American Eagle Outfitters Inc. plans to close between 200 to 225 stores at its core brand, while it hatches a plan to get Aerie to $2 billion in revenues by 2023.
The core American Eagle brand operates about 880 stores, about 95 percent of which are four-wall positive, according to chief operating officer Michael Rempell. After the closures, the brand will have between 600 to 700 locations across the U.S. and Canada, with average lease terms of 2.8 years. Rempell, who spoke at an investor day presentation on Thursday, said the clothing company plans to speed up store closures, negotiate rent reductions and use industry-wide closures as a springboard into desirable locations. And while it plans for a smaller American Eagle footprint after 52 locations were shuttered last year, Rempell said the company is also looking at short-term lease renewals while leaning into smaller-format stores.
Despite all the changes on the brick-and-mortar front, Rempell said stores remain an important vehicle for customer acquisition, engagement and retention. Aerie, which began as a digitally native brand, is looking at reaching 550 locations by 2023, he said, up from 342 now.
In just six months, the retailer opened regional hubs for greater agility that has driven greater efficiencies, like two- to threefold improvements in store replenishment times, thus enhancing in-stock positions. AEO Inc. offers curbside pickup, buy online and pick up in store, buy online and ship from store, ship from store to door and alternative payment options. It’s currently testing two pilots in customer self-checkout and same-day delivery.
The company’s new “Real Power. Real Growth.” plan aims to reignite the core brand for profit growth.
Chief creative officer Jen Foyle, who doubles as Aerie’s brand president, said the American Eagle brand is “a bit under appreciated.” After posting $3.5 billion in 2019 revenues, it’s expected to report $2.7 billion in 2020, a dip due to Covid-19. Though it has always had a strong cash flow, margins aren’t are what they once were, she said, and the three-year plan to refresh the brand DNA aims at strengthening the point of view. The company will continue to leverage its dominance in jeans, while optimizing inventory and right-size the store fleet.
The retailer’s target customer, between 15 to 25 years old, is part of a demographic that spends twice the population average on clothing. “Jeans is a stick category that builds strong loyalty,” Foyle said, noting that the category also plays a role in new customer acquisition and retention. As the company looks to improve its story-telling ability for the brand, it also will look at how to improve its “complete the look” capabilities. That means delivering tops to go with the jeans, and reducing overall assortment to buy narrow and deep, a move that can help the company “market key looks in [certain] items more aggressively,” she said.
As for future growth over the next three years, that’s going to come primarily from the company’s Aerie brand and its 8.5 million identified customers. The company said Aerie hit $1 billion in revenue in 2020, and now the plan is to double that to $2 billion by 2023. “Momentum is stronger than ever,” she said of the brand, noting that Aerie grew at a compound annual growth rate of 25 percent from 2015 to 2020.
Aerie, which started with a boy brief in underwear, has since expanded to other categories including bras, loungewear, swim and activewear with the Offline by Aerie line. The brand has plenty of runway ahead of it, Foyle said, noting that the addressable market for intimates, soft apparel, active and swim is about $65 billion, compared with the total women’s apparel market of $123 billion.
Both initiatives are expected to help AEO Inc. hit $5.5 billion in revenue, with operating income targeting the $550 million range in fiscal 2023.
Chairman and CEO Jay Schottenstein told investors that the coronavirus pandemic accelerated the pace of change and innovation for the company, such as expanding fulfillment responsibilities and fast tracking its supply chain for faster efficiencies. The company will continues to prioritize product quality and innovation through fabric and fit, as well as focus on sustainability efforts. It is targeting water reduction use per jeans by 30 percent by 2023, and recycling 50 percent of total water use in denim laundries by 2023.
Separately, American Eagle said it achieved over $95 million in adjusted operating income for the fourth quarter, excluding potential asset impairment and restructuring charges. Fourth-quarter revenue is expected to decrease in the low single digits, mostly due to store revenue declines from weak mall traffic, store closure sand reduced hours connected to the pandemic.