappointing, it is in the best interest of the company and our shareholders to prioritize and focus our efforts on businesses with the highest return potential," said Robert Hanson, chief executive officer of American Eagle, in a press release. Mr. Hanson joined the company earlier this year with the mandate to turn the business around.
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Discussion Questions: Should traditional brick and mortar retailers see online success as reason enough to open stores? Why not simply stick with an e-commerce model if it is successful?
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American Eagle has built up considerable brand equity, and despite some of its recent struggles its comp sales appear to be back on track. (And it is doing a better job than some of its competitors, like Aeropostale, learning how to execute “fast fashion.”) But AEO did not take advantage of that brand equity when it launched 77kids.
I realize that Justice has been more successful under its own brand than previously (as Limited Too), but in this case American Eagle might have tried to be more patient with the concept. Testing the concept with bricks and mortar might (in hindsight) have been a more effective idea than starting out online.
Retailers are still learning what constitutes success. Sometimes it’s physical stores, other times it’s ecommerce; sometimes it’s a blend of the two. There are no hard and fast rules. What works online might not work in physical stores, and visa versa. Retailers need to test their store concepts, both physical and virtual to see what clicks with consumers and then build from there.
Sometimes a company determines its goals before it hears the cash register ring. E-commerce and B&M retailing flourish best using their own languages. When interspersed without expert translation, they can send conflicting signals.
Projected success is the first of the gifts to perish in a foreign tongue.
It’s a bit misleading to equate AE’s decision to get out of the kids business strictly based on going into 4-wall. Gap Kids had/has a great 4-wall kids business. In the end, it’s all about the product and the store’s organization.
It’s fair game for retailers to see a role of being a brand manager in their strategy. Having a hit, that can shift into a “franchise,” is a platform that should be on the table. E-commerce to brick & mortar, and brick & mortar to e-commerce provides the opportunity to leverage the business.
The franchise has to be able to build on and compliment the other parts. It’s worth the risk, and it is imperative to know when the losses have to be cut.
Just as retail is finding it difficult to engage the market using digital resources, e-tail is finding it difficult to invest in homes that support sales growth successfully. Many retailers and e-tailers are losing large portions of profit when venturing to the other side due to unanticipated increases in transportation/shipping costs and or travel time to the retail facility or customer. Thus the transition from one to the other with little or no consideration for distribution is a very high risk venture.
The Limited proved decades ago that the best way to spawn another brand is to do it within your existing, well visited stores. Express from within Limited, Victoria’s Secret from within Express and Limited, and Bath and Body Works from within Express. All brands, still around. Now, regardless of how well you sell goods in other channels, why wouldn’t you just be a smart retailer and “do that”???
Victoria’s Secret already had a great catalog, but the incubation within an already successful retailer proved to be where the true growth confidence was birthed.
I think retailers sometimes get a little too MBA about themselves and forget that being a ‘fast second’ with an idea or methodology is really the best rule of thumb for going after something hot. Maybe, with all the confusion around online sales, sub brands and social media, no one’s paying attention anymore.
It is no different than it has been for a thousand years — location, location, location. Open a FEW very well placed and well executed locales in high traffic, high profile cities and let it go from there. Also utilize the strength of your other store brands as support to incubate a new concept, only in well proven stores in high “dollar per square foot production” areas, and allow that to grow the concept until there is no choice but to expand because of demand. IF you can get there, you win with a new successful brand and you have maximized your current brands — if you have them — to help.
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American Eagle has built up considerable brand equity, and despite some of its recent struggles its comp sales appear to be back on track. (And it is doing a better job than some of its competitors, like Aeropostale, learning how to execute “fast fashion.”) But AEO did not take advantage of that brand equity when it launched 77kids.
I realize that Justice has been more successful under its own brand than previously (as Limited Too), but in this case American Eagle might have tried to be more patient with the concept. Testing the concept with bricks and mortar might (in hindsight) have been a more effective idea than starting out online.
Retailers are still learning what constitutes success. Sometimes it’s physical stores, other times it’s ecommerce; sometimes it’s a blend of the two. There are no hard and fast rules. What works online might not work in physical stores, and visa versa. Retailers need to test their store concepts, both physical and virtual to see what clicks with consumers and then build from there.
Sometimes a company determines its goals before it hears the cash register ring. E-commerce and B&M retailing flourish best using their own languages. When interspersed without expert translation, they can send conflicting signals.
Projected success is the first of the gifts to perish in a foreign tongue.
It’s a bit misleading to equate AE’s decision to get out of the kids business strictly based on going into 4-wall. Gap Kids had/has a great 4-wall kids business. In the end, it’s all about the product and the store’s organization.
It’s fair game for retailers to see a role of being a brand manager in their strategy. Having a hit, that can shift into a “franchise,” is a platform that should be on the table. E-commerce to brick & mortar, and brick & mortar to e-commerce provides the opportunity to leverage the business.
The franchise has to be able to build on and compliment the other parts. It’s worth the risk, and it is imperative to know when the losses have to be cut.
Just as retail is finding it difficult to engage the market using digital resources, e-tail is finding it difficult to invest in homes that support sales growth successfully. Many retailers and e-tailers are losing large portions of profit when venturing to the other side due to unanticipated increases in transportation/shipping costs and or travel time to the retail facility or customer. Thus the transition from one to the other with little or no consideration for distribution is a very high risk venture.
The Limited proved decades ago that the best way to spawn another brand is to do it within your existing, well visited stores. Express from within Limited, Victoria’s Secret from within Express and Limited, and Bath and Body Works from within Express. All brands, still around. Now, regardless of how well you sell goods in other channels, why wouldn’t you just be a smart retailer and “do that”???
Victoria’s Secret already had a great catalog, but the incubation within an already successful retailer proved to be where the true growth confidence was birthed.
I think retailers sometimes get a little too MBA about themselves and forget that being a ‘fast second’ with an idea or methodology is really the best rule of thumb for going after something hot. Maybe, with all the confusion around online sales, sub brands and social media, no one’s paying attention anymore.
It is no different than it has been for a thousand years — location, location, location. Open a FEW very well placed and well executed locales in high traffic, high profile cities and let it go from there. Also utilize the strength of your other store brands as support to incubate a new concept, only in well proven stores in high “dollar per square foot production” areas, and allow that to grow the concept until there is no choice but to expand because of demand. IF you can get there, you win with a new successful brand and you have maximized your current brands — if you have them — to help.