) is a specialty retailer that sells casual apparel and accessories
targeted toward teens and young adults and competes with
Abercrombie & Fitch
) and Urban Outfitters (
). Aeropostale designs, markets and sells its own brand of
merchandise through its retail stores as well as through the
Internet and catalogs sales channel, which accounts for 16% of our
price estimate. We estimate that the Aeropostale stores constitute
around 78% of our $54.78 price estimate for Aeropostale's
stock, which stands well ahead of the current market price.
Here we discuss some of the factors that helped the company
to boost revenue per square foot during the recession, as well
as factors which may become a threat to its sales outlook.
Going forward, we expect Aeropostale revenue per square foot to
further increase as the company has added significant market share
and brand value during the recent economic crisis. During our
forecast period we expect it to grow at an average annual growth
rate of around 2%, reaching the $700 mark by the end of our
forecast period. However, if the average annual growth rate is 100
basis points above our forecast, the revenue per square foot would
reach the $750 mark by the end of our forecast period,
meaning an upside of around 5% to our current price estimate for
Successes in Recent Downturn
Sound marketing strategy
Aeropostale has successfully connected with its target audience,
primarily consisting of young adults in the age group 14-17 years,
by positioning itself as an energetic brand with trendy products at
compelling prices. It had its promotional stratgey in place well
before the recession hit.
In additon to this, the brand followed a simple approach
of aligning its merchandise with prevailing general fashion
trends, to readily give customers what they want. This
enabled it to gain popularity during the recent economic
downturn as consumers reigned in spending and stuck to basic
fashions. The company did not try to set new trends and
try really hard to convince people to adopt them, like some of
the more upscale brands like Abercrombie &
Fitch. ((Aeropostale Grabbing Share of Market & Mind Amid
Aeropostale was committed to operational discipline
The brand's commitment to operational discipline, especially
around inventory management and average unit costing has helped the
brand to improve its merchandise margins and revenue per square
foot. The company has been able to considerably reduced lead times,
achieving faster turnaround on smaller orders. This has
enabled it to reduce inventory markdowns, which impacts merchandise
margins. For example, it can now restock a popular graphic
T-shirt within 30 days.
Lack of international expansion
The majority of Aeropostale stores are in the U.S., with some
stores in Canada. The company's lack of presence in the
growing Asian market makes it susceptible to U.S.
economic cycles. As a result, a slowdown in consumer spending in
the future may not be offset by sales from other regions.
Many of its competitors like Gap and Abercrombie & Fitch are
accelerating their expansion plans in Asia, which means Aeropostale
may miss out on the chance to capitalize early on the growing Asian
market - or be a late comer when it decides to expand.
See our full analysis of Aeropostale.