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Aeropostale

Strategy Capstone Report

Zeeshan Halim

STRATEGY 5900



1

Table of ContentsTechnology Trends...........................................................................................................................4

E-Commerce................................................................................................................................4

Fast Fashion.................................................................................................................................4Use of Customer Metadata..........................................................................................................5

Economic Trends.............................................................................................................................5

Income.........................................................................................................................................6

Economic Forecasts.....................................................................................................................6

ocio-Cultural Trends......................................................................................................................!

"emogra#hics..............................................................................................................................!

$ifestyle Trends...........................................................................................................................%

&olitical and $egal Trends...............................................................................................................%'ising la(or )ages in the U.......................................................................................................%

The *orth +merican Free Trade +greement ,*+FT+.............................................................1

ustaina(ility Trends.....................................................................................................................1

The gro)ing concern o/er s)eatsho#s......................................................................................1

En/ironmental Concerns............................................................................................................11

trategic grou# ma#.......................................................................................................................10

&orters Fi/e Forces +nalysis........................................................................................................14

'i/alry or "irect com#etitors....................................................................................................14

Threat of *e) Entrants..............................................................................................................15

Threat of u(stitutes..................................................................................................................16

&o)er of u##liers.....................................................................................................................16

&o)er of 2uyers........................................................................................................................13

Fi/e Forces ummary................................................................................................................13

"ri/ing Forces...........................................................................................................................1!

ummary of Industry +nalysis..................................................................................................1%

alue chain and Internal +nalysis..................................................................................................

&rimary acti/ities.......................................................................................................................

Mareting and +d/ertising........................................................................................................4

u##orting acti/ities..................................................................................................................6

7/erall Internal +nalysis...........................................................................................................!

Maret Ca#itali8ation....................................................................................................................0

Financial &erformance...................................................................................................................01



toc &rices...............................................................................................................................01

2eta core..................................................................................................................................01

+ltman 9 score..........................................................................................................................0

Current Cor#orate trategies.........................................................................................................0

Issues )ith cor#orate strategies.....................................................................................................00

'ecommendations..........................................................................................................................04

2usiness Functional trategies......................................................................................................05

2usiness unit strategies..............................................................................................................05

'eferences......................................................................................................................................06

+##endices....................................................................................................................................0%



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4

Macro Environment Technology Trens

E!Commerce

"n the #nite States$ Aeropostale%s largest mar&et$ online sales are

gro'ing at a faster rate than the retail sector as a 'hole( "n )0*+$ e!

commerce sales in the retail sector gre' by a total of *5(+,$ 'hile total

retail sales only gre' by -(.,( /rom )0*) to )0*+$ online retail sales

increase from 5(), of total sales to (5, of total sales 1Mar&etline$ )0*52(

E!commerce is a gro'ing tren that o3ers an opport4nity for

Aeropostale to reach a broaer c4stomer base an increase its mar&et

presence( Aeropostale began its e!commerce b4siness in )005( "ts online

orers gre' by *9, in )0*- an *-, in the rst 64arter of )0*+ 1Mar&etline$

)0*52( 7nline sales provie greater prot margins for the company beca4se

merchanise travels irectly from istrib4tion centres to the cons4mer$

'itho4t inc4rring the e8tra costs of bric& an mortar stores$ thereby re4cing

capital investments$ labo4r$ an aministration costs

/ast /ashion

"n the last ten years$ many rms$ s4ch as Gap$ :M an ;ara$ have

been follo'ing the principles of /ast /ashion to get esigns from the cat'al&

into stores an to cons4mers as fast as possible 1Mar&etline$ )0*52( Clothing

is increasingly being seen as isposable an companies can increase their

sales by contin4ally o3ering ne' items(



5

This tren has been sei<e as an opport4nity by many of Aeropostale%s

competitors$ b4t not 'itho4t inc4rring some ris& to their long term

protability( /ast /ashion strategies re64ire short pro4ction an istrib4tion

lea times$ 'hich can sacrice 64ality( C4stomers may then be 4nsatise

'ith their p4rchases an the company 'ill lose the bran rep4tation they

spen their avertising b4gets promoting(

#se of C4stomer Metaata

=ata mining is increasingly being 4se to gather etaile information

abo4t cons4mers( This ata is then 4se to help a company 4nerstan their

cons4mers an better irect their e3orts to meeting their nees( Singh

e8plains that as c4stomers interact 'ith pro4ct atabases online$ patterns

emerge that reveal their preferences 1)0*+2( >4t he also ca4tions that

collecting ata is easy$ it is sorting the large vol4me of it for meaningf4l

information that is more i?c4lt 1Singh$ )0*+2(

@hile esigning an e3ective information gathering system is an

investment$ ata mining 'o4l be an opport4nity for Aeropostale to improve

its &no'lege of the c4stomer$ 'hich 'o4l reap nancial ret4rns in the long

r4n( "n an in4stry 'here trens change often an 64ic&ly$ it is very

important that Aeropostale stays in to4ch 'ith cons4mer preferences(

Economic Trens

Aeropostale primarily operates in the #S$ Canaa an 4erto Rico$

tho4gh its e!commerce b4siness is 'orl'ie( Aeropostale has eight license



6

agreements in * co4ntries that operate 95 Aeropostale stores in the Mile

East$ Asia$ E4rope an Batin America 1Mar&etline$ )0*52(

"ncome

As sho'n in /ig4re * G= per Capita$ the si8 regions that Aeropostale

operates in have isparate levels of G= per Capita( All sho' an increasing

tren$ b4t Egypt an Me8ico are at m4ch lo'er levels compare to the

@estern an Asian Regions( The E# co4ntries sho' G= that are almost

ientical$ 'hile Canaa an the #nite States are even higher( This tren is

repeate 'hen e8amining each co4ntry%s ho4sehol isposable income$ as

sho'n in /ig4re ) o4sehol =isposable "ncomeD ho'ever$ the rate that

isposable incomes are gro'ing sho' a i3erent tren( As sho'n in /ig4re -

o4sehol =isposable "ncome Gro'th Rate$ Me8ico%s isposable income is

increasing$ 'hile Canaa an the #nite States are sho'ing a slight

ecrease( apan is sho'ing an even steeper ecline in isposable income( Fo

income information 'as available for the Mile East(

These trens inicate that @estern co4ntries have more isposable

income at present$ they may have less in the f4t4re( Co4ntries li&e Me8ico

are on their 'ay to catching 4p 'ith more evelope co4ntries( This presents

an opport4nity for Aeropostale to b4il a presence in these emerging

co4ntries as their p4rchasing po'er increases(

Economic /orecasts



3

Global

The "M/ preicts overall economic gro'th of -(-, in )0*5$ an -(., in

)0* 1"M/$ )0*52( They cite favorable nancial conitions$ lo'er f4el prices$

an better labo4r mar&et conitions as rivers for increase gro'th in

avance economies$ even tho4gh Forth America has e8perience 'ea&

gro'th most recently( E4rope is sai to be on the roa to recovery$ 'ith the

e8ception of Greece( apan is e8pecte to have moest gro'th$ as

cons4mption has been lo'( Gro'th in emerging mar&et economies is

e8pecte to slo' o'n 4e to lo' commoity prices$ more stringent e8ternal

nancial conitions$ str4ct4ral failings$ an political iss4es 1"M/$ )0*52(

The global 'omens'ear mar&et gre' by )(-, in )0*+ to reach a val4e

of 50(H billion(

1Mar&etline$ )0*52( 7verall global economic gro'th provies an opport4nity

for Aeropostale to improve its earnings( "t is especially important that gro'th

is seen in Forth America as this region acco4nts for the b4l& of reven4es(

Canada

Sho'n in Table * belo'$ >M7 Fesbitt >4rns preicts that cons4mer

spening gro'th is on the ecline$ even as the real G= gro'th appears to

have hit a high 1>M7 Fesbitt >4rns$ )0*52( "n contrast$ R>C Economics has

preicte cons4mer spening to reach -, gro'th in )0*5 an then ecline

to )(H, in )0* 1R>C Economics$ )0*52(

Table * Canaian Economic 74tloo&)0*+ )0*5 )0*

Real G= Gro'th )(+, *(), )(*,Cons4mer Spening )(H, )(0, *(.,



!

Gro'thReal =isposable "ncomeGro'th

*(5, )(+, *(.,

1>M7 Fesbitt >4rns$ )0*52

There is no agreement as to the irection cons4mer spening 'ill ta&e( A

ecline in Canaian spening poses a threat to Aeropostale%s protability$

tho4gh Canaa is a less important mar&et than the #nite States(

United States

Sho'n in Table ) belo'$ the #S Congressional >4get 7?ce preicts

that if c4rrent la's remain in place$ real G= 'ill gro' by ), in )0*5$ then

-(*, in )0* 1Congressional >4get 7?ce$ )0*52( This gro'th 'ill be riven

by increase cons4mer spening$ as 'ell as b4siness an resiential

investment( The 4nemployment rate is e8pecte to fall$ increasing

competition for rms to n labo4r$ an 'ages are e8pecte to increase(

Table ) Economic 74tloo& for )0*5 to )0*9)0*5 )0* )0*H )0*. )0*

9Real G= Gro'th )(0, -(*, )(H, )(), )()

,1Congressional >4get 7?ce$ )0*52

Gro'th in G= an cons4mer spening provies an opport4nity for

Areopostale to increase earnings( Rising 'ages can be a threat beca4se it

means that the rm has to pay more for its service 'or&ers$ b4t these

'or&ers also ma&e 4p some of their target mar&et( "f the 'or&ers ma&e more

money$ they have more isposable income to spen on goos an this is an

opport4nity for Aeropostale to increase their reven4es(



%

Socio!C4lt4ral Trens

=emographics

"n the co4ntries Aeropostale operates$ there are some similarities(

roportions of females an males are ro4ghly e64al$ especially among the

yo4nger age gro4ps that ma&e 4p Aeropostale%s target mar&et( @here the

regions i3er is in the age str4ct4re of the people 1see /ig4re + Age

Str4ct4re of op4lations2( Areas li&e Egypt an Me8ico have a yo4nger

pop4lation so there is larger proportion of the pop4lation in the 0!*+ an *5!

)+ age range( These co4ntries also have a higher pop4lation gro'th rate$

meaning they 'ill contin4e to have a yo4nger pop4lation in the years to

come( These areas o3er an opport4nity for Aeropostale to capt4re ne'

a4iences$ as their target mar&et are + to *H years ol(

/ig4re 5 op4lation Gro'th Rate 1see appeni82 sho's that Egypt an

Me8ico have the fastest gro'ing pop4lation rate$ 'hereas E4rope an apan

are act4ally sho'ing negative gro'th( Canaa an the #nite States have

less than half the gro'th of Egypt an Me8ico an the E4ropean #nion has a

pop4lation of H+)$+5)$000$ 'ith an estimate pop4lation gro'th rate of

!0(*H, 1C"A$ )0*52( This means that 'hile Aeropostale%s @estern mar&ets are

getting smaller$ emerging mar&ets o3er an opport4nity to reach a gro'ing

pop4lation(

Bifestyle Trens

Ilogging is a pop4lar tren among t'eens an teens in Forth America(

Yo4T4be is a platform for people to present their o'n home vieos on any



1

topic an is one of the most visite sites on the internet 1@i&ipeia$ )0*52(

Aeropostale has capitali<e on the pop4larity of some Iloggers by recr4iting

them as bran ambassaors(

olitical an Begal Trens

Rising labor 'ages in the #S

Mar&etline has reporte an increase in labo4r costs in recent years

1)0*52( @hile the feeral minim4m 'age has remaine at H()5 since )0*0

1see Table - belo'2$ )9 states have eclare a minim4m 'age higher than

the national stanar 4e to a higher cost of living(

Table - /eeral Minim4m @age*99. )00. )009 )0*0 )0*55(*5 5(.5 (55 H()5 H()51Mar&etline$ )0*52

Aeropostale employs )9$--H people$ of 'hom )5$+0 are part!time(

Most of these employees li&ely ma&e minim4m 'age or close to it( Rising

labo4r costs 'ill li&ely pose a threat to the company%s protabilityD ho'ever$

Aeropostale also targets this pop4lation 'ith their pro4cts( An increase in

minim4m 'age 'or&ers% income means that they 'ill have more isposable

income 'ith to p4rchase Aeropostale clothes(

The Forth Amer ican /ree Trae Agreement 1FA/TA2

FA/TA came into e3ect in *99+ 'ith the goal of creating a free trae

<one bet'een the #nite States$ Canaa an Me8ico 1/lo4as : RoJas$

)00+2( The Forth American mar&et is estimate to be 'orth trillion



11

ann4ally( "t 'or&s by removing 4ties an restrictions on trae bet'een the

co4ntries( This agreement provies an opport4nity for Aeropostale to ta&e

avantage of lo' trae costs in the Forth American mar&et$ especially for

the 4nere8plore Me8ican mar&et(

S4stainability Trens

The gro'ing concern over s'eatshops

Cases of s'eatshops have been iscovere for many Forth American

apparel companies$ 'hich have severely tarnishe their rep4tations(

Aeropostale has not irectly acc4se of 4sing s'eatshops$ b4t has been

calle o4t for not having a rm policy against chil labo4r 1"nternational

Babor Rights /or4m$ )0**2( Aeropostale has been as&e to provie its

strategies for ens4ring it so4rces its pro4cts ethically$ b4t the rm has been

rel4ctant to ma&e p4blic statements( Some companies$ s4ch as Gap "nc($

have evelope coes of con4cts or cease relationships 'ith s4ppliers

over 4se of chil an force labo4r( 7thers have face m4ch p4blic criticism

for contin4e violations( These iss4es pose a great threat to Aeropostale$ as

they have fe' s4ppliers 1Mar&etline$ )0*52$ 'hich means they are v4lnerable

is their s4ppliers become s4spect$ or if factories get sh4t o'n 4e to stri&es

1Corte<$ )0*+2( Acc4sations of s'eatshop 4se also create a negative bran

image 'hich 'ill re4ce their protability(

Environmental Concerns



1

The tren to'ars fast fashion has increase the vie' that clothes are

isposable( This perpet4ates a cycle of cons4mption that ens 'ith more

clothing in lanlls( "n c4rrent b4siness moels the environmental an social

costs of pro4cts are not s4?ciently factore into total costs 1 "nternational

Apparel /eeration$ )0*52( revio4sly 4se materials are cheap at the cost of

the environment$ an this ma&es the intro4ction of ne'$ environmentally

less amaging materials articially more e8pensive( Simon /ernanes

pointe o4t that the in4stry is rel4ctant to invest in s4pply chain

improvements beca4se of the perceive i?c4lty of seeing a ret4rn on

investment$ b4t he has fo4n that in practice the opposite is tr4e

1 "nternational Apparel /eeration$ )0*52( Aeropostale is not vertically

integrate$ so they have less control over the practices of their s4ppliers(

@hile it may be protable in the short term to follo' fast fashion trens an

4se 64estionable s4ppliers an materials$ 4sing these practices is li&ely to

threaten their long term protability( C4stomers are learning more abo4t

'here their clothes come from$ an are increasingly emaning that

companies ahere to better practices in so4rcing their pro4cts(

"n4stry AnalysisAeropostale$ "nc( is a company 'ithin the apparel retail in4stry

1AKropostale$ "nc($ )0*52( The company%s main b4siness is the merchanising

of clothes that target the yo4ng members of the society age bet'een fo4r

an seventeen years( The company operates in t'o istinct segments( The

Aeropostale stores target those age bet'een fo4rteen an seventeen$ 'hile



10

(S from Aeropostale targets those age bet'een fo4r an t'elve years

1AKropostale$ "nc($ )0*52( "n )0*)$ Aeropostale e8pane its reach to the

online mar&et$ targeting oler 'omen( Aeropostale operates more than

seven h4nre stores in the #S an Canaa$ 'hile its license partners

operate more than t'o h4nre aitional stores in other regions$ incl4ing

the Mile East$ Batin America$ an E4rope 1AKropostale$ "nc($ )0*52(

Aeropostale 'as formally a branch ivision of Macy%s$ 'hich is one of

America%s largest epartmental stores( As a company that celebrate its

t'enty!seventh birthay in )0*+$ Aeropostale has evelope an e8pane(

Gro'th is riven by e8ternal factors 'ithin the retail in4stry( "t is estimate

that the apparel in4stry 'ill gro' by at least , over the ne8t year ening

)0*5( "n the year )0*+$ the in4stry generate more than --* trillion ollars

in reven4e( "n )0*- an )0*)$ reven4es 'ere estimate to amo4nt to abo4t

-*. billion an -00 billion respectively 1#S >4rea4 of Babor Statistics$

)0*-2( The retail sie of the apparel in4stry is estimate to have a ret4rn on

e64ity of abo4t )0(-,$ compare to the services ret4rn of +0,( Ret4rn on

investment is estimate to be *-,$ 'hile the ret4rn on assets is !*9*,

1YahooL "nc($ )0*52( The n4mber of large rms stans at more than one

h4nre an thirty 1YahooL "nc($ )0*52( The in4stry is highly fragmente

'ith more than eight rms having less than -5, of the mar&et 1Tres Team$

)0*52( The retail sie of the apparel in4stry employs close to half a million

people in the #nite States alone 1#S >4rea4 of Babor Statistics$ )0*-2( "t is

note that the retail in4stry contrib4tes to the #S economy more than the



14

a4tomobile in4stry( "n aition$ more than half of all garments 'orn in the

#S are man4fact4re in other co4ntries$ most notably in China an "nonesia

1American Apparel an /oot'are Association$ )0*+2(



15

Strategic gro4p map

The apparel retail in4stry can be ivie into t'o( 7ne class of

companies 'ithin the in4stry are those that o not have a enitive target

mar&et( "t is li&ely that these companies o3er other pro4cts besies clothes

an accessories( More often than not$ these 4nisting4ishe companies are

large$ employing tho4sans an even millions of people( #nisting4ishe

retailers also have tho4sans of stores an cover a m4ch larger geographical

area than the secon class( =4e to their si<e$ 4nisting4ishe retailers have

a signicant share of the mar&et( The reason co4l be that they o3er

pro4cts for the mass mar&et( As a res4lt of their large mar&et share an

'ie operations$ 4nisting4ishe apparel retailers ma&e signicant prots at

the e8pense of their smaller rivals(

7n the other han$ there are the speciali<e retailers( These

companies target a partic4lar mar&et that is ene by age or income(

Speciali<e retailers o not sell anything else b4t clothes an accessories( "n

some cases$ these specialist retailers stoc& merchanise for the target

mar&et only(

FA"Cs coes for companies in the apparel retail in4stry are bet'een

++.**0 an ++.-*0 1FA"CS Association$ )0*52( These coes cover all types

of clothing from men an 'omen to chilren an infants( They also cover

companies that sell shoes an other clothing accessories( The Strategic



16

Gro4p Map belo' sho's that Aeropostale$ in the speciali<e retailer

category$ hols *, of the mar&et share(

Table 5: Strategic Group Map of the Apparel Industr

Mar&etshare

Ann4al reven4es

Aeropostale *, *$.-.(00 Speciali<eretailers

Abercrombie :/itch

*, -$H++(00

American Eagle74ttters

*, -$*0(00

Target Corporation 5, H)$*.(00 #nisting4ishe retailers

@al!Mart Stores$"nc(

., +.5$5*(00

orter%s /ive /orces Analysis

Rivalry or =irect competitors

Aeropostale%s main rivals have mae either an e64al amo4nt of

investment in their b4siness lines or far o4tstrip Aeropostale in this aspect(

/or e8ample$ Aeropostale%s largest rival is @almart that has more than si8

tho4san stores in the #S alone 1@al!Mart Stores$ "nc($ )0*52( @almart has

., of the apparel retail in4stry in the #S 1Tres Team$ )0*52( The in4stry%s

secon largest company$ Target Corporation$ has close to one tho4san

stores in the #S alone 1Target Corporation$ )0*52( @hile these t'o

companies are not irect competitors to Aeropostale$ they o3er clothing

similar to that o3ere at any Aeropostale store( o'ever$ a maJor i3erence



13

bet'een Aeropostale an its t'o main rivals is that the former is more

foc4se on meeting the nees of a partic4lar mar&et segment( Therefore$ its

more irect rivals can be fo4n in Abercrombie : /itch an American Eagle

74ttters( Abercrombie : /itch have almost fo4r h4nre stores in the #S

'hile American Eagle 74ttters has one tho4san stores( Aeropostale an its

t'o close rivals have mae almost the same amo4nt of investment in assets(

"n the year ene )0*+$ Aeropostale reporte an asset base of 5*) million$

'hile Abercrombie : /itch an American Eagle 74ttters ha an asset base

of )(5 billion an )(0 billion$ respectively over the same perio

1Abercrombie : /itch$ )0*5D American Eagle 74ttters$ )0**52( Aeropostale%s

rivals also employe more people an o3ere a 'ier range of pro4cts( This

is not to mention that each rival has evelope an e8tensive s4pply chain

that ma&es the cost of e8it increase signicant( Accoring to orter$

companies that have mae signicant investments in their operations are

less 'illing to leave 1)00.2( Therefore$ rivalry in an in4stry s4ch as the

apparel retail in4stry is e8pecte to be e8tremely sti3( >ase on these

facts$ the threat of rivalry from irect competitors$ receives a high rating of .

o4t of *0(

Threat of Fe' Entrants

>arriers to entry are a signicant factor in assessing the possibility of

rivalry bet'een c4rrent an ne' companies( @here entry barriers are lo'$

rivalry is high( igh entry barriers create room for J4st b4t a fe' companies

that have no incentive to compete against each other 1orter$ )00.2( As



1!

previo4sly state$ companies in the apparel retail in4stry have mae

signicant investments in their asset an store base( @hile these assets

have been b4ilt over several ecaes$ they inicate that entry into the

in4stry is a capital intensive vent4re( o'ever$ ne' technologies are

changing the 'ay the c4stomer shops an retail stores operate( "n the

moern conte8t$ it is possible for a small rm to o3er J4st abo4t the same

variety of pro4cts that can be fo4n in the largest of physical stores( "n

aition$ smaller companies are eveloping 'ays of ma&ing their operations

more e?cient than those of their larger rivals( The res4lt is that there is

intense competition that is base on price( The e3ect of re4cing entry

barriers can be seen in other co4ntries 'here larger companies$ sometimes

controlling as m4ch as -0, of the mar&et are reporting losses solely 4e to

the entry of smaller an more nimble rivals( Therefore$ it is pla4sible to ran&

the threat of ne' entrants as H o4t of *0$ especially for Aeropostale%s e!

commerce segment(

Threat of S4bsti t4tes

The apparel retail in4stry o3ers the mar&et a pro4ct that has no

pla4sible s4bstit4te as people in 'estern societies selom ma&e their o'n

clothes in toay%s times( C4stomers m4st b4y clothes 'ith the only factor

being the price an esire bran( @hen the c4stomer consiers the latter

factors$ then the threat of s4bstit4tion increases ramatically( This 4e to the

fact that s'itching costs are non!e8istent$ as c4stomers can move from

b4ying from a high en store s4ch as Aeropostale to a lo'er en retailer s4ch



1%

@almart( The ecision co4l be base on the perception that the pro4ct 'ill

o3er the same 4tility 'hen strippe of bran an price( Yet$ some c4stomers

'ill prefer to b4y from the same store o'ing to preference of 64ality over

price an bran( This serves to minimally re4ce the threat of s4bstit4tion(

Therefore$ the threat of s4bstit4tion among apparel retail stores is high at .

o4t of *0(

o'er of S4ppliers

There is little i3erence bet'een clothes sol at Aeropostale an its

closest rivals( "nee$ the clothes sol by any of these retailers are li&ely to

have been man4fact4re by the same s4pplier 14chstet$ )0*52( 7'ing to

these in4stry feat4res$ each store chain enters into long term contracts 'ith

the preferre s4pplier$ often limiting the possibility of price hi&es( Even 'hen

there are isagreements bet'een the store an its s4ppliers$ there are ample

alternatives that can be 4se 'itho4t leaing to a signicant increase in

s4pply chain costs( "t is also to be consiere that these s4ppliers are 'illing

to engage 'ith the store chain companies 4e to the signicant prots that

are to be mae by selling clothes in the 'estern 'orl%s large apparel

mar&et( An aitional factor is that is that is challenging for the s4pplier to

move 4p'ars in the val4e chain an start their o'n stores in the #S( The

prohibitive cost of s4ch ambitions serve to re4ce the po'er of s4ppliers

signicantly( o'ever$ s4ppliers can Join forces against the #S apparel

in4stry or have their governments impose p4nitive meas4res that



g4arantee more ret4rns for the s4ppliers an lo'er prots for the store

chain( Therefore$ the po'er of s4ppliers is lo' at - o4t of *0(

o'er of >4yers

Clothes are commoities that a3or the c4stomer signicant po'er

against the retail stores( These pro4cts have little or no i3erentiation$

regarless of 'here they are bo4ght( /or e8ample$ a shoe mae by Fi&e is

e8actly the same regarless of 'here it is bo4ght( The lo' i3erentiation in

pro4cts ma&es it easy an less costly for c4stomers to s'itch from one

retailer to the ne8t( o'ever$ there are barriers to b4yer bargaining po'er(

7ne$ it is almost impossible for the b4yer to begin ma&ing clothes in their

ho4ses or cottage in4stries( Therefore$ they cannot integrate bac&'ars in

the val4e chain( "n aition$ c4stomers are highly fragmente( "nee$ if one

'as to consier the si8 tho4san companies that ma&e 4p the apparel retail

in4stry$ then the mar&et is mae 4p of the entire pop4lation in the #S( "t is

not possible for these c4stomers to ban together against retail companies

an eman better prices( Therefore$ the po'er of b4yers is moerate at 5

o4t of *0(

/ive /orces S4mmary

>ase on the analysis provie above$ the highest threat to the

apparel retail in4stry comes from rivalry bet'een e8isting companies(

=irect rivalry shares the pole position 'ith the threat of s4bstit4tes( The thir

highest threat is from the threat of ne' entrants$ 'hile the fo4rth threat is



1

from the po'er of b4yers( The lo'est threat is in the bargaining po'er of

s4ppliers(

=riving /orces

The retail apparel in4stry is 4ner press4re from changes in

technology 1>rynJolfsson$ 4$ : Rahman$ )0*-2( Changes in technology have

serve to lo'er the barriers of entry signicantly( /or e8ample$ it is no'

possible for a small start!4p to reach millions of c4stomers 'itho4t having to

open even one store( Companies that have gro'n in this 'ay incl4e

Ama<on(com$ 'hich is val4e many times more than large bric& an mortar

stores s4ch as Costco an Target 1>rynJolfsson$ 4$ : Rahman$ )0*-2( There

are tho4sans of other similar stores operating in the #S alone( @itho4t

having to pay the costs of constr4cting an operating store locations an by

4sing moern technology to enhance operational e?ciency$ online retailers

have force bric& an mortar companies to reconsier their moe of

operation( /or instance$ nearly all bric& an mortar stores r4n some form of

online retailing front(

@hile having a irect impact on the barriers of entry$ technology also

increases the bargaining po'er of cons4mers( #ner the ol setting$ the

c4stomer 'as completely reliant on the broacast meia to inform himher of

price re4ctions across i3erent stores( The process 'as time cons4ming

an force c4stomers to shop from J4st a fe' i3erent o4tlets( o'ever$ the

moern setting allo's for the creation of price comparison 'ebsites

1>rynJolfsson$ 4$ : Rahman$ )0*-2( Moving from one store to the ne8t is



min4tes a'ay( Therefore$ c4stomers can shop for better bargains regarless

of location( Therefore$ c4stomers can bargain for lo'er prices 'hile

companies ght base on 'hich one o3ers the lo'est price( >ase on these

factors$ evelopments in technology in the retail in4stry are arg4e to be

revol4tionary(

S4mmary of "n4stry Analysis

The apparel retail in4stry is c4rrently an 4nattractive mar&et( "t is

common for companies in the in4stry to ma&e losses in consec4tive years(

/or e8ample$ Aeropostale has ha a net loss margin of *-, bet'een the

year )0*- an )0*)( "n the last three years ening )0*5$ Aeropostale only

mae a prot in )0*) 'hen their margin 'as J4st *(+,( The ret4rn on

investment stans at !*-,$ 'hile the ret4rn on e64ity is e8tremely lo' at

!**9,( The only reprieve for the in4stry is that it is e8pecte to gro' at

abo4t , in the near f4t4re( Bo' protability occ4rs against a bac&rop of

the fact that clothes are an essential h4man nee( o'ever$ sti3 competition

'ithin the in4stry is to blame for lo' ret4rns( The #S government estimates

that there are more than one h4nre an si8ty companies that sell clothes

an their accessories in )0*+( The large n4mber of companies creates room

for intense price rivalry$ th4s lo'er prots( "n aition$ the in4stry is

e8pose to other companies from o4tsie the #S( These foreign companies

o3er lo'er prices$ re4cing protability even f4rther(

The f4t4re of the retail in4stry oes not loo& bright( =evelopments in

the 4se of technology have shifte po'er from the companies to c4stomers(



0

Technology enhances the ability of a c4stomer to compare prices 'hile

enhancing price rivalry among e8isting companies( >ase on these facts$ it

can be e8pecte that the attractiveness of the apparel retailing in4stry 'ill

contin4e to ecline in the f4t4re(



4

Ial4e chain an "nternal Analysis

A val4e chain is a series of activities or processes 'hich aims at

creating an aing val4e to a pro4ct at every step 4ring the pro4ction

process( The b4siness activities are ivie into primary activities an

seconary activities( The primary activities are irectly relate to the

creation of a goo or service 'hile the s4pport activities help in enhancing

the e?ciency an 'or& to obtain a competitive avantage among peers(

rimary activities

Inbound logistics

=4ring scal )0*+$ Aeropostale so4rce appro8imately .*, of their

merchanise from their top ve merchanise venors( Most of their venors

maintain so4rcing o?ces in the #nite States$ 'ith the maJority of their

pro4ction factories locate in Asia an Central America( "n an e3ort to

minimi<e c4rrency ris&$ all payments to their venors an so4rcing s4ppliers

are mae in #(S( ollars( They engage a thir party inepenent contractor

to visit the pro4ction facilities that s4pply them 'ith their pro4cts( This

inepenent contractor performs a4its at each factory an as a res4lt$

assesses the compliance of the facility 'ith$ among other things$ local an

#nite States labor la's an reg4lations as 'ell as fair trae an b4siness

practices(

Bi&e most retailers$ Aeropostale o4tso4rces its man4fact4ring

operations to co4ntries 'here labor costs are cheaper( The retailer is highly



5

epenent on a small n4mber of venors for its inventory( A change in

strategy of any of these venors or a elay in s4pply can aversely a3ect the

retailer( "n orer to re4ce the lea time$ retailers s4ch as Abercrombie :

/itch starte so4rcing their merchanise form 'ithin the #(S( an Central

America(

The average ays sales of inventory 1=S"2 of Aeropostale is -+(-+ over

the past + years 'hich is lo'er than Abercrombie$ Ascena retail an

American eagle 1see table 5 belo'2( This calc4lation also sho's the li64iity

of inventory( Shorter =S" means the company can convert its inventory into

cash sooner( "n other 'ors$ the inventory is e8tremely li64i an more li64i

inventory means the companyNs cash Oo's 'ill be better(

Table 5 Average =ay Sales "nventory 1=S"2

)0*5 )0*+ )0*- )0*)Aeropostale -(H. -+(5* -)(+ --(9

Abercrombie *)(+- **-(-) *0H(-. *0(+American eagle +.(9) 5*(9 )()* *(0Ascena retail .9(*H 9-(H) 9+(. ***())

!perations

As of an4ary -*$ )0*5$ Aeropostale operate .0 stores$ consisting of

HH- AKropostale stores in all 50 states of #SA an 4erto Rico an *

AKropostale stores in Canaa( They also operate ) (S( from AKropostale

stores in *) states$ primarily in o3!mall locations(

American eagle has company operate stores in the #nite States$

Canaa$ Me8ico$ ong Pong an China( American Eagle 74ttters an its



6

s4bsiiary aerie merchanise is also available at international store locations

manage by thir party operators( As of /ebr4ary *$ )0*+$ American eagle

operate 9++ American Eagle 74ttters stores an *)) aerie stan!alone

stores(

Abercrombie$ at the en of /iscal )0*+$ operate 99 stores( "n the #S$

it operate H99 stores an internationally it operate *H0 stores(

Ascena retail gro4p operates thro4gh its s4bsiiaries 1Bane >ryant$

ma4rices$ =ressbarn an Catherines bransD an for t'een girls$ 4ner the

4stice bran2 ecommerce operations an appro8imately -$900 stores

thro4gho4t the #nite States an Canaa(

=eclining mall tra?c$ a highly promotional an competitive teen retail

environment an a shift in c4stomer eman a'ay from logo!base pro4ct

have contrib4te to their 4nfavorable nancial performance( Aeropostale has

inc4rre eclining comparable sales an net losses from operations in scal

)0*+ an )0*-( This has le to cash o4tOo's from operations of 55(H

million in scal )0*+ an -.(+ million in scal )0*-(

Aeropostale 'as one of the strongest performers 4ring the

recessionary environment of )00.!)009 as it o3ere basic pro4cts at

relatively lo' prices( o'ever$ as the economy starte to improve$ #(S(

b4yers s'itche to other fashion!for'ar retailers an Aeropostale remaine

foc4se on its logo b4siness basic t!shirts$ Jeans an hooies bearing the

Aeropostale logo( As a res4lt$ the retailerNs reven4e per s64are feet has been

on a o'nslie since )0*0( =4e to the lac& of fashionable merchanise$



3

AeropostaleNs reven4e per s64are foot ecline to 5. in )0** an 5+. in

)0*)( Altho4gh the company trie to boost its fashion o3erings in )0*- 'ith

certain Qpreppy% pro4cts$ c4stomers respone negatively to the rastic

esign changes an high prices( The company ha to 4sher heavy

mar&o'ns to clear its inventory$ 'hich 'eighe heavily on its sales( @ith

lo' store tra?c an a steep ecline in average 4nit retail$ AeropostaleNs

reven4e per s64are foot fell to +) in )0*- an +-. in )0*+( o'ever$

average sales per s64are foot of Aeropostale over the past fo4r years is

highest compare to its irect competitors 1see Table belo'2$ 'hich

inicates that management has been more s4ccessf4lly mar&eting an

isplaying the store%s pro4cts to achieve sales(

Table Sales per S64are /oot 1in Million #S=2)0*+ )0*- )0*) )0**

Aeropostale +-. +) 5+. 5.Abercrombie -.* +*H +.5 +-American eagle +++ +.9 +-. +))

Ascena retail ))5 ))+ *H *5+

Aeropostale%s inventory t4rnover ratio has been ecreasing for the past

years( "n )0**$ inventory t4rnover ratio 'as *0(.-$ 'hich increase to **()H

in )0*) b4t gra4ally ecrease in )0*- an )0*+ to *0(5. an 9(9)

respectively 1see Table H belo'2( A lo' t4rnover implies poor sales an$

therefore$ e8cess inventory( A high ratio implies either strong sales or

ine3ective b4ying( Aeropostale%s inventory t4rnover ratio over the past fo4r

years has been the highest compare to its irect competitors li&e

Abercrombie$ American eagle an Ascena retail gro4p



!

Table H "nventory T4rnover Ratio)0*+ )0*- )0*) )0**

Aeropostale 9(9) *0(5. **()H *0(.-Abercrombie )(.9 -()) -(+ -(+-American eagle H(+ H(0- 5(.H 5(9.

Ascena retail +(09 -(.9 -(.5 -().

The comparable store sales metric ga4ges the amo4nt of reven4e a

retail location generate in the most recent acco4nting perio$ relative to the

amo4nt of reven4e it generate in a similar perio in the past( Aeropostale

ha the highest comparable sales ecline over the past fo4r years compare

to its irect competitors Abercrombie$ American eagle an Ascena retail

gro4p( "n scal year )0*+$ Aeropostale%s comparable sales ecline 'as ** ,

'hich is m4ch higher than its irect competitors 1See Table . belo'2( This

sho's that Aeropostale is really str4ggling 'ith its reven4e an gro'th

margin( The sales are eclining constantly for past several years an the

management has not been able to stem the ecline(

Table . Comparable Sales Change)0*+ )0*- )0*) )0**

Aeropostale !**, !*5, !), !*,Abercrombie !., !**, !*, !5,American eagle !, 9, +, !*,Ascena retail !-, ), 5, ,

Mar&eting an Avertising

Aeropostale believes their stores$ their e!commerce 'ebsites$ an

social meia channels are the primary means to comm4nicate their message

an provie their bran e8perience( Their mar&eting e3orts are foc4se on

online an in!store comm4nications$ promotions an internal as 'ell as



%

e8ternal avertising( Aeropostale e8pans$ tesst an moies their

mar&eting e3orts base on foc4s gro4ps$ s4rveys an cons4mer feebac&(

Aeropostale mar&ets in!store 'ith large images in the store!front 'ino's

an at the chec&o4t area( "n aition$ they isplay promotional messages

an images alongsie pro4ct isplays an on other to4ch points(

ricing is the &ey component of Aeropostale%s s4ccess( Their

merchanise$ 'hich they believe is of comparable 64ality to that of their

primary competitors$ is generally price lo'er than their competitors%

merchanise( "n aition$ their b4siness is highly promotional( They con4ct

promotions in their stores thro4gho4t the year$ generally lasting any'here

from t'o to fo4r 'ee&s in length(

Aeropostale stores% E>"T=A margin ecline massively in )0** 4e to

an increase in cotton prices an high mar&o'ns( "n )0*)$ better cotton

prices i not help the retailer as it o3ere heavy isco4nts to attract store

tra?c( This tren contin4e in )0*- 4e to lo' bran loyalty an an overall

'ea&ness in the #(S( retail in4stry( AeropostaleNs E>"T=A margins fell to

(9, in )0*- an another promotion rich year got the company to )(*, in

)0*+(

Mar&et share of Aeropostale has been ecreasing over the past ve

years( "n )0*5$ the mar&et share of Aeropostale is less than *,( Altho4gh

mar&et shares of all the irect competitors are ecreasing over the past

years$ Aeropostale%s mar&et share is least among the irect competitors li&e



0

American eagle$ Abercrombie an /itch an Ascena retail 1see /ig4re

Retailers Mar&et Share in Appeni82(

Aeropostale%s reven4e has been ecreasing over the past fo4r years at

a compo4ne ann4al gro'th rate of !5(.H ,( Aeropostale%s reven4e ecline

rate is the 'orst compare to its irect competitors 1see /ig4re H Reven4e in

Appeni82( Altho4gh the reven4e gro'th rate of all the other irect

competitors e8cept Ascena has been eclining$ rates are lo'er than

Aeropostale%s( 7nly Ascena%s ann4al reven4e gro'th rate has been positive

over past fo4r years( Absol4te reven4e of Aeropostale in )0*+ 1*.-9 million

#S=2 is also the lo'est compare to its irect competitors li&e Abercrombie$

Ascena an American eagle 1see Table 9 belo'2(

Table 9 Reven4e 1in Million #S=2Aeropostale

Abercrombie Americaneagle

Ascena

)0*+ *.-9 -H++ -).- +.0-

)0*- )09* +**H --0 +H9*)0*) )-. +5** -+H +H*5)0** )-+) +*5. -*0 --5-

Aeropostale%s absol4te mar&eting e8penses has been the lo'est

among its irect competitors over past fo4r years 1see /ig4re . in Appeni82(

The mar&eting to sales percentage has also been the lo'est for Aeropostale

over past fo4r years( Aeropostale has been spening only *, of its reven4e

over mar&eting 'here as Ascena has been spening abo4t + to 5, of its

reven4e over mar&eting 1see Table *0 belo'2(

Table *0 Mar&eting to Sales ,



01

Aeropostale

Abercrombie

Americaneagle

Ascena

)0*+ *, ), -, +,)0*- *, ), -, -,)0*) *, *, ), 5,

!utbound logistics

To s4pport Aeropostale%s stores in the #nite States an 4erto Rico$

they maintain t'o istrib4tion centers to process merchanise an

'areho4se inventory( They lease a -*5$000 s64are foot istrib4tion center

facility in So4th River$ Fe' ersey( They also lease a secon istrib4tion

facility in 7ntario$ California 'ith -0$000 s64are feet of space( The sta?ng

an management of these istrib4tion facilities is o4tso4rce to a thir party

provier that operates each istrib4tion facility an processes their

merchanise( There have been no 'or& stoppages or isr4ptions since the

inception of their relationship 'ith this thir party provier in *99*$ an they

believe that the thir party provier has a goo relationship 'ith its

employees(

S4pporting activities

Infrastructure

Aeropostale locates their stores primarily in shopping malls$ o4tlet

centers an$ to a m4ch lesser egree$ lifestyle an o3!mall shopping centers$

all locate in geographic areas 'ith the highest possible concentrations of

target c4stomers( AKropostale stores average appro8imately -$.00 s64are

feet each an their (S( from AKropostale stores average appro8imately -$H00



0

s64are feet each( AKropostale stores$ along 'ith o4r (S( from AKropostale

stores$ are organi<e by region an f4rther bro&en o'n into istricts( A

regional manager manages each of o4r *0 regions an each region

encompasses appro8imately eight to *0 istricts( Each istrict is manage by

a istrict manager an encompasses an average of eight stores( Their

corporate hea64arters irects the merchanise assortments$ merchanise

pricing$ store layo4t$ inventory management an in!store vis4als for all of

their stores(

Human "esources

As of an4ary -*$ )0*5$ Aeropostale employe -$)- f4ll!time an

*H$HH* part!time employees( They employe HH of their employees at their

corporate o?ces an in their istrib4tion centers an )0$)+0 at their store

locations( The n4mber of part!time employees O4ct4ates epening on their

seasonal nees( Fone of their employees are represente by a labor 4nion

an their relationship 'ith their employees are sai to be goo(

Technolog

Aeropostale%s management information systems provie a f4ll range of

retail$ nancial an merchanising applications( They 4tili<e in4stry specic

soft'are systems to provie vario4s f4nctions relate to point!of!sale$

inventory management$ logistics an so4rcing$ planning an replenishment$

an nancial reporting( They contin4e to invest in technology to s4pport an

enhance their b4siness processes(



00

7verall "nternal Analysis

The most important val4e chain activity for the company is operations$

inbo4n logistics an mar&eting( 7verall Aeropostale%s operation has been

very goo "nventory t4rnover ratio$ ays inventory an sales per s64are foot

have been better than Abercrombie$ American eagle an Ascena( This sho's

that one of the biggest strengths of Aeropostale is its operational e?ciency(

Altho4gh this avantage is neither rare nor non!imitableD other companies

co4l easily s4rpass Aerpostale in its operational e?ciency( "nbo4n logistics

of the company has also been very goo as ays inventory is very lo'

compare to its irect competitors( This strength is also neither rare nor non!

imitable as other companies can s4rpass Aeropostale%s ays inventory in the

f4t4re 'ith better s4pplier relationship an e3ective inventory management(

Aeropostale%s mar&eting strategy is e?cient b4t mar&eting to sales

percentage is very lo' compare to its irect competitors( The company

co4l be spening a larger percentage of their costs on mar&eting an

avertisement to be competitive in the mar&et place( The company%s biggest

strength is pricing( Aeropostale%s pro4ct prices are lo'er than its

competitors% pro4ct prices( This gives the company avantage over its

irect competitors b4t this can also be isavantageo4s for the company as

its pro4cts co4l be perceive as cheap an of inferior 64ality( Especially

'hen the reven4es are falling an C7GS has been increasing for the



04

company$ selling pro4cts at a lo' price might not be an e3ective strategy(

This strength is neither rare nor non!imitable as other companies li&e

Abercrombie an American eagle can rop their prices too an bring their

prices to be at par 'ith that of Aeropostale%s(

The maJor challenge for the company is its very high cost of goos sol

to sales margin( Aeropostale%s C7GS to sales percentage has been nearly

.0, over the past fo4r years 1see /ig4re 9 C7GS to Sales Ratio in

Appeni82( Compare to Aeropostale$ Abercrombie%s C7GS margin has been

nearly -.,$ American eagle%s C7GS margin has been nearly +, an

Ascena%s C7GS margin has been nearly ++, over the past fo4r years(

=4e to this very high C7GS margin$ Aeropostale%s E>"T margin has

been the lo'est compare to its irect competitors( Aeropostale%s E>"T

margin has been negative in )0*+ an )0*- 'hereas for Abercrombie an

American eagle it has been positive 1see /ig4re *0 E>"T Margin in Appeni82(

7ver the past fo4r years$ Aeropostale has been str4ggling to generate

s4bstantial earnings before interest an ta8es( E>"T is very important for any

company to gro' an s4stain in the mar&et place( A negative E>"T is a h4ge

concern for shareholers an management ali&e( A constant negative E>"T

can lea Aeropostale to ban&r4ptcy as it 'ill not be able to pay for its ebts(

Moreover$ Aeropostale mainly o3ers basic pro4cts s4ch as logo

printe t!shirts an hooies$ an Jeans at a3orable price points( The retailer

is not &no'n for o3ering fashionable an treny pro4cts( 7ne of the main



05

reasons 'hy Aeropostale s4cceee 4ring the recession 'as beca4se it

e3ectively f4llle b4yersN nee for cheap clothing( o'ever$ this i not

'or& 'ell for its bran image( 7ver the years$ #(S( b4yers evelope a

perception that Aeropostale is a cheap basic bran( This has severely

impacte the companyNs res4lts post!recession 'ith cons4mers shifting their

preference to fashionable pro4cts(

At present$ the #(S( teen apparel mar&et isnNt at its best 4e to lo'

cons4mer spening an high 4nemployment rate$ as teenagers either

epen on their parents for money or they earn themselves( @hile a4lts are

preferring to save money instea of ma&ing imp4lse p4rchases$

4nemployment rate in the teenage segment remains high in the range of

)*,!)+,( =4e to this$ a n4mber of retailers s4ch as American Eagle

74ttters an Abercrombie : /itch have str4ggle 'ith their gro'th(

Aeropostale c4rrently is moerately 4nattractive 4e to negative E>"T$

negative net prot an negative R7E(

Corporate Bevel AnalysisMar&et Capitali<ation

Aeropostale%s mar&et capitali<ation is signicantly lo'er than any of its

competitors 1see /ig4res *) an *- Mar&et Capitali<ation in Appeni82( 7ver

the past si8 scal years$ Aeropostale%s mar&et capitali<ation has re4ce to

, of 'hat it 'as in an4ary )0*0( This signicant ecrease is primarily



06

attrib4te to the ecrease in share price by appro8imately 90,( The n4mber

of o4tstaning shares has remaine fairly steay over the past co4ple of

years( American Eagle 74ttters has achieve stable mar&et capitali<ation

by having their stoc& price only O4ct4ating by a ollar 'ith the e8ception of

in )0*) 'hen it increase by nearly 5 to be traing aro4n )0(

Abercrombie : /itch reali<e a signicant increase at the beginning of the

ecae follo'e by ecreases in the past t'o years( These changes are

attrib4te to changes in the stoc& price$ an an aggressive share rep4rchase

program( Ascena has appro8imately *0500 times the mar&et capitali<ation of

Aeropostale( This is largely in part to the n4mber of o4tstaning shares(

@hile Aeropostale$ American Eagle$ an Abercrombie all have less than

)00$000 o4tstaning shares$ Ascena has over *- million shares

o4tstaning( @ith this m4ch of a i3erence it is not 4sef4l to incl4e Ascena

in comparison( /4rthermore Ascena also has a 'ier range of bran

segments in the retail in4stry(

/inancial erformance

Stoc& rices

@ith the e8ception of Abercrombie : /itch$ the clothing retail

companies% stoc& prices follo'e general mar&et trens in )0*0 an )0**

1see g4re *+ Stoc& rices in Appeni82( "n )0*) ho'ever$ Aeropostale

began to 4nerperform in relation to its competitors an the overall stoc&

mar&et( Since then Aeropostale%s stoc& price has only contin4e to ecline to

no' being 'orth only a fraction of 'hat it 'as at the beginning the the )0*0



03

scal year( Competitors are all 'ithin )0, of 'here they 'ere in early )0*0(

/or the past three months$ analysts have not been recommening the

p4rchase of Aeropostale 'ith the analysis being that the stoc& is

4nerperforming( As a res4lt$ it is not s4rprising to see that their stoc& price

is as lo' as it is( "n comparison$ both American Eagle an Ascena are

o4tperforming analysts% e8pectations$ ho'ever the analysts are not

recommening investors p4rchase the stoc&s( "n the past three months

Aeropostale%s stoc& price has gone from being val4e at over *(50 to as lo'

as 0(+H( The Fe' Yor& Stoc& E8change has since given a compliance

notication beca4se all stoc&s liste on the e8change m4st have a share

price of at least * to remain liste 1Team$ )0*52 "n orer to comply$

Aeropostale may have to perform a reverse stoc& split in orer to increase

the stoc& price an remain liste on the stoc& e8change( >eing eliste

'o4l have signicant negative implications relating to their ability to raise

capital(

>eta Score

The beta of a stoc& assesses its volatility an ris& in comparison to the

mar&et as a 'hole( "n comparison to competitor an the in4stry$

Aeropostale has a beta that is more than t'ice that of the ne8t highest beta

1see /ig4re *5 >eta Scores in Appeni82( @ith its beta J4st 4ner -$

Aeropostale is almost )00 times ris&ier than the mar&et as a 'hole( A ris&ier

stoc& re64ires a higher rate of ret4rn$ ho'ever Aeropostale has the lo'est



0!

stoc& price an is not generating any earnings for investors nor is it eclaring

iviens(

Altman ; score

The Altman ; score is an inicator 4se to preict ban&r4ptcy 'here

the higher the score the less li&ely it is for the company to eclare

ban&r4ptcy( A score belo' *(. inicates a very high chance that the company

'ill go ban&r4pt$ an a score bet'een *(. an - is a 'arning that the

company is not in the best position an action is neee to avoi

ban&r4ptcy(i Among Aeropostale%s competitors$ the company 'ent from

having the highest score in )0*0 to the lo'est score at the en of the )0*+

scal year an is c4rrently at a score belo' - 1see /ig4re * Altman ;

Scores in Appeni82( This tren follo's a similar pattern to their ecreasing

stoc& price$ 'hich$ sho4l it contin4e Aeropostale 'ill be at a enite ris& of

ban&r4ptcy(

C4rrent Corporate Strategies

Aeropostale%s core b4siness is locate at the en of its val4e chain(

Aeropostale is a retail company that interacts irectly 'ith cons4mers(

Aeropostale o'ns three b4sinesses Aeropostale$ (S( from Aeropostale$ an

Goane(com( Each of these b4sinesses targets a slightly i3erent cons4mer

segment$ ho'ever all three are consiere fashion retailers( "n aition to

o'ning these three b4sinesses$ Aeropostale also has control over its bran

merchanise from esign thro4gh to sale of merchanise( Aeropostale



0%

operates bric& an mortar stores an online retailing b4t 4e to a ecline in

store sales$ Aeropostale has place more emphasis on e!commerce an

close *)) Aeropostale stores in )0*+ to generate reven4e(

"ss4es 'ith corporate strategies

Aeropostale%s corporate strategies appear to be reactionary to

problems that arise an are not proactive in anticipating mar&et changes

before they happen( /4rthermore$ the changes provie short!term sol4tions

instea of creating long!term opport4nities( "n the ac64isition on Goane(com

in )0*) Aeropostale 'as hoping to be able to 4se the synergies of this online

retailer to e8pan into its other b4siness lines$ ho'ever Aeropostale

contin4e to place emphasis on its retail stores in malls( Aeropostale sho4l

have reacte at the rst sign of any change in cons4mer shopping habits$

not only in ho' cons4mers shop b4t also in 'hat they b4y( /ashion trens

have change signicantly in the past 5 years an cons4mers no longer

esire brane varsity style clothing$ their competitors American Eagle an

Abercombie : /itch have aapte to this change in cons4mer preferences by

o3ering more fashion for'ar clothing( Even 'hen Aeropostale partnere

'ith pop4lar teen icon >ethany Mota$ the strategy 'as short term in nat4re(

@or&ing 'ith a celebrity is only benecial as long as they remain relevant in

the meiaD in partic4lar 'ith teen an "nternet icons! in a year or t'o there

'ill be someone else 'ho is more pop4lar(



4

The biggest problem 'ith Aeropostale%s strategy is that it is not

generating shareholer 'ealth( The share price has been on the ecline for

the past ve years an Aeropostale is at ris& of being eliste from the Fe'

Yor& Stoc& E8change 'hich 'o4l ma&e it very i?c4lt to raise capital given

ebt levels( /4rthermore$ ebt covenants may become an area of concern

sho4l Aeropostale become eliste(ii

Recommenations

Aeropostael sho4l begin by employing a reverse stoc& split to

increase the price of shares on the stoc& mar&et( This is a temporary short!

term sol4tion to avoi being eliste that 'o4l have signicant long!term

implications regaring the ability to nance f4t4re gro'th thro4gh e64ity(

/ollo'ing this$ Aeropostale sho4l consier changing their top leaership( "t

is evient that c4rrent leaership has not been able to bring the company to

nancial s4ccess 'hen other companies in the in4stry have been able to

aapt to mar&et challenges( The ne' leaership m4st ma&e a ecision on

'hether to foc4s on retail operations or online operations since the c4rrent

foc4s is some'hat 4nclear( >ase on mar&et trens$ the company sho4l

foc4s its strategy to online retailing( 7nline retailing is a gro'ing tren an

provies the capabilities to more easily e8pan internationally an re4ces

the e8pensive costs of leasing an operating stores in malls( This may enable

to ta&e avantage of the opport4nity of emerging mar&ets 'ith lo' ris& an

capital o4tlay( Shopping trens are shifting to being able to b4y anything

from the comfort of one%s home( o'ever there are challenges that are



41

associate 'ith this strategy$ especially 'hen the target mar&et for both

Aeropostale an (S( from Aeropostale are teenagers an chilren

respectively( "n orer to ma&e p4rchases online these inivi4als 'ill nee

access to creit cars an other methos to ma&e payments online that are

typically reserve to inivi4als over the age of *.( This 'ill be less of a

challenge for (S( from Aeropostale beca4se parents are the ones to ma&e

clothing p4rchases for that age gro4p regarless( o'ever$ for the teenagers

'ho Aeropostale stores target$ online retailing 'ill re64ire innovative 'ays

for these inivi4als to ma&e the p4rchases 'ith their o'n money( This

challenge co4l present an opport4nity for Aeropostale to 'or& 'ith nancial

instit4tions an companies s4ch as ayal to create a m4t4ally benecial

online payment system for the yo4nger age gro4ps(

>4siness /4nctional Strategies

>4siness 4nit strategies

All of Aeropostale%s b4sinesses strive for a cost foc4s strategy( The

pro4cts they o3er are fairly generic an can easily be replicate by

competitors( o'ever they are very conscio4s abo4t 'ho is their target

mar&et( Their target c4stomers are price conscio4s an have lo' bran

loyalty( Aeropostale an (S from Aeropostale stores i3erentiate themselves

thro4gh the shopping e8perience for both parents an chil instea of

pro4ct 4ni64eness( Aeropostale is rifting from their strategic foc4s in not

tailoring the placement aspect of their mar&eting mi8( >y not foc4sing on

either online retail or in!store retail the company is neglecting the nee to



4

foc4s on their target mar&et( "n orer to be s4ccessf4l 'ith a foc4s strategy

the company m4st gain a competitive avantage thro4gh pro4ct innovation

or mar&eting( Aeropostale has not been able to achieve a competitive

avantage beca4se they have not aapte an change their strategic

approach 'hen the nees of their cons4mers also change( Competitors

have been able to replicate the s4ccessf4l aspects of their b4siness an

those feat4res are no longer 4ni64e(

References

+(ercrom(ie : Fitch. ,15. Annual report. *e) +l(any;7hio< +(ercrom(ie : Fitch.

+=ro#ostale; Inc. ,15. Annual report. *e) >or< +=ro#ostale; Inc.

+merican +##arel and Foot)are +ssociation. ,14; ?anuary 5. AAFA Releases ApparelStats

2013 and ShoeStats 2013 Reports. 'etrie/ed from +merican +##arel and Foot)are

+ssociation< htt#s<@@))).)e)ear.org@aafa-releases-a##arelstats-10-and-shoestats-

10-re#orts@

+merican +##arel and Foot)are +ssociation. ,14; ?anuary 5. ++F+ 'eleases +##areltats

10 and hoetats 10 'e#orts. From +merican +##arel and Foot)are +ssociation<

htt#s<@@))).)e)ear.org@aafa-releases-a##arelstats-10-and-shoestats-10-re#orts@

+merican Eagle 7utfitters. ,115. Annual report. &itts(urgh< +merican Eagle 7utfitters.

2M7 *es(itt 2urns. ,15; 7cto(er 0. Canadian Economic Outlook. 'etrie/ed from 2M7

Ca#ital Marets Economics<

htt#<@@))).(mones(itt(urns.com@economics@forecast@ca@cdamodel.#df



40

2rynAolfsson; E.; Bu; >. ?.; : 'ahman; M. . ,10. Com#eting in the age of omnichannel

retailing. MI Sloan Mana!ement Re"ie#; 0-%.

CI+. ,15. he $orld Fact%ook. 'etrie/ed from Central Intelligence +gency<

htt#s<@@))).cia.go/@li(rary@#u(lications@the-)orld-fact(oo

Congressional 2udget 7ffice. ,15; +ugust 5. An &pdate to the 'ud!et and Economic

Outlook( 201) to 202). 'etrie/ed from C27< htt#s<@@))).c(o.go/@#u(lication@534

Corte8; M. +. ,14. Fast Fashion uadrangle< +n +nalysis. Academ* o+ Marketin! Studies

,ournal 1-.1.

Floudas; ". +.; : 'oAas; $. F. ,4. International ro%lems /o.. Institute of International

&olitics and Economics.

Buchstedt; . ,15. u##ly Chain Management< + research com#aring different CM-ystems

in the Fashion +##arel Industry. &ni"ersit* o+ #ente &npu%lished aper ; 1-115.

IMF. ,15; ?uly. $orld Economic Outlook &pdate. 'etrie/ed from International Monetary

Fund< htt#<@@))).imf.org@eDternal@#u(s@ft@)eo@15@u#date@@

International $a(or 'ights Forum. ,11. ell Aeropostale to Stop Forced Child a%or in

Cotton 'etrie/ed from Change.org< htt#s<@@))).change.org@#@tell-aero#ostale-to-sto#-

forced-child-la(or-in-cotton

International +##arel Federation. ,15; March 3. Report on eprocess Forum. 'etrie/ed from

I+F< htt#<@@iafnet.eu@iaf-ne)s@conclusions-from-uniue-iaf-session-on-successful-

im#lementation-of-technology-in-the-fashion-industry-held-at-teD#rocess

Maretline. ,15; March 5. Compan* ro+ile( Aeropostale4 Inc.

*+IC +ssociation. ,15; ?anuary 1. Si 5i!it /AICS Codes 6 itles. 'etrie/ed from *+IC

+ssociation< htt#<@@))).naics.com@siD-digit-naics@codeG4445



44

7EC". ,15; 7cto(er. Bousehold "is#osa(le Income. OEC5 5ata.

&orter; M. E. ,!; ?anuary 1. he Fi"e Competiti"e Forces hat Shape Strate!*. 'etrie/ed

from Bar/ard 2usiness &u(lishing< htt#<@@h(r.org@!@1@the-fi/e-com#etiti/e-forces-

that-sha#e-strategy@ar@1

'2C Economics. ,15; e#tem(er. ECO/OMIC A/5 FI/A/CIA MAR7E O&OO7.

'etrie/ed from '2C< htt#<@@))).r(c.com@ne)sroom@Hassets-custom@#df@15%-

fcst.#df

ingh; +. ,14; March 4. ) echnolo!* rends rans+ormin! the Fashion Industr*. 'etrie/ed

from Fashion &< htt#<@@))).fashiong#s.com@5-technology-trends-transforming-the-

fashion-industry@

Target Cor#oration. ,15. Annual report. Minnea#olis; Minnesota< Target Cor#oration.

Team; T. ,15; 7cto(er 4. Aeropostale Ma* Emplo* Re"erse Stock Split o re"ent 5elistin!4

'ut $hat /et8 'etrie/ed from For(es<

htt#<@@))).for(es.com@sites@greats#eculations@15@1@1@aero#ostale-may-em#loy-

re/erse-stoc-s#lit-to-#re/ent-delisting-(ut-)hat-neDt@

Trefis Team. ,15; ?uly 15. 9ap Inc Is 9raduall* osin! Its Share In he &.S. Apparel Market

o Fast:Fashion Counterparts. 'etrie/ed from For(es.com<

htt#<@@))).for(es.com@sites@greats#eculations@15@3@15@ga#-inc-is-gradually-losing-

its-share-in-the-u-s-a##arel-maret-to-fast-fashion-counter#arts@

U 2ureau of $a(or tatistics. ,10. Fashion. Jashington< U 2ureau of $a(or tatistics.

Jal-Mart tores; Inc. ,15. Annual report. 2enton/ille< Jal-Mart tores; Inc.;.

Jii#edia. ,15; 7cto(er !. ;ideo 'lo!. 'etrie/ed from Jii#edia<

htt#s<@@en.)ii#edia.org@)ii@ideoH(log



45

Jorld 2an. ,15. 5ata. 'etrie/ed from The Jorld 2an< htt#<@@data.)orld(an.org@

>ahooK Inc. ,15; ?anuary 1. Industr* center . 'etrie/ed from >ahooK Inc.<

htt#<@@(i8.yahoo.com@#@30conameu.html



46

Appenices

Figure 1: GDP per Capita

Figure 2: Household Disposable Income



43

o4sehol isposable income Fet Ann4al gro'th rate 1,2 )009 )0*+

Figure 3:Household Disposable Income Growth Rate:

17EC=$ )0*52

Figure : !ge "tructure o# Populations

1C"A$ )0*52



4!

Figure $: Population Growth Rate

1C"A$ )0*52

Figure %: Retailers &ar'et "hare



4%

)0* 5 ) 0* + )0 *- )0 *)0

*000

)000

-000

+000

5000

000

"e#enue

Aeropostale Abercrombie American eagle Ascena

years

#S=1mil2

Figure (:Re)enue

)0* + )0 *- )0 *)0

50

*00

*50

)00

Mar$eting e%pense


years

#S=1M"B2

Figure *: &ar'eting +,pense



5

)0* 5 )0* + ) 0* - )0* )0

)0

+0

0

.0

*00

C!GS to sales& '(

Aeropostale Abercrombie

American eagle Ascena

years

percentage

Figure -: C.G" to "ales Ratio


!*5

!*0

!5

0

5

*0

*5

E>"T margin

)0*5 )0*+ )0*- )0*)

years

percentage

Figure 1/:+0I &argin

Aeropostale )inancials



51

/inancials

)0*5!0*

)0*+!0*

)0*-!0*

)0*)!0*

Reven4e #S= Mil *$.-9 )$09* )$-. )$-+)

Gross Margin , *.(- *H(* )+(H )

7perating "ncome #S= Mil !)*- !*.5 0 **+7perating Margin , !**( !.(9 )(5 +(.

Fet "ncome #S= Mil !)0 !*+) -5 H0

Earnings er Share #S= !)() !*(.* 0(+- 0(.5

Shares Mil H9 H. .0 .)

>oo& Ial4e er Share #S= *(-* +(+) 5()) 5(0H

7perating Cash /lo' #S= Mil !5 !-. *+5 *)9

Cap Spening #S= Mil !)+ !.+ !H) !H-

/ree Cash /lo' #S= Mil !.0 !*)) H- 5

/ree Cash /lo' er Share #S= !*(0 !*(*+ *(+* 0(.

@or&ing Capital #S= Mil *50 *- )- )+9

Pey Ratios ! rotability

Margins , of Sales )0*5!0*

)0*+!0*

)0*-!0*

)0*)!0*

Reven4e *00 *00 *00 *00

C7GS .*(H .)(9* H5(- H+(0-

Gross Margin *.(- *H(09 )+(H )5(9H

SG:A )H( )5(95 ))() )*(*-

7ther )()-

7perating Margin !**(59 !.(. )(+9 +(.5

Fet "nterest "ncome : 7ther !0(+. !0(0+ !0(0) !0(0)E>T Margin !*)(0H !.(9 )(+H +(.-

rotability )0*5!0*

)0*+!0*

)0*-!0*

)0*)!0*

Fet Margin , !**()- !(H. *(+ )(9H

Asset T4rnover 1Average2 -(*H -(0* -()- -(**

Ret4rn on Assets , !-5( !)0(+- +(H- 9())

/inancial Beverage 1Average2 5(+H )(-* *(.* *(.

Ret4rn on E64ity , !**0(-

-

!+*(05 .(5) *(5*

Ret4rn on "nveste Capital , !0(.9 !+*(05 .(5) *-()H

Pey Ratios ! Cash /lo'

Cash /lo' Ratios )0*5!0*

)0*+!0*

)0*-!0*

)0*)!0*

Cap E8 as a , of Sales *(- +(0) -(0- -(*-



5

/ree Cash /lo'Sales , !+(-- !5(. -(0+ )(-9

/ree Cash /lo'Fet "ncome 0(-9 0(. )(0. 0(.*

Pey Ratios ! /inancial ealth

>alance Sheet "tems 1in ,2 )0*5!

0*

)0*+!

0*

)0*-!

0*

)0*)!

0*Cash : Short!Term "nvestments )9(- *(+5 -*()5 -0(+-

Acco4nts Receivable -(5H H(H.

"nventory )5(+H )(* )0(9. ))()+

7ther C4rrent Assets 9(5) H(-) H(*5 H(+)

Total C4rrent Assets .(*9 5.(*5 59(-. 0(09

Fet :E )5(+ -(-5 -5(+H -9(09

"ntangibles +(++ +(+* -(9

7ther Bong!Term Assets *(9H *(09 *(*9 0(.)

Total Assets *00 *00 *00 *00

Acco4nts ayable *H()+ )*(-5 *)(*5 *+(0HAccr4e Biabilities 9() H(9) H(- H(-5

7ther Short!Term Biabilities *)(-. H(H+ 5(9- +(.

Total C4rrent Biabilities -.(.) -H(** )H(+H )().

Bong!Term =ebt )H(05

7ther Bong!Term Biabilities *5(. *9(55 *H(*+ *.(0-

Total Biabilities .*(H- 5( ++(* ++(-*

Total Stoc&holersN E64ity *.()H +-(-+ 55(-9 55(9

Total Biabilities : E64ity *00 *00 *00 *00

Bi64iity/inancial ealth )0*5!0*

)0*+!0*

)0*-!0*

)0*)!0*

C4rrent Ratio *(H *(5H )(* )()9

U4ic& Ratio 0(. 0(5 *(*+ *(*

/inancial Beverage 5(+H )(-* *(.* *(.

Pey Ratios ! E?ciency Ratios

E?ciency )0*5!0*

)0*+!0*

)0*-!0*

)0*)!0*

=ays Sales 74tstaning

=ays "nventory -(H. -+(5* -)(+ --(9

ayables erio )H(5) )+(0- *9(5 )*(H-"nventory T4rnover 9(9) *0(5. **()H *0(.-

/i8e Assets T4rnover *0(0 .(-9 .(H H(99

Asset T4rnover -(*H -(0* -()- -(** Fi!ure 11( Aeropostale Financials

So4rce Aeropostale Ann4al report )0*+



50

Mar&et Capitali<ation

)009 )0*0 )0** )0*) )0*- )0*+ !

500$000(00

*$000$000(00

*$500$000(00

)$000$000(00

)$500$000(00

-$000$000(00

-$500$000(00

+$000$000(00

+$500$000(00

Aeropostale

American Eagle

A:/

Fi!ure 12( Market Capitali<ation

Mar&et Capitali<ation Comparison

Fi!ure 13( Market Capitali<ation Comparison



54

Stoc& rice

Fi!ure 1( Stock rice

Fi!ure 1)( 'eta Score



55

Fi!ure 1=( Altman > Scores



i

ii

strategy aeropostale

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