AEO: Laser-Focused on Gen Z…and Winning

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Consumer-focused would be an understatement in describing American Eagle Outfitter\’s huge competitive advantage. It\’s the major reason they are doing so well, even in the malls and during the pandemic to boot. AEO is parent of American Eagle, Aerie and newbies Unsubscribed and Offline. Let\’s say laser-focused on the Gen Z cohort, the oldest of whom are in their mid-twenties, and whose spending power is estimated to increase by 70 percent by 2025, according to Boston Consulting Group.

Overall apparel sales in the US tanked by 79 percent in April and are expected to lose around $600 billion in revenues by year-end, taking down such iconic retail brands as Brooks Brothers, J. Crew, and countless others. On the other hand, AEO\’s Aerie brand had a 32 percent increase in revenues and is opening 70 new stores this year. This intimates brand, with its laser focus on Gen Z\’s has been stealing huge market share from Victoria\’s Secret since its inception in 2006. Its DNA is body-positive, inclusive of all body types. Aerie Real celebrates body positivity and inclusivity. The brand showcases \”real\” women as models, across all sizes, ethnicities — and banned photoshopping. Marketing #aerieREAL is the 180-degree opposite the VS approach with their aspirational most sexy and beautiful girls in the world.

Even with its positive trajectory, AEO\’s total revenues did take a hit, declining 15 percent, largely due to the Covid forced shutdown of its near 1100 store fleet in the U.S. And even though they realized a 74 percent increase in online business, it didn\’t offset the loss. AEO plans to close 45 stores.

Laser Focus

As reported in Fast Company, \”they invest heavily in focus groups, consumer research, and they have an in-house council made up of teens and twenty-somethings who help with the corporate decision-making. All of this has given the company a clear sense of this generation\’s values, aesthetics, and shopping preferences.\” AEO CEO Jay Schottenstein, said, \”We\’re reading comments on social; we\’re getting feedback in stores. We\’re gathering feedback from customers at every step,\”

Wow! A combo of old-world marketing 101 with new-world tech. How quaint. Actually, how obvious and smart. Job #1 for any retailer is, and always will be, deep consumer knowledge and how to fulfill their needs and also satisfy their dreams.

Based on their laser focus on Gen Z, Fast Company reported that Jennifer Foyle, AEO\’s chief creative officer and Aerie\’s global brand president, said the company\’s research points to one clear reality: Today\’s young people want comfort, and she means that in every sense of the word. \”They want their clothes to be soft and comfortable, but they also want marketing campaigns to make them feel comfortable in their own skin,\” she says. \”This is now at the forefront of everything we do.\”

Indeed, check out the AEO site and you\’ll see their focus on comfort, casual and modern styling among their brands. Of course, on trend, their assortments are ideal for sheltering at home. Foyle said, \”Our customer wants to feel like herself when she\’s wearing our clothes.\” Foyle\’s deep understanding of their Gen Z consumers is her belief that physical comfort is also connected to a deeper sense of well-being and self-esteem.

Vertically Integrated

I have always said that the vertically integrated \”brand in the store as the brand on the door\” in its perfect state is the best strategically positioned model for success. And while the vertically integrated value chain is not totally owned by the brand, it is much more in control than the multi-brand retail/wholesale model.

AEO operates on the vertically integrated specialty chain platform and can launch all kinds of brands that align with their Gen Z base. Boutique brand Unsubscribed was launched in tony East Hampton recently, and appeals to a wealthier cohort of Z\’s.  Offline is their newest launch focusing on activewear.

Connecting Directly to the Consumer

Another major advantage of the specialty chain model is its ability to gain closer physical access to their consumers in their own neighborhoods. Suburban malls will continue to fail. Even though the AEO brands are doing better than most, Foyle \”sees opportunities to expand into shopping streets in smaller towns and into outdoor lifestyle centers, which are increasingly popular. She said, \”We just need to be very smart about our real estate strategy. It\’s about being in the best locations and the best new markets. It\’s about innovating the in-store experience.\”

Helloooo! How often have I heard about preemptive distribution and small neighborhood store strategies as the future? You read it first in The Robin Report.

AEO\’s brands will be among the big winners coming out of the Covid mess, because they are successfully executing the best strategically positioned retail model and have Gen Z, the soon-to-be biggest market, locked in.



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