American Eagle Outfitters, Inc. - Company Profile, Information, Business Description, History, Background Information on American Eagle Outfitters, Inc.

150 Thorn Hill Drive
Warrendale, Pennsylvania 15086-7528

History of American Eagle Outfitters, Inc.

American Eagle Outfitters, Inc. is a specialty retail chain offering casual, "outdoor-inspired" fashion apparel, footwear, and accessories for men and women ages 16-34. There are more than 330 American Eagle Outfitters stores located in 40 states, primarily those east of the Rockies; nearly all the units are in regional shopping malls. The stores average about 4,200 square feet in size. Approximately 98 percent of the chain's sales are generated from private label brands--American Eagle Outfitters, AE, and AE Supply; this focus on private-label merchandise was launched through a 1992 repositioning and was intended to differentiate American Eagle from its mall competitors, such as The Limited, The Gap, and Abercrombie & Fitch. To keep up with the latest fashion trends, the company employs an in-house design team, whose merchandise designs are then manufactured to specification by outside vendors or by American Eagle's manufacturing subsidiary, Prophecy Ltd. This private-label/in-house design system enables American Eagle to keep tight control of quality and hold prices down; for example, its clothes typically cost from 15 to 30 percent less than comparable clothes at The Gap. Nearly half of the chain's sales are for "ladieswear," while "menswear" accounts for about 35 percent of sales and outdoorwear/accessories/footwear for about 17 percent. Customer credit is offered through an American Eagle Outfitters credit card. Approximately 60 percent of the company's stock is owned by the Schottenstein family, whose Schottenstein Stores Corp. is a large privately held company based in Columbus, Ohio, with numerous retail holdings.

1977 Debut

When American Eagle Outfitters was launched in 1977, it was part of Silvermans Menswear, Inc., a retailing company whose flagship was the Silvermans chain, which sold young men's apparel and accessories and was founded in McKees Rocks, Pennsylvania (near Pittsburgh), in 1904. The Silverman family owned and operated Silvermans Menswear, and by the mid-1970s two brothers--in the third generation of Silvermans in the family business--were running things: Jerry Silverman, president and CEO, and Mark Silverman, executive vice-president and COO. The Silverman brothers believed that they needed more than one concept to continue growing their company--that the addition of other chains would then enable them to operate more than one store in the same mall. They thus opened the first American Eagle Outfitters store in 1977, positioning it as a seller of brand-name leisure apparel, footwear, and accessories for men and women, with an emphasis on merchandise geared toward outdoor sports, such as hiking, mountain climbing, and camping. American Eagle quickly established itself as a mall store able to attract an unusually wide array of shoppers, although its "rugged" offerings were geared more toward men. And with a nationally distributed mail-order catalog supporting the retail units, the new chain quickly became a key competitor not only to such established retailers as The Gap but also to such venerable catalogers as L.L. Bean and Lands End.

In 1980 Silvermans Menswear changed its name to Retail Ventures, Inc. (RVI). That same year, the Silvermans ran into some financial difficulties and sold a 50 percent stake in RVI to the Schottenstein family. The Schottensteins owned Schottenstein Stores, a retailing giant based in Columbus, Ohio. Schottenstein Stores was founded in the early 20th century by E. L. Schottenstein when he opened the first Value City Department Store, a discount department store chain which by the early 1990s included 93 stores in 15 states generating about $1 billion in sales annually.

Became Focus of RVI in Mid-1990s

In 1985 RVI launched three more new chains: His Place and Go Places, concepts similar to that of Silvermans, and Help-Ur-Self, a bulk food store. The following year the company spent $8 million to expand its headquarters, adding 25,000 square feet to its office space and 146,000 square feet to its 119,000-square-foot distribution center. Also in 1986 RVI added 34 new stores to its existing 200. Many of these were American Eagle units, as the company began that year to concentrate more of its resources on American Eagle, which was achieving rapid sales growth, than on Silvermans, whose sales were being hurt from increasing competition, particularly from discount chains.

This shift in emphasis culminated in early 1989 when RVI announced a major restructuring in which it sold its Silvermans, His Place, and Go Places chains--a total of 125 stores&mdashø Merry-Go-Round Enterprises Inc., a Towson, Maryland-based operator of 430 mall-based clothing stores, including Merry-Go-Round, Cignal, and Attivo. RVI also spun off to the Silverman family the 11-store Help-Ur-Self chain, which had performed reasonably well but was not considered synergistic with American Eagle. RVI was thus left with American Eagle Outfitters--now with 137 stores in 36 states and sales of $125 million&mdash its single focus. The company planned to aggressively expand its sole remaining chain by as many as 120 stores over the following three years. It began to implement this plan but only after The Gap had approached RVI in early 1989 about buying American Eagle and after negotiations to do so had fallen through.

Sold to Schottensteins and Repositioned in Early 1990s

By mid-1991 American Eagle had grown to 153 stores--not nearly the expansion rate envisioned two years earlier--and sales had stagnated. For the fiscal year ending in July 1991, sales were $144.3 million, a minuscule increase over the $142.4 million of the previous year. The chain also posted a net loss of $8.9 million for the year. In a deal designed to position American Eagle for renewed growth, the Schottenstein family bought the 50 percent of RVI owned by the Silverman family, giving the Schottensteins full control of the company and its only chain. Jay L. Schottenstein became the new chairman and CEO of RVI, replacing Mark Silverman, while Sam Forman was brought in to become president and COO. Forman had been CEO of Kuppenheimer Clothiers.

In the midst of the recessionary early 1990s, American Eagle's difficulties could be traced in part to its line of branded merchandise. With brand-name apparel increasingly being offered by various clothing chains and discounters, American Eagle was facing increasing competition. Under its new ownership and leadership, the chain was repositioned in 1992 to focus on private-label casual apparel for men and women, while retaining the outdoor-oriented look for which it was best known. The private label strategy was intended to position American Eagle merchandise as value priced. The company also began opening American Eagle outlet stores to reduce its inventory of out-of-season clothing items.

Went Public in 1994

American Eagle's 1994 fiscal year was its best year ever, evidence that the repositioning was working. Sales for the year were $199.7 million, while net income was a healthy $11.9 million. In the midst of this successful year, RVI announced that it would go public through an initial public offering. In November 1993 an American Eagle Outfitters, Inc. subsidiary was established and it was under this name that RVI and the American Eagle chain emerged in April 1994, with a listing on the NASDAQ stock exchange and with the Schottenstein family maintaining roughly a 60 percent stake in the new company and Forman about ten percent. American Eagle went public as a 167-store chain with nine outlet stores and locations in 34 states.

Much of the approximate $37 million raised through the IPO was almost immediately poured back into the company for an aggressive program of expansion and renovation. From July through December of 1994 alone, 55 new stores were opened. At the one-year anniversary of the IPO, nearly 90 new stores had been added. Unfortunately, several of these new locations were unprofitable from the time they opened their doors, and it became apparent that the chain had expanded too rapidly.

Adding to the confusion at this time was a rapid succession of management changes. In early 1995 Forman was named vice-chairman, with Robert G. Lynn, a one-time president and CEO of F.W. Woolworth Co., becoming vice-chairman and COO and Roger S. Markfield, who had served as executive vice-president of merchandising, being promoted to president and chief merchandising officer. Lynn, however, left the company in December 1995 over reported management differences. Later that same month, George Kolber took over Lynn's vice-chairman and COO spots.

Forman, meanwhile, sold his ten percent stake in American Eagle in early 1995, then in late 1995 resigned from his position as vice-chairman following his purchase of 32 American Eagle outlet stores in 18 states for between $14 million and $16 million. The company had decided to divest the outlets in order to concentrate on its mall locations, and it subsequently closed its remaining seven outlet stores. Forman signed a licensing agreement with American Eagle, whereby the outlets he purchased would operate under the American Eagle Outlets name and would sell merchandise made specifically for the outlets. Through all of these changes, Jay Schottenstein continued in his role of chairman and CEO.

Repositioned Again in 1996

The year 1996 was a transitional one for American Eagle as it cut back drastically on its expansion plans in order to reposition the chain once again. In search of higher-margin merchandise to offer, Markfield and Kolber determined that the chain had to sell more women's apparel, which is typically more profitable. The leaders also decided to completely divorce American Eagle of its once-eclectic range of customers and target the lucrative youth market&mdashès 16 to 34--through a younger and hipper feel to the clothing and in the chain's marketing. Finally, American Eagle would strongly emphasize value pricing through a commitment to private label merchandise. Remaining at the chain's core was its venerable rugged, outdoorsy style.

For fiscal 1996 (the first year of the company's new fiscal year, which now ended at the end of January), about 98 percent of the company's sales were generated from its private label brands, American Eagle Outfitters, AE, and AE Supply. Women's clothing, meantime, which in fiscal 1995 had accounted for only 30 percent of sales, accounted for 47 percent of sales in fiscal 1996.

If 1996 was a transitional year for American Eagle, then the transition went exceedingly well, as 1997 turned into a breakout year. For the year, sales increased 24.3 percent to a record $405.7 million, while net income more than tripled, going from $5.9 million in 1996 to $19.5 million in 1997. Comparable store sales were very strong, increasing 15.1 percent in 1997 compared to the previous year.

In addition to opening 32 new stores in 1997, American Eagle that year also for the first time began manufacturing its own clothing through the acquisition of Prophecy Ltd., a New York-based contract apparel maker which had been majority owned by the Schottenstein family. This move toward further vertical integration was in keeping with the chain's desire to control costs and maintain quality. The terms of the purchase were $900,000 in cash plus a contingency payment of up to $700,000.

Early 1998 was a busy period for American Eagle as it introduced the AE Clear Card, the first clear credit card; announced plans to start selling merchandise from its web site, a move that would fit in well with the chain's youth-oriented customer base (American Eagle's mail-order catalog had been discontinued some years prior); and said it would open new units outside of enclosed malls, in airports, strip malls, and other locales. The renewed strength of American Eagle was also evident in two separate three-for-two stock splits, which occurred during the first five months of 1998. The company also announced that over the next several years it would expand its store count 15 to 20 percent each year; the largely untapped West Coast was likely to be a prime area of expansion. Also planned was an increase in average store size from 4,200 square feet to 5,000. And with its new youthful format that emphasized women's clothing, American Eagle was beginning to revamp many of its older stores whose designs were very "masculine." All of these developments pointed toward a bright future for a company that seemed destined to outfit Americans for years to come.

Principal Subsidiaries: Prophecy Ltd.

Additional Details

Further Reference

Benson, Betsy, "Retail Ventures Plans Restructuring: New Focus on American Eagle Outfitters Unit," Pittsburgh Business, February 27, 1989.Fitzpatrick, Dan, "New Lines Pace American Eagle Comeback Bid," Pittsburgh Business Times, December 30, 1996, pp. 1+.Gallagher, Jim, "Gap Won't Buy American Eagle," Pittsburgh Post Gazette, March 18, 1989.Much, Marilyn, "Retailer Moves into New Venues, Cyberspace," Investor's Business Daily, January 30, 1998, p. A3.Phillips, Jeff, "Schottensteins Buy 153 Stores," Business First of Columbus, June 3, 1991, pp. 1+.Walters, Rebecca, "American Eagle Going Public," Business First of Columbus, March 21, 1994.

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