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Teen Apparel Chains Look to Resurrect Themselves as Digital-Driven Brands

As the U.S. traditional retail sector continues to be challenging, specialty chains American Eagle Outfitters, Abercrombie & Fitch and Urban Outfitters are looking for expansion by enhancing digital channels, while also pushing growth in Europe and Asia.

That’s not to say these merchants that cater to the teen crowd are giving up on brick-and-mortar stores. In many cases, they are fine-tuning an omnichannel strategy or upgrading their mall operations. In recent conference calls discussing third quarter results, CEOs noted that they’re finding success in optimizing the customer experience at all levels.

Urban Outfitters

“Our digital penetration is now approximately 40 percent of retail segment sales,” Richard Hayne, CEO of Urban Outfitters, said. Urban also sees a “massive international growth opportunity” based on recent performance of its brands in Europe and other markets like China and Israel, Hayne said, adding “we intend to accelerate our rate of growth.

“In Europe, we plan to open 10 to 20 new stores across all brands in each of the next two years,” Hayne said. “With a current base of 61 stores, we plan for our European store count to exceed 100 in three years. As we open stores, we expect the European digital business to achieve strong growth, as well.”

The company’s entrance into the Asia-Pacific market has been through China. The Urban Outfitters and Free People brands have been experimenting with this market for the past few years by having a presence on the TMall Global digital platform and fulfilling orders from the U.S. The company also plans to sign leases for several stores to open in 2020, according to Hayne.

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“Based on our current success in Israel, where our franchisee now operates three Urban stores, we have recently signed an additional franchise agreement to open stores in other Middle Eastern markets,” Hayne said. “We expect to have more than 10 stores in total across all brands in operation by the end of 2020.”

Abercrombie & Fitch

Fran Horowitz, CEO of Abercrombie & Fitch, said the company is focused on “creating engaging new environments,” including a new mall-based prototype in Manchester, U.K.

“We’re pleased with its early performance and it is already demonstrating how our physical stores act as a gateway to the brand driving incremental digital sales,” Horowitz said. “We look forward to an additional opening next month in the Myzeil shopping center in Frankfurt.”

She said the company continues to adapt and apply its playbook to the European and Asian markets.

“As in the U.S., we believe the key to success is having an obsessive focus on the customer,” Horowitz said. “We’re getting closer to our local customer in each of our international markets, leveraging our growing royalty program data, building on our local infrastructure and developing our teams and processes to ensure timely, market specific insights that can be used to better inform localized planning, merchandising and marketing.”

During the third quarter, A&F saw digital sales momentum across brands and geographies. Global direct-to-consumer (DTC) sales were up 16 percent compared to last year.

“Importantly we continue to leverage shipping costs on DTC sales driven by our transformation efforts,” she said. “The transition to mobile continues and it accounted for over three quarters of our digital traffic in the third quarter. Our highly rated apps are still our fastest growing digital platform from both the traffic and sales perspective.”

Frank Conforti, chief financial officer at Urban Outfitters, also noted that the company did experience a “minor deleverage this quarter” on delivery expenses on a year-over-year basis, “and that was all due to the increase in penetration of the digital channel.”

“That being said, I would tell you that this is probably the least amount of delivery expense leverage we’ve seen for several years now, as several of our operational efficiency initiatives have really taken hold here and we’re really starting to mitigate the rate of deleverage,” Conforti said.

Abercrombie is on track to exceed $1 billion in digital sales this year, Horowitz said, noting that the brand’s “online and in-store shopping experiences are well integrated.”

“We are already seeing strong uptick of purchase online, pickup in-store and order in-store, and it’s rolled out globally,” Horowitz said.

American Eagle Outfitters

Jay Schottenstein, executive chairman and CEO of American Eagle Outfitters, said the company is focused on expanding its marketing reach and improving experiences with targeted e-mails, product recommendations and digital marketing tactics.

“Our efforts of data and analytics and customer insights will continue to put our brands in a leadership position,” Schottenstein said.

The company has made omnichannel investments, including a new digital call center, distribution facility automation and is transitioning to an updated digital platform next year. But, as Schottenstein emphasized, “Our physical stores are important to our business.”

With third quarter revenue topping $1 billion for the first time, Schottenstein said this marked the 15th consecutive quarter of positive comp growth for AEO. Consolidated comparable sales increased 8 percent.

“It’s absolutely critical to have the right associates engaging customers and driving a great shopping experience,” he said. “The store team has been delivering and investments are paying off. We are seeing some of the strongest store comps in years, driven by higher conversion, improved traffic and transaction growth.”

At the same time, Schottenstein said the retailer is committed to making its stores more exciting. American Eagle is opening a flagship store next week in Las Vegas that it expects to be a major tourist attraction, and is looking to open other flagships it feels could add “different experiences,” he said.

With all the digital noise, these retailers still focus on the basics.

Urban Outfitters’ Hayne said one growth driver has been its wholesale business. This year, the Anthropologie and Urban Outfitters brands began offering segments of their assortments to selected retailers and e-tailers.

“We believe the wholesale channel can continue its double-digit growth by expanding the core Free People offering geographically and building the account structure for Movement, Anthro Home and the Urban brand’s BDG Collection,” Hayne said.

Horowitz said across genders, Abercrombie saw a strong trend in bottoms. The chain posted record third quarter sales in young men’s denim and an increased demand for wear-now soft dressing in girls’ denim.

“It’s our goal to be the number one denim brand in the United States,” Schottenstein said. “We made a big investment in our team. We invest in our technologies for our denim. We invest in the finishes the fit, the stretch…We have to be the leader in that category and we have to be the authority for that category.”