American Eagle Anticipates Denim Resurgence

by Alexandra Steigrad
From WWD Issue 05/26/2011

American Eagle Outfitters Inc. on Wednesday set out a new strategy of building inventory in “heritage” categories such as denim to reclaim lost market share as the teen chain reported that it doubled net income against a year-ago quarter that was hurt by losses from discontinued operations.

In the three months ended April 30, the Pittsburgh-based specialty chain registered net income of $28.3 million, or 14 cents a diluted share, compared with profits of $10.9 million, or 5 cents a share, in the year-ago quarter. Excluding extraordinary items, such as the year-ago loss from discontinued operations, income from continuing operations was $14.6 million versus $17.8 million in the year-ago quarter.

A dearth of inventory, notably in the denim category, contributed to a 6 percent dip in quarterly net sales to $609.6 million from $648.5 million, the retailer said

The performance matched Wall Street’s EPS expectations of 14 cents a share but fell short of revenue estimates of $636.3 million.

Quarterly comparable-store sales declined 8 percent, as gross margin fell to 38 percent of sales from 39.7 percent a year ago.

“Every once in a while for some reason we let go of our key ‘heritage’ programs and we let people take market share from us,” said Roger Markfield, vice chairman and executive creative director, on the company conference call. “We will protect our turf as we move into back-to-school. We’re going to have enough fashion so you’ll have the sprinkles you need in the store, but our intensity is in the key ‘heritage’ items we know about and a very strong denim impact.”

Building “heritage” inventory means flowing more denim, fleece and graphic T-shirts in stores, a move that the company said will allow it to introduce “classic preppy” back into its assortment.

That might not be the best idea, according to Stifel Nicolaus analyst Richard Jaffe, who rates the firm’s stock “hold.”

“We do not share management’s optimism regarding the new merchandise strategy. First, we believe there has been a shift away from the preppy teen uniform with teenagers looking for more fashion-forward items,” he said. “Second, in the teen retail space, the preppy merchandise space is very crowded (Aéropostale, American Eagle, Abercrombie and Hollister), likely resulting in companies competing on price given a lack of differentiation between brands.”

The analyst said he foresees “deep promotions” on key items, which will pressure margins.

For the second quarter, the company said it expects earnings in the range of 10 cents to 13 cents a diluted share, and annual earnings of $1.02 a share. Analysts are looking for second-quarter EPS of 13 cents and yearly EPS of 99 cents.

Shares fell 64 cents, or 4.7 percent, to 13.02 in New York Stock Exchange trading Wednesday.

American Eagle Outfitters' First Quarter Results Lower Than a Year Ago

by Vicki M. Young
Posted Wednesday May 25, 2011
From WWD.COM

American Eagle Outfitters Inc. on Wednesday said first-quarter net income more than doubled from last year, but on a continuing operations comparison was below results from a year ago.

For the three months ended April 30, income was $28.3 million, or 14 cents a diluted share, from $10.9 million, or 5 cents, last year. Excluding the year-ago loss from discontinued operations, income from continuing operations was $14.6 million versus $17.8 million in the year-ago quarter. Sales in the quarter fell 6 percent to $609.6 million from $648.5 million as comparable-store sales were down 8 percent.

“During the quarter, we continued to implement strategic initiatives across our brands that will position the business for improved performance in the second half of the year and fuel longer-term, profitable growth,” said Jim O’Donnell, chief executive officer.

The company said it expects second-quarter earnings in the range of 10 cents to 13 cents a diluted share, compared with 13 cents last year.

American Eagle's New 77kids Store Puts Focus On Younger Kids

The Detroit News
By Jaclyn Trop

Teen retailer American Eagle is targeting even younger shoppers with the recent opening of its children's store, 77kids, at Twelve Oaks in Novi.

The Novi store, which opened two weeks ago, outfits babies, infants, toddlers, children and pre-teens. It is riding a new trend where parents — more affluent and with fewer children than their counterparts of generations past — are dressing their younger children in their own stylish image, retail consultants say.

77kids opened its first location in Pittsburgh in July and will have 21 stores by the end of the year as it capitalizes on new interest in children's fashion, said Betsy Schumacher, senior vice president and chief merchandising officer of 77kids by American Eagle.

"Kids these days are so savvy," Schumacher said. "Kids want to look cool and fit in, and they want their clothes to be fun."

The store, which caters to children through age 12, is reaching out to the younger siblings of American Eagle's core customers, as have P.S. by Aeropostale and abercrombie by Abercrombie & Fitch.

The concept is a good one, said Ken Nisch, principal at Southfield-based retail consultant JGA Inc. Parents are willing to spend money on children's clothes and accessories, and 77kids can capture some of the dollars in the market, he added.

Adults have more disposable income to spend on their children as they enter parenthood later in life and have fewer kids on average.

Parents' tastes are becoming more sophisticated, with a growing sense of fashion and design influencing their purchases, Nisch said.

"American Eagle is taking what a 17-year-old would wear and translating it into a product for infants and toddlers," Nisch said.

As a children's store, 77kids distinguishes itself from trendy "tween" shops such as Justice and The Buckle by offering more classic designs and creating them for children who have not yet reached their pre-teen years, Schumacher said.

There are interactive kiosks where kids can try on clothes virtually or pretend to be disc jockeys, a "denim canyon" that resembles a maze and a "goody bar" with candy and temporary tattoos.

"We really focus on the mom and the kid," Schumacher said. "The mom wants the kid to look cool, the mom wants value, and the mom wants a shopping experience."

Stacy Sheaffer of West Bloomfield visited the Novi store Wednesday and picked up a pink zip-up hoodie for her 22-month-old daughter.

"If they had it in my size, I'd have bought it," Sheaffer said. "It has some very cute stuff. It's not full of animals and polka dots and stripes."

77kids is several notches cooler than competitors such as Gap Kids, The Children's Place or Gymboree, Nisch said. From distressed denim jackets to jeans in different washes, "they've taken all of these styles and brought them to baby clothes so that they can be totally in sync with their hipster parents."

It's a sentiment that resonates with parents who pride themselves on being cool or stylish, said New York-based fashion writer and consultant Rachel Raczka.

"I think anyone who likes dressing themselves really likes the idea of having a second self to dress, in cuter, itty-bitty clothes that are a bit cheaper," Raczka said.

The "kids getting older younger" trend is a byproduct of the hectic pace of today's world, said New York-based consumer culture expert and branding strategist Adam Hanft.

"Everything is happening faster today, so it's logical that the velocity of change is happening with the transition from childhood to adulthood," Hanft said. "It's the increasing sexualization of society and the role of the media in creating and marketing a culture of seduction."

But Hanft is skeptical that 77kids will have staying power in the marketplace.

"Its prurience is gimmicky," he said. "Retail relies on repeat purchases, and this 77kids idea will be a notable novelty."

David McCreight Floated as Next American Eagle Outfitters Chief

by David Moin
From WWD Issue 04/12/2011

American Eagle Outfitters Inc. is eyeing David McCreight, former president of Under Armour Inc., as possibly its next chief executive officer, two industry sources said.

However, other candidates are being checked out as well, and an announcement is not imminent.

“They’ll first go after sitting ceo’s of public companies, but David is a very viable candidate. He’s the right age [47], got the right look and personality and has a nice combination of skills. He can talk brands, but he’s also analytical with the numbers. He’s well-rounded,” said an industry source. “He definitely wants to run something. He left Under Armour to pursue other opportunities.”

“We are still in the very early stages of the search and no one has been singled out at this time,” said an AEO spokeswoman.

McCreight joined Under Armour in 2008, but didn’t feel he was being given enough responsibilities by the founder-ceo Kevin Plank. “It’s been hard for Kevin to give up responsibilities,” the source said.

Another source said it could be at least a few months before American Eagle names a successor. In early March, American Eagle said ceo James O’Donnell, who is 70, would retire as soon as the company designates a successor. American Eagle has been struggling with its pricing and merchandise strategies and fiercely battling such competition as Abercrombie & Fitch Co. and Aéropostale Inc., though it reported a sharply improved fourth quarter, when profits rose 46.7 percent to $87 million, or 44 cents a share.

McCreight was president of Under Armour from July 2008 to August 2010, and departed on good terms, with Plank stating, “Over the past few years, we have delivered strong results, developed a strategy and platform for driving future growth, and built a tremendous team of leaders to take Under Armour to the next level.”

Before Under Armour, McCreight served as president of Lands’ End from August 2005 to July 2008 and senior vice president of merchandising from November 2003 to July 2005. Earlier in his career, he was senior vice president and general merchandising manager of Disney Stores Worldwide, and president of Smith & Hawken.

Hot Topic To Close ShockHound Site; Sees $15 Million In Charges

Hot Topic Inc. said it would record a pretax charge of about $15 million related to the teen-retailing company's decision to discontinue its music-downloading site ShockHound.com and write down assets that aren't critical to the company's future.

The company said it estimates the charges, along with severance costs related to recent changes in management, will result in a total charge of 21 cents a share, to be recorded primarily in the fiscal first quarter.

The charges come as Hot Topic has reported weaker sales in recent quarters, a trend that prompted the company to announce a cost-reduction plan in November. The mall- and Web-based retailer, which offers pop culture-related clothing and accessories, has struggled to win shoppers after its merchandise geared to the "Twilight" vampire movie sequels failed to buoy results as much as products tied to the original film did.

Just last week, Hot Topic announced the resignation of its longtime Chief Executive Betsy McLaughlin and, on Monday, the company said Amy Kocourek, chief merchandising officer of the namesake division, has left. New CEO Lisa Harper, a board member, will assume direct oversight of Hot Topic merchandising, the company said.

Hot Topic also projected it would report a loss of 1 cent to 4 cents a share, excluding the charges, for the fiscal first quarter ended April 30, a view that was based on a low-single-digit percentage decline in same-store sales. Analysts polled by Thomson Reuters expected a loss of 3 cents a share.

For the year, Hot Topic sees earnings of 5 cents to 15 cents a share, based on flat to a low-single-digit percentage drop in same-store sales. Wall Street most recently forecast a profit of 14 cents a share.

Hot Topic also joined a number of its teen-retailing peers by saying it would discontinue the issuance of monthly sales reports, effective in the fiscal third quarter. The company will instead report quarterly sales results on the first Wednesday following the close of each fiscal quarter.

Abercrombie & Fitch Co., Aeropostale Inc. and American Eagle Outfitters Inc. all stopped reporting monthly sales earlier this year.

Shares of Hot Topic were halted ahead of the news. The stock closed up 9 cents to $5.95 on Monday.

Hauling for Dollars: Is Customer-Created Video Good for You?

The Video Conference Consortium
By Rich Fahle

We’ve talked plenty on this site about the importance of creating a smart online video strategy, one that complements and advances your specific brand message and provides a roadmap toward the right style of video for your company.

But what about the video that you can’t affect? In particular, the hundreds of thousand of customer-generated videos now freely posted on YouTube and other sites that dole out brand opinions and product reviews to millions of passionately interested viewers.

How do you go about making that part of your video strategy?

That’s the marketing challenge many retail brands now find themselves navigating with the hugely influential “haul video” phenomenon: Customer-produced videos hosted by chatty, mostly female, teen shoppers providing blow-by-blow coverage of their most recent shopping hauls. It’s a trend that took off last year and has continued to grow and expand as new “haulers” join the fun.

Let’s be clear. This is a challenge most retailers would happily tackle given the astounding viewership of many of these homemade videos. Some, like those on YouTube from Blair Fowler (aka juicystar07) and her sister Elle Fowler (aka allthatglitters21) have more than 150 million views (no, that’s not a typo, folks), with more than 1.5 million subscribers between the two. And there are many, many other haulers out there. A quick search on YouTube shows more than 218,000 results for “haul video.”

The haul video formula works like this: After returning home from a shopping trip or receiving an online shipment from a favorite store like Forever 21, Beverly Lane, or Sephora, teen shoppers videotape themselves removing each fabulous find from the bag, explaining the vital benefits of a new lip gloss, a fun pair of flip flops, a stylish new dress or a sparkly necklace. The videos are uploaded to YouTube, often to user’s own personalized, highly trafficked channel where they are watched, shared and endlessly discussed.

No doubt that some adults may be wary of the notion of the mall teen with broadcast muscle. It’s easy to understand why some might judge some of these girls as materialistic or worse. But for a retailer with a teen target demographic, haul videos can mean magic—the kind of endorsement-driven viral marketing that brands salivate over but can’t buy using normal advertising channels.

Some haulers do receive compensation from the companies whose products they discuss, and they are required to disclose this to their audience. Companies like Bath & Body Works, American Eagle, JC Penney and others are actively courting various haul video stars for paid marketing projects, contests or giveaways as a way to attract new customers. The Fowler sisters, for their part, recently moved to Los Angeles to better expand their online video fashion empire, which now includes makeup, hair products, diet tips and other fashion accessories. But while some of the video kids may be getting paid, most are happily producing their video product reviews for free, all in the name of Internet entertainment and personal expression.

So what are the dangers of user-generated content?

While the haul video trend and other similarly intentioned customer-created videos have huge potential for growth, brands are advised to proceed cautiously. The upside of personal endorsements from key influencers in a particular niche may very well be too great to ignore, but there are some concerns when you turn your marketing over to the Wild West world of homemade video.

For one, haulers and other organically grown brand evangelists can accidentally spread wrong or incorrect information about the quality or prices of your products. From a larger brand strategy perspective, it’s possible that the varied, but unvetted group of content creators could present an inconsistent brand message, slowly eroding your hard-earned brand equity. Plus, the home-made, often uncensored, quality that is the key to the haul video’s believability factor can also be a turnoff; you can’t edit out something you don’t like in a video that isn’t yours.

Given the potential drawbacks, it makes sense to consider how to incorporate user-generated video into your larger marketing strategy. To that end, for many major retailers, user-generated video has become a key marketing component of a larger strategy.

Retailers capitalizing on the trend

JC Penney is one of the retail brands jumping on the haul video trend. This past fall, for its back to school campaign, JC Penney worked with a group of six budding haul video influencers. Penney’s provided gift cards ranging from $250 to $1,000 in exchange for a series of videos that were uploaded to the retailer’s YouTube channel, Facebook page, and on the retailer’s teen-focused website www.jcp.com/teen. As required, the young videographers each disclosed that they had received gift cards, but were allowed to buy whatever they wanted and were encouraged to be honest about their purchases. By all accounts, JC Penney views the campaign as a huge success. As another example, American Eagle, regularly points their Facebook and Twitter followers to selected haul videos online, weaving the video endorsements into their everyday marketing mix.

It’s too early to tell whether customer-created haul videos will remain a long-term factor for retail brands like Forever 21 or fade into passing fad status. But for the time being at least, haul videos seem to be sticking around. The videos are effective because they’re generally honest and believable. As more companies try to capitalize on the trend with marketing and ad budget support, savvy teens may begin to smell a marketing campaign instead of something cool and fun. If that’s the case, expect the videos to move on to other subjects.

Still, it’s clear that the lower barriers for entry to online video are empowering factors for both company and customer—and it’s hard to envision ever putting that genie back in the bottle. That means for brands and brand video managers, the key will be, as always, finding new ways to keep it real.

Click here to see a sample haul video from juicystar07.

Teen Retail CEOs On the Move

by Alexandra Steigrad
From WWD Issue 03/23/2011

Fickle teens are leading to insecurity in the executive ranks of youth retailers, who’ve seen a series of management shake-ups as the sector attempts to get back into growth mode after a weak, highly promotional 2010.

Since the start of the year Hot Topic Inc. and The Wet Seal Inc. have appointed new chief executive officers and American Eagle Outfitters Inc. has revealed plans to do so, while Mindy Meads stepped down as co-ceo of Aéropostale Inc. in December, leaving the role of sole ceo to Thomas Johnson.

All are in the process of turning around their respective brands and trying to get a handle on shifting teen fashion preferences and tightening spending tendencies. And all have struggled with top-line challenges. PacSun, Hot Topic and American Eagle had respective comparable-store sales declines of 8 percent, 5.3 percent and 1 percent in fiscal 2010. Aéropostale, an industry overachiever with a 10 percent comp gain in 2009, saw its increase dwindle to 1 percent last year. Wet Seal reports results for the fourth quarter and year on Thursday.

“As business shows some indication of getting better, companies seem to be more ready to make the executive changes that they expect will generate their share of the increase in business in this environment,” said John Jonas, president and ceo of executive search firm The Jonas Group. “The need for someone to ‘get’ how to approach online and international business is also key now. As always, having great leadership is necessary for success in the super competitive retail sector.”

But there’s something specific about the teen sector that has sparked the ceo mass exodus, according to analysts.

“Ceo movement is a direct correlation to performance,” said Susquehanna specialty retail analyst Thomas Filandro. “Clearly, there’s a lack of differentiation within the sector…. There’s not a dominant enough trend in the teen sector, and as a result, it’s more of a dog-eat-dog world.”

Gone are the days of relying on basics and “heavily logoed” T-shirts and hoodies. “Kids are somewhat de-logoizing,” he said. “It’s more difficult to differentiate without logos.”

With their low-priced, trendy apparel, competitors like H&M, Zara and Forever 21 have left many staple teen retailers flat-footed, he said, pointing to American Eagle, which this month announced the retirement of ceo James O’Donnell. The ceo, who’d been with the firm for 11 years, was set to resign in 2013 and will remain until his successor is in place.

“The Eagle lost sight of who its target market and customer are,” he said. “They have been extraordinarily disappointing…the merchandise on the floor, the messaging and their marketing are inconsistent with their brand DNA.”

In order to turn around the brand, American Eagle should look for a ceo with a “merchandising or design background, as product seems to be what they are struggling with,” noted Wedbush Securities analyst Betty Chen.

Chen suggested former Aéropostale co-ceo Meads or current Charlotte Russe head honcho Jenny Ming.

What many of these companies have in common is the need for a “fresh perspective” to expedite a turnaround, she said, pointing to Hot Topic, which Monday appointed director and former Gymboree ceo Lisa Harper to succeed Betsy McLaughlin as ceo. McLaughlin resigned after 11 years in HT’s top spot.

It’s now been 20 months since Gary Schoenfeld joined PacSun as president and ceo, snagging a spot that had been occupied for three years by Sally Frame Kasaks, the former Ann Taylor and Abercrombie & Fitch executive. Kasaks, a PacSun director, was initially appointed interim ceo, but the interim was removed after she’d been on the job a year.

Under Schoenfeld, PacSun’s struggles have continued. Last week, it reported a smaller fourth-quarter loss but fell short of analysts’ sales and earnings estimates.

Sitting out the ceo dramas of recent months — although not exempt from occasional rumors of a possible takeover — is Abercrombie & Fitch, led by chairman and ceo Michael Jeffries and coming off a year in which it posted a 7 percent comp gain after a 23 percent decline in 2009. Abercrombie generally is viewed as having held the line on fashion leadership while becoming far more competitive in its pricing.

Prior to hiring its new ceo Susan McGalla in January, Wet Seal has battled to balance price and compelling fashions.

This balancing act, however, is symptomatic of the times, as retailers who have fared best have opted to buy shallow and test different merchandise.

“If you are offering commoditized product, you will get beat,” Susquehanna’s Filandro said, pointing to chains like Victoria’s Secret, Express, Buckle Inc. and Zumiez Inc. “These companies are creating innovation and newness. They are reading and reacting to what consumers are looking for and they are winning.”