American Eagle Outfitters:
Social Responsibility, Community Betterment, and Philanthropy.
May 2016
Team:
Business, as Usual
Team Members:
Yuen Allison, Gabe Heaton, Rowan Murdock, Hannah Slinkard
2
Table of Contents
Executive Summary....................................................................................................................................... 4
About Our Team............................................................................................................................................ 5
Organization Chart .................................................................................................................................... 7
About the Company ...................................................................................................................................... 7
Vision......................................................................................................................................................... 8
Purpose ..................................................................................................................................................... 8
Organizational Culture .............................................................................................................................. 8
Social Responsibility .................................................................................................................................. 8
Environmental Responsibility ................................................................................................................... 9
Strategic Leadership................................................................................................................................ 10
Stakeholders ........................................................................................................................................... 11
Analysis ....................................................................................................................................................... 12
Company Analysis ................................................................................................................................... 12
Strengths ............................................................................................................................................. 12
Weaknesses ........................................................................................................................................ 13
Opportunities ...................................................................................................................................... 14
Threats ................................................................................................................................................ 15
SWOT................................................................................................................................................... 16
Financials ............................................................................................................................................. 17
Industry Analysis ..................................................................................................................................... 20
Potential Entrants ............................................................................................................................... 20
Rivalry among Existing Firms .............................................................................................................. 20
Bargaining Power of Suppliers ............................................................................................................ 21
Bargaining Power of Buyers ................................................................................................................ 21
Substitute Products ............................................................................................................................. 21
Economic Environment ........................................................................................................................... 21
Demographic and Economic Trends ................................................................................................... 21
3
Sociocultural Trends............................................................................................................................ 22
Technological Trends .......................................................................................................................... 22
Global Trends ...................................................................................................................................... 22
Strategy Formulation .................................................................................................................................. 23
IFAS ......................................................................................................................................................... 23
EFAS......................................................................................................................................................... 24
TOWS ...................................................................................................................................................... 25
Strategic Opportunity ............................................................................................................................. 25
Implementation .......................................................................................................................................... 27
Reward Program ..................................................................................................................................... 27
Make It Right ........................................................................................................................................... 28
Test Market ............................................................................................................................................. 29
Marketing ................................................................................................................................................ 29
Timeline................................................................................................................................................... 31
Evaluation ................................................................................................................................................... 31
Reward Points ......................................................................................................................................... 32
Goodwill .................................................................................................................................................. 32
Sales ........................................................................................................................................................ 32
Control ........................................................................................................................................................ 33
Balanced Scorecard................................................................................................................................. 35
Success/Failure ........................................................................................................................................... 36
What We Learned ....................................................................................................................................... 36
References .................................................................................................................................................. 37
4
Executive Summary
American Eagle Outfitters (AEO) is a socially responsible company that currently has its hands in
many different projects and causes that truly make a difference in the world. These include charity
donations, scholarships, and clothing drives. With so many different interests, AEO hasn’t truly received
the potential image boost that is available, nor have they been able to focus on the development of one
particular venture. Narrowing their focus would allow them to most effectively use their capital in a way
that benefits the company and the causes they try to serve. This paper focuses on the proposed strategy
to form an alliance with Make It Right, a charitable organization formed by the actor, Brad Pitt. Pitt’s
A&Ffiliation and social standing alone will help shine the spotlight on the good that American Eagle
Outfitters is doing. We propose to partner with Make It Right, and donate used jeans that we have
collected from customers, to be recycled and used to insulate homes for people in need. We want to
align with Make It Right to decrease waste, oppose fast fashion, and support the community.
Our strategy is to focus our resources more effectively and increase sales as a consequence of
further brand awareness and a desire to support AEO in its efforts as a good corporate citizen. We will
market our campaign to existing customers in hopes of increasing our customer base for a trial period
when retail sales are high, catching both the back-to-school and holiday shoppers. Customers who bring
used AEO jeans into the store will be rewarded with extra points on their rewards card. This will increase
the foot trA&Ffic in stores, as well as incentivize the customers, both contributing to increased sales.
This image of giving back will also attract those customers, as well as investors, to spend their money
with AEO rather than a competitor with a slightly different image like Abercrombie & Fitch. Through a
variety of audits and control processes, at the end of a 6-12 month period, we will be able to determine
if our strategy increased AEO’s goodwill, sales and image, particularly with the Make It Right program.
5
About Our Team
Yuen Allison
My name is Yuen Allison. I was born in China. I moved to the United States in
1999. After working as a Bookkeeper for 10 years, I have decided to work parttime so I can focus on my Accounting education. I will graduate in May with a
Bachelor’s degree in Business Administration with Accounting Emphasis. I have
an 11-year old loving son who has changed my life completely and taught me what unconditional love is.
I have been accepted by Gonzaga University to attend their Master in Taxation program with two
scholarships. I will start the program right after graduation and I plan to study for the CPA exams at the
same time. After that, I would like to teach accounting classes at colleges and universities.
Gabe Heaton
My name is Gabe Heaton, and I was born in Fargo, North Dakota. On May 1st,
2016, I will be graduating from LCSC with a Bachelor’s Degree in Business
Administration with an Accounting Emphasis. Currently I am an intern at
Magnuson, McHugh & Company, a local accounting firm. After graduation, I will
start the process of studying for, and taking the four parts of the CPA exam. I also plan to coincidently
continue my education by pursuing a Master’s of Science in Taxation at Gonzaga University. I look
forward to taking the knowledge and skills that I have attained at Lewis-Clark on to Gonzaga and
eventually a career in accounting.
6
Rowan Murdock
My name is Rowan Murdock, and I was born in San Jose, California. I was raised
primarily in Santa Cruz, California until my family relocated to Northern Idaho in
2007. I will be graduating from Lewis-Clark State College in May with my
Bachelors of Science in Business Administration with a minor in Marketing. In
the fall I plan to attend the University of Idaho, where I will be studying Law, possibly with an emphasis
in business. I am excited to live in Moscow, along with my two siblings who are both there studying
Chemical Engineering. In my free time I enjoy being outside, hiking, swimming, doing yoga, and am
perpetually looking forward to summer.
Hannah Slinkard
My name is Hannah Slinkard and I am currently a senior at LCSC, majoring in
Business Administration with a minor in Psychology. After obtaining my
bachelor’s degree, I aspire to earn a master’s degree in Business. I will look to
hold true to my original goal of zero student loans before embarking on that
journey. I was born in Coeur d’Alene, Idaho in 1993 and my grandmother and I are two of the only
individuals in our family who were not born in Sandpoint, Idaho. When I am not at school, I am typically
working at Costco Wholesale where I have been working now for three years in May. In my few
moments of spare time, I love spending time with my boyfriend Logan, my family, and my friends.
Activities that I enjoy with these individuals include; dirt bike riding, camping, fishing, snowmobiling, and
snowboarding.
7
Organization Chart
About the Company
1977
1994 1997
1990
First
Store
Becomes
Private
1996
2006
2008
2007
2016
2010
Introduces
Sales
Traded
AEO
denim
on
goes
Changed surpass
Goes
Over
1
billion
NYSE
Global
Target
1,000
Public
Market
Aerie is
77 Kids
stores to
added
line
date
8
Vision
“Live Your Life, Love Your Planet, Build a Better World.”
Purpose
“Deliver performance that rewards our investors, creates economic opportunity for our
associates and allows us to leverage our success to have a positive social impact on the communities
where we live, work and play.”
Organizational Culture
American Eagle Outfitters has a strong desire to better the world through social and
environmental changes. This mentality is embraced by all company associates. American Eagle Outfitters
understands that the heart of the company resides in people: their contacts, customers, and partners.
AEO not only values and respects different backgrounds, but also appreciates unique talents. Diversity
will strengthen the company’s ability to succeed. They care about their associates, empower them, and
reward them.
Social Responsibility
American Eagle Outfitter’s social responsibility is top priority in everything they do as a
company, and they encourage customers to be a part of the journey in building a better world. AEO has
participated in a variety of socially responsible projects in the past and continues to find new ways to
give back to communities.

Pittsburgh Promise- This program provides the opportunity for students of all backgrounds to
continue their education. American Eagle Outfitters has donated $1 million to this foundation.
9

Teach for America (TFA)- In 2013 American Eagle Outfitters partnered with TFA where they
contributed $400,000 in cash and kind donations.
o
This program provides the opportunity for college graduates and professionals to teach
in low-income communities.

Big Brothers Big Sisters- American Eagle Outfitters donated $117,000 last December alone,
through gift card purchases.

Bright Pink- In-store donations for this project were $250,000 which was used to fight breast
and ovarian cancer through early detection.

Other Projects:
o
SCA Alternative Spring Break- American Eagle Outfitters has donated more than $5
million dollars to this foundation.
o
21st Century Conservation Service Corps- This inspires the youth to “play, learn, serve
and work outdoors.” American Eagle Outfitters was the first company to pledge
$1,000,000 to support this project over the next four years.
Environmental Responsibility
American Eagle Outfitters has participated in multiple other projects and continues to support
new ways to create a positive change in the world we live in. This company also takes great pride in the
environment, and has participated in countless efforts to conserve the planet we call home. Some of
these programs include:

Boot the Bottle- This program brings awareness to recycling day-to-day products such as
disposable water bottles. Currently, AEO has prevented over 50,000 bottles from hitting the
landfill.
10

I:CO- AEO has partnered with I:CO allowing associates to donate clothing to be recycled and
transformed into reusable bags or insulation.

Blue to Green: This is a recycling program that AEO has partnered with to extend their
recycling venture. Blue to Green takes the gently used denim recycled by AEO to provide
insulation for homes built by Habitat for Humanity.
American Eagle Outfitters takes pride in not only donating and giving back to communities, but
also in surpassing the social responsibility expectations of the public through their work in helping the
environment.
Strategic Leadership
American Eagle Outfitters strives to be a top competitor in their field while holding true to their
social and environmental standards. As a whole, American Eagle Outfitters continues to believe that
recruiting both externally and internally is beneficial for their team and the overall success of the
business. Recently in 2015, Jay L. Schottenstein was promoted to Chief Executive Officer. Schottenstein
has been with the company since 1992. In addition to this, he continues to serve as Chairman and
president at his family business, Schottenstein stores. Schottenstein stated that, “delivering
performance that rewards our investors, creates economic opportunity for our associates, and allows us
to leverage our success to have a positive economic and social impact on the communities where we
live, work and play.” Furthermore, Schottenstein will be the ultimate decision maker on future products
including our new strategy.
Mary Boland is another key player to the American Eagle Outfitters team. She has been the
Executive Vice President, Chief Financial Officer, and Administrative Officer at AEO since 2012. She
previously worked for Global Levi’s at Levi Strauss & Co. and as the Senior Vice President for Finance of
11
Americas for five years. Boland will be retiring in April of 2016. Boland said, “the company is in strong
financial condition and well-positioned for future success.” Boland will be the financial commander and
will guide the company in terms of economic opportunities, and help develop potential strategies.
Michael Rempell has been the Executive Vice President and the Chief Operations Officer at
American Eagle Outfitters since 2012. He has various experiences in other companies including the New
York Design Center as both the Senior Vice President and the Chief Supply Chain Officer for three years.
Rempell adds value to new strategies in terms of implementation and offering extended support from
the supply chain.
All key players that AEO has on their team bring a variety of unique experiences and diversity
that offer various advantages. Charles Kessler is a perfect example of this. Kessler has worked for the
company since 2014 but offers credibility and experience from other retailers including Urban Outfitters,
Coach, and Abercrombie & Fitch. Todd Snyder also brings various insights from companies such as, Polo
Ralph Lauren, The Gap, and J. Crew. Overall, American Eagle Outfitter's team is a huge part of their
success as they continue to innovate and set the bar high in regards to company goals.
Stakeholders
Customers- AEO understands that customers are the reason for their current success, and
therefore strive to exceed their expectations. They continue to provide opportunities for consumers to
give feedback through their website. With this feedback, AEO is then able to continue their customerfocused business strategies to better meet customer demands and wants. From offering clothing in their
retail stores, to creating projects and providing funding to causes that can change the world, customers
are the center of the AEO enterprise.
12
Associates: AEO strives to incorporate diversity in all aspects of the work environment. AEO
employs over 30,000 people worldwide and that number continues to grow, as the company does.
Shareholders: American Eagle Outfitters is a publically traded company that continues to
increase profits over the long-term for investors. Shareholders include associates, individuals, large
financial institutions, and socially responsible investment funds. Fiscal responsibility and a strong
financial position allow AEO to consistently retain investors. This approach continues to improve as they
withstand various external events of the economic environment.
Supply Chain Partners and Stakeholders- AEO ensures that the supply chain is operating
efficiently at all times. The supply chain has specific guidelines, codes of conduct, and inspections they
must constantly uphold. AEO’s supply chain is a major part of the business and will remain productive as
long as suppliers continue to operate within company guidelines.
Analysis
Company Analysis
Strengths
Brand Loyalty: American Eagle Outfitters has loyal customers who both value, and hold a
positive perception of the brand. These people shop at the retailer regularly, and are a benefit to the
company. This loyalty is fostered through product quality, customer service, and consistently
fashionable pieces, all working together to increase profits.
High Quality Product: AEO sells high quality products that are not considered “disposable
fashion.” This sets them apart from competitors such as H&M and Forever 21. Further, this gives their
13
brand a more positive perception in regards to the public’s view as they are more responsible in regards
to conservation. Their clothes are also more durable and therefore have more wear value.
Positive Public Image and Positive Body Image Campaign: American Eagle Outfitters is
perceived in a very positive light by their consumers. They engage in community betterment, make
donations, and responsibly source their materials and labor. In addition, they promote positive body
image with their #aeriereal campaign, by refusing to edit their models in photos.
Aerie-Underserved Teen Intimate Apparel and Swimwear Availability in Store-Teens: American
Eagle Outfitter’s sub brand, Aerie, offers intimates and swimwear to female customers. The retailer
constantly holds a large variety of sizes and styles in stock, for people to try on. This allows consumers to
more confidently purchase items, knowing they will fit, and that they have selected the correct size. This
helps to justify a little higher price tag compared to some competitors.
Weaknesses
Higher Prices: American Eagle Outfitters offers products at a higher price than many of its
competitors. Companies like Aeropostale and Old Navy sell a similar style of clothing at consistently
lower prices. Although the quality is different, the price variance may cause potential customers to
experience sticker shock.
Condensed Target Market: American Eagle Outfitters has a fairly focused target market
consisting of teenagers and early twenty somethings. This specific market naturally would have a much
lower disposable income available to buy high end clothing. AEO’s narrow targeted age also creates a
reliance on a small percentage of the population to act as the customer base. American Eagle Outfitters
is not a brand to grow old with, but rather a brand for a period of life.
14
Senior Management Age: The average age of senior management is 47.2 years old. This is about
thirty years older than the age of the people in the target market. There is the possibility of
disconnection between management’s goals and customer desires due to this significant age difference.
Management Turnover: American Eagle Outfitter’s management has experienced considerable
changes in recent years. This lack of stability could cause inconsistent goal setting and structure for the
rest of the company. All factors in the company must be aligned with goals and values set by
management, therefore, this instability must be resolved for ultimate success.
Opportunities
Relatively Strong Exchange Rate: Exchange rate is one country’s currency rate expressed in
another country’s currency. In the modern economy, exchange rates of the most successful countries
tend to be in the floating exchange market. This system is set by the foreign exchange market by supply
and demand for the one currency in relation to other currencies in the world. As a result of the steady
exchange rate and the increasing strength of the dollar recently, American Eagle Outfitters can
potentially cut costs through outsourcing.
Increase Awareness of Environmental Preservation: Recently, the importance of environmental
preservation has continued to grow, and businesses are looking for ways to become more
environmentally friendly. Companies that focus on this could earn like-minded consumer support and
patronage. As environmental consciousness grows nation-wide, consumers are looking for
environmentally friendly products and services. AEO has been very active in this area and continuing to
do so will increase brand awareness.
15
U.S. GDP Growth: According to the Bureau of Economic Analysis, the Real Gross Domestic
Product increased 2.4 percent in 2015. The increase in real GDP last year was primarily based on the
positive contributions from personal consumption expenditures (PCE). A consensus of private
forecasters is projecting real GDP growth of 2.7 percent over the four quarters of 2016.
Based on the Bureau of Economic Analysis, personal income increased by $79.6 billion, or 0.5
percent, and disposable personal income (DPI) increased by $63.5 billion, or 0.5 percent, in January. PCE
increased $63.0 billion, or 0.5 percent. In December, personal income increased $45.6 billion, or 0.3
percent. Real DPI increased by 0.4 percent in January, the same increase as in December. Real PCE
increased 0.4 percent in January, compared with an increase of 0.2 percent in December. The steady
growth of the GDP and PCE give indications of a positive future for the retail industry.
Made In USA Campaign: The recession has created a sobering realization. Outsourcing
manufacturing to overseas nations has hurt the US economy. A growing group of consumers have
connected the dots between their shopping carts and America’s future. For years, the main attraction of
outsourcing has been access to low-cost labor, though some patriotic consumers have decided to buy
American made products even it comes with a little higher price tag.
Threats
Ever-Changing Fashion Industry: The fashion industry is constantly changing. Every company
within the industry is either trying to stay on top of the latest trends, or trying to start the next big
trend. It is difficult to stay with the current fads in the market. AEO might struggle keeping the company
vision in mind while remaining competitive within the market.
16
Competitors: Large retailers like Macy’s, PINK, Buckle, and A&F, are adding pressure to AEO’s
goal of becoming more popular and gaining customers. Swaying consumers from these large chains is
difficult and it continues to be a challenge as AEO attempts to gain customer loyalty.
Fads: Things like crop tops and lace up shirts are fad trends that companies must pay attention
to if they are going to be successful. For American Eagle Outfitters, this can be dangerous in terms of
changing the brand perception. With new management behind the wheel, the vision of the company
could easily change and the loyalty of customers could be lost.
Public Relations: American Eagle Outfitters is very involved in the environment and is associated
with a positive ecological influence. This could prove to be a slippery slope for a few reasons. If there is a
policy that is missed or a source leaks that American Eagle Outfitters is not holding true to their
promoted promises, it could be disastrous to the company.
SWOT
Strengths




Brand Loyalty
High Quality Product
Positive Public Image and Positive Body
Image Campaign
Aerie-Underserved Teen Intimate Apparel
and Swimwear Availability in Store
Opportunities




To expand the target market
internationally
Increase awareness of community outreach
and conservation
Attracting higher level employees
Create products in the United States
“American Eagle Outfitters”
Weaknesses




Higher Prices
Condensed Target Market
Senior Management: Average Age 47.2 yrs.
old
Changes in Management
Threats




Fashion industry is ever changing
Competitors and luxury brands
“fads” crop tops, lace up, etc. changing
brand perception
PR: AEO’s community involvement is a
large part of their brand and what they are
known for
17
Financials-Based on the latest 10-K released to the SEC
The current ratio is a liquidity ratio that measures a company’s ability to pay short-term
liabilities. Any current ratio over 1 is considered fairly healthy. With a current ratio under 1, a company
would owe more in the near term than it has available in readily accessible assets. In many cases that is
troublesome, but not always. At 1.56, AEO has a healthy current ratio. A close competitor, Abercrombie
& Fitch (A&F), has a higher current ratio of 2.20. This could be a sign of good health or even a few
negative things like poor asset allocation, an inability to secure financing, or mismanagement of working
capital.
The quick ratio is another liquidity ratio that focuses on the ability of a company to pay its shortterm liabilities with its most liquid assets. It is similar to the current ratio but does not include inventory
in the current assets. With a quick ratio of .90, AEO in theory has less liquid assets to pay current
liabilities compared to A&F’s quick ratio of 1.56. In short, AEO has $.90 in liquid assets for every dollar of
short-term liabilities while A&F has $1.56 in liquid assets for every dollar of short-term liabilities. The
difference in quick ratios is not always what it appears to be. Many times the timing of asset purchases,
policies defining payments and collection, and bad debt allowance can skew the comparison between
two similar companies. In the case of these two companies, AEO tends to have more funds working for
them and A&F has more funds sitting idle which increases both a current and quick ratio.
Working capital is another calculation that can be a good measure of a company’s operational
efficiency. Although a company wants more current assets than liabilities, if it gets too lop-sided, it can
indicate inefficiencies such as too much inventory or slow collections. A&F has over twice as much
working capital as AEO, which is a red flag that there could be some operating inefficiency at A&F. AEO’s
18
working capital is considered healthy. Perhaps A&F’s recent struggles at the top of their organization
have restricted their ability to gain financing, lessening their willingness to put their assets to work.
American Eagle Outfitters has an inventory turnover of about 7, while A&F’s is around 8. This
basically says that AEO and A&F are buying and selling their inventories at a similar rate. The faster they
can bring in and sell inventory the better. Sitting on inventory too long can indicate poor sales, especially
in the fashion industry. Excess inventory equates to investment with zero return.
With an ROA, return on assets of 13.5%, AEO is leveraging their assets more efficiently than
A&F, who is at a dismal 1.5%. This can be viewed as being overly cautious by not allowing your money to
work for you. This may be acceptable to a certain extent for an individual, but not a business.
Management’s most important job is to allocate company resources to maximize profitability, not to
stockpile current assets. Return on equity (ROE) is a similar ratio. ROE shows a company’s profitability
with shareholder investments. Investors would find this ratio of particular interest. With AEO at almost
21% as opposed to A&F at about 3%, AEO would currently be much more attractive as an investment.
9
8
7
6
5
4
3
2
1
0
8.06
7
5.29
5.01
1.56
2.2
3
1.6
0.9 1.39
3.94
2.18
0.4
American Eagle
Abercrombie & Fitch
Industry Average
1.45 1.5
19
Gross profit margin determines how much money is left after accounting for cost of sales. This
does not account for every expense included in the sales revenue activity. That is called profit margin
where net income is divided by net sales. AEO has a gross profit margin of around 37% and a profit
margin of just over 6%. When compared to A&F with a GPM of 61% and a profit margin of barely 1%,
further investigation would be needed to fully understand the causes of these numbers. It appears that
A&F is spending less on raw materials but has much higher indirect expense than AEO which gives a
poor profit margin but high gross profit margin. As AEO is known for high quality clothing, it would
equate to a higher cost of goods sold that is seen in the gross profit margin calculation.
70%
60%
50%
40%
30%
20%
10%
0%
61%
37%
36%
21%
14%
6%
American Eagle
1%
3.50%
Abercrombie & Fitch
9.60%
2%
12.50%
3%
Industry Average
Overall, AEO has stable financial health when compared to A&F and industry averages. A&F has
had significant social pressure as a result of some statements made by upper management. This has
created a void in the market that philanthropy and social responsibility could fill. A&F has reaped the
financial effects of alienating potential customers, which creates potential profitability for AEO. AEO can
20
not only make a positive impact on the world with this opportunity, but can capitalize on the market
that has turned its back on A&F for its cavalier stance.
When comparing financial ratios with the industry averages, AEO is fairly similar. The ROA, ROE,
and profit margin are higher than industry average which boasts asset efficiency. The liquidity ratios
(current and quick) are not materially different along with inventory and fixed asset turnover.
Industry Analysis
Potential Entrants
Even though there has been moderate growth of the U.S. apparel retail industry in recent years,
the threat of new entrants is not critical. The growth may attract new investors but it’s almost
impossible to compete with chain retail stores. A small number of large corporations account for a
significant share of overall market revenues. Their strong vertical structure and centralized buying gives
them a competitive advantage over these smaller, and independent retailers.
Rivalry among Existing Firms
Despite the current global economic downturn, the apparel industry continues to grow at a
healthy rate. In 2014, the total sales revenue of the US apparel retail industry was $375.1 billion,
marking a 4.4% of compound annual growth rate between 2010 and 2014. Moreover, the absence of
switching costs for consumers and great product differentiation leads to a more than moderate rivalry
among existing firms. Black Friday is a good example as during this time, stores cut prices to compete
with others. As a result, customers have the tendency to move from one retailer to another based solely
on the price.
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Bargaining Power of Suppliers
There are two main suppliers in this industry, these being clothing manufacturers and
wholesalers. Due to the liberalization of international trade, the U.S. clothing manufacturers and
wholesalers are fragmented. They cannot compete with low-wage region manufacturers such as China
and India.
Bargaining Power of Buyers
All buyers are individuals in the apparel retail industry; therefore, their buying power is
weakened. However, consumers can request high-quality products at reasonable prices and ensure
retailers are aware of the developments that shape public perception and consumer’s subsequent
demand.
Substitute Products
There is no substitute for clothing, but there are alternatives to retail stores like AEO. With the
increasing popularity of the Internet, manufacturers and wholesalers may seek this opportunity to cut
the middleman and sell directly to the consumers. Consumers will welcome this idea because no
middleman equates to lower prices. Homemade and customer made clothing are also alternatives to
readymade retail stores. Other alternatives include second-hand clothing as well as counterfeit clothing.
Economic Environment
Demographic and Economic Trends
AEO offers a variety of products, including clothing and accessories. Their female clothing line
has a wide selection. In particular, their intimate line, Aerie, has expanded their market. In 2014, the
United States apparel retail industry, clothing, foot/sportswear, and accessories retailers accounted for
62.3% of the market distribution, with 51% being womenswear and 33.5% menswear.
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Sociocultural Trends
Social culture has changed due to many domestic factors. Currently, women have more freedom
and opportunity to choose their education and career than they did in the past. In the United States,
more women are entering the workforce with 38% in 1970 and 47% in 2012. Females provide new
human capital in many areas including employment and these different roles require a variety of
clothing options.
Technological Trends
Technology has been advancing rapidly since the 1990’s. Internet and Smartphones are very
popular and so prevalent that nearly everyone has them. These advances promote both online buying
and e-commerce. The estimate of U.S. retail e-commerce sales for the fourth quarter of 2015 was $89.1
billion, an increase of 2.1% from the third quarter of 2015. Further, since 2006, the retail e-commerce
sales have been increasing steadily due to constant, new technology.
Global Trends
Both globalization and technological advances have shortened the distance between countries.
Perhaps, the growth of developing countries has the biggest potential for impact on the world market in
the future. American Eagle Outfitters sells merchandise through their two websites: ae.com and
aerie.com. These e-commerce websites allow the company to expand their potential market to 81
countries.
23
Strategy Formulation
IFAS
No
Strengths
Grade
Rate
Score
1
Brand Loyalty
0.1
3
0.3
2
High Quality Product
0.2
4
0.8
3
Positive Public Image and Body Image Campaign
0.15
4
0.6
4
Aerie-Underserved Teen Intimate Apparel and
Swimwear Availability in Store-Teens
0.1
5
0.5
Subtotal
0.55
Weaknesses
Grade
Rate
Score
1
Higher Prices
0.2
4
0.8
2
Condensed Target Market
0.1
5
0.5
3
Senior Management Age
0.05
1
0.05
4
Management Turnover
0.1
2
0.2
Subtotal
0.45
1.55
IFAS Total
1
3.75
2.2
24
EFAS
No
Opportunities
Grade
Rate
Score
1
Relatively Strong Exchange Rate
0.1
3
0.15
2
Increase Awareness of Environmental
Preservation
0.15
5
1
3
U.S. GDP Growth
0.15
3
0.45
4
Made In USA Campaign
0.1
1
0.1
Subtotal
0.5
1.7
Threat
Grade
Rate
Score
1
Ever-changing Fashion Industry
0.15
4
0.6
2
Competitors
0.2
3
0.6
3
Fads
0.05
3
0.2
4
Public Relations
0.1
5
0.5
Subtotal
0.5
1.9
EFAS Total
1
3.6
25
TOWS
American Eagle
Outfitters
Strengths:
Opportunities:

Increase awareness of
environmental
preservation
U.S. GDP growth

Threats:


Ever changing fashion
industry
Competitors


High quality products
Positive public image
and positive body
image
Weaknesses:


Higher prices
Condensed target market
 Actively involved
in environmental
preservation
awareness

As disposable income
increases high prices are
attainable


Offering Aerie which is part of
a condensed market that
separates them from a
competitive market
Keeping up with ever
changing industry by
promoting a positive
body image with #aerie
(inclusive rather than
exclusive)
Strategic Opportunity
Based on the strength of “high quality products” and the opportunity to “increase awareness of
environmental preservation” we will promote the strategy of being actively involved in eliminating
waste, offering disaster support, and promoting environmental awareness. Ultimately, we will
incorporate AEO’s practice of social responsibility and philanthropy by partnering with Make It Right, a
nonprofit company, encouraging customer involvement through incentives and donations. Make It Right
was founded by the actor Brad Pitt, to aid in rebuilding after Hurricane Katrina. Tying his face to the
project will be a positive asset to the promotion efforts. The Make It Right headquarters is about six
miles away from the AEO Factory Store in New Orleans, Louisiana, where all of the individual AEO stores
will send their collected jeans, to be picked up by the partnering company, Make It Right.
26
We have decided that this is a valuable strategy primarily due to the fact that American Eagle
Outfitters is a member of the fashion industry, which is currently under scrutiny for “fast fashion.” Fast
fashion is the idea that retailers pump out cheaply made, inexpensive clothing for the masses, which
quickly becomes out of style or un-wearable due to poor quality. These items are then just thrown away
into the landfill. It is an extremely wasteful process that AEO does not support. This fact gives them a
competitive advantage that this strategy will be able to capitalize on in the future. The company
produces a variety of quality products that have high use value. They will not wear out as rapidly as
pieces from competition such as H&M or Forever 21. The responsible consumer will recognize this fact
and is likely to develop a more positive perception of the company, providing it is properly publicized.
Studies have shown that 54% of 16-25 year olds believe that climate change and the local environment
are key global concerns. Along with concern of climate change, 75% of 16-24 year olds said that they
feel it is important for them as an individual to do something about climate change. Marketing this
campaign will also build goodwill in the industry, and will further justify in the consumer’s mind, the
slightly higher prices that American Eagle Outfitters charges for their products.
Next, jeans are a product that are primarily worn in developed countries, and are arguably a
symbol of the United States of America. The company name “American Eagle Outfitters” is a blatant
badge of patriotism and therefore our strategy will target our home country. This will allow us to focus
our efforts and have the most powerful impact. Our plan to collect used denim from pervious customers
will allow us to support and provide for the community. We will exchange these used pieces from
customers for 50 points on the customer Rewards Card, which will be redeemed for coupons. This
existing card offers various coupons in relation to the amount of money you spend at AEO, with one
dollar being equal to one point. This will not only reduce waste, as additional products will not be going
27
into the landfill, but also provide an incentive to the customer to donate their jeans. In addition to this,
AEO will build a constructive relationship with charitable organizations, further promoting a positive
perception of the company. Make It Right will then have more ability to help the local community, at
their discretion. These old jeans will be donated by AEO to Make It Right, who will recycle them by
means of shredding them for use as insulation in the walls of homes in the community.
It is important to note that AEO currently has a wide variety of philanthropic projects in which
they participate in continually. They are spread too thin and do not have the infrastructure or resources
necessary to make all of these projects ultimately successful. We believe this proposed strategy fits well
with the company mission, and will allow AEO to focus their resources in a way that brings maximum
impact and benefit to both AEO and the Make it Right organization. It will allow AEO to increase brand
awareness and public perception, build goodwill, decrease waste, and better the environment.
Implementation
Rewards Program
The current AEO program is called AERewards. It is a point reward system. For in store and
online purchases, $1 spent = 1 point.
100 Points
15% Off
200 Points
20% Off
350 Points
30% Off
500 Points
40% Off
28
Customers will receive rewards in the mail every 3 months. Rewards include:

15% off the month of the customer’s birthday at AEO and Aerie

Buy 5 Aerie Bras and get the 6th free

Members-Only Sales and Events
The new strategy will incorporate the existing rewards system to encourage customer to bring in
used AEO jeans by rewarding 50 AEO points. 50 points is equal to $50. This allows customers to earn
points faster and shop at AEO more often. Consumers have 3 months to earn points and at the end of
each 3-month period, American Eagle Outfitters will send coupon rewards in the mail based on the
number of points earned. The points then reset, and the coupons have expiration dates.
Make It Right
Make It Right is a non-profit company that was founded by Brad Pitt after Hurricane Katrina.
Make It Right builds environmentally friendly homes for people in need. Within New Orleans, Make It
Right has built 109 homes for people in the lower Ninth Ward since 2008. This non-profit also has
provided housing for children who are in between foster homes in Missouri, apartments for disabled
veterans in New Jersey, and homes for Native Americans in Montana. Specific green features that Make
It Right focuses on are solar panels, ENERGY STAR appliances, no-VAC paint, recycled concrete, and high
velocity air conditioning. American Eagle Outfitters has partnered with Make It Right in the past to aid in
building these eco-friendly homes by donating jeans to provide insulation in homes, but never on the
scale necessary to significantly increase awareness in the majority of customers.
29
Test Market
American Eagle Outfitters will implement this strategy on a trial basis at the six retail stores
closest to New Orleans, Louisiana, where they have a factory store. All of the jeans will be delivered to
this factory store. At this point, they will be picked up by Make It Right, whose headquarters is about six
miles away. The participating stores for the trial period will be Baton Rouge, Gonzales, Houma,
Mandeville, Metairie, and New Orleans. Make It Right will then be responsible for storing and
transporting the donated jeans. Southern Louisiana has been selected for this test due to their close
proximity to the partnering company’s location, and the AEO factory store where the jeans can
temporarily be held. Further, workers in the New Orleans area have an average wage of $20.71 per
hour, per capita. This is slightly below the national average, but slightly above the Louisiana state
average. It provides people with the disposable income necessary to purchase more luxury goods, such
as fashion attire. There are also many different colleges and universities including Tulane University,
University of New Orleans, and Loyola University in close proximity to the AEO stores. This will increase
the density of the target market. The average age for both genders in New Orleans is 35 years, which is
significantly lower than the national average of 40 years. This is valuable, as it equates to a higher
percentage of people in AEO’s target market. There is a pretty even number of men and women as well
as variety of ethnicities. It makes for a convenient, and appropriate location to test this project.
Marketing
This program needs to be marketed effectively to increase public awareness, and subsequently
ensure the success of the program. Due to the fact that we initially need previous customers to bring
their old jeans in, we should begin by contacting them through mail, with an explanation of the
promotion. The campaign should be attached to the coupons that are already going out, allowing AEO to
30
save on mailing costs. It would also be valuable to utilize social media to reach our target market in a
very efficient and inexpensive way. American Eagle Outfitters should encourage people to virtually
connect with them through the use of “#newlifeAEO,” on all forms of social media. This hashtag plays
into AEO’s motto of “live your life,” while emphasizing the fact that these old pants are being given a
second life. This will help people who were previously in a poor situation, metaphorically giving them a
new life as well. The customers will subsequently feel like they are making a difference in the world and
impacting other people’s lives. Lastly, the campaign should be advertised on local, highly visible
platforms, such as billboards, and should showcase Brad Pitt as a means to attract attention. These
billboards should be located in high traffic areas for people in the target market such as near colleges
and public transit.
Next, the partnering company, Make It Right will be involved in the marketing campaign, to
further increase awareness. Their founder, Brad Pitt, is a well-known and respected actor whose social
status and influence could be capitalized on as a marketing tool. He should discuss the program on a
variety of platforms including on social media, talk shows, and in interviews to increase the public
awareness and build positive public perception. Depending on the future success of the program, prizes
and giveaways could be held. Customers who donated jeans could be entered into a contest to help
Brad Pitt actually insulate one of the homes. This would be a great way to increase publicity as well as
customer involvement.
31
Timeline
Start Date
Phase
One
1
2
3
4
5
6
7
8
9
10
11
12
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
'16
'16
'16
'16
'16
'16
'16
'17
'17
'17
'17
'17
Marketing Planning
Management
Planning
Financial Planning
Quality Assurance
Plan Review/Approval
Phase
Two
Promotions Start
Staff Training
Plan
Adjustment
Phase
Three
Campaign Starts
Benchmarking: Evaluate Sales Revenue
Month
Jun 1, 2016
Project Evaluation
Evaluation
Specific criteria must be established in order to make a determination as to the effectiveness of
this proposed strategy. Beyond the goodwill that will be created by recycling American Eagle Outfitters
jeans, there is an interest in increasing our bottom line. The degree to which this happens can be
determined by examining possible differences in sales, investment, and customer involvement in our
rewards program.
32
Reward Points
As part of the incentive for our customers to trade in their used jeans, we will be offering fifty
points per pair of jeans to put on their rewards card. Beyond the fifty points, we will track any changes
in the frequency of customers using their rewards cards. Our rewards system not only offers savings for
our customers, but it also serves as a record of sales. The card can tell us with what frequency our
customers visit our stores and make purchases. Not only will we track the activity of existing
cardholders, we will also determine whether our promotion increases the number of overall rewards
cardholders.
Goodwill
Goodwill, as mentioned earlier, is another indicator of a successful implementation of our
business strategy. Many investors may feel better about putting their money into a company that makes
a difference socially and environmentally. For that group of investors, a strategy such as ours may be
what triggers them to invest with American Eagle Outfitters. As there are a significant number of
investors who exclusively invest with companies that practice social responsibility like American Eagle
Outfitters does, this could prove to be potentially lucrative. An increase in the number of socially
responsible investors with AEO in their portfolio could prove that our strategy is succeeding. Further, an
increase in social media followers could be a result of growing goodwill.
Sales
Of course, the most obvious and telling sign that our strategy has been effective would be an
increase in sales. This may be a result of the savings offered through the AEO rewards system or the
goodwill attained by their socially responsible image. In light of what various competitors such as
Abercrombie & Fitch have faced, this likely will prove to be a valuable, intangible asset. Retail companies
33
track their sales in multiple ways in order to discover trends and to ensure they are ultimately offering
their customers what they want. As our strategy is implemented, any effective changes in sales that take
place from the time we launch the promotion until the end of the initial evaluation period will be
accounted for.
Control
Our strategy will be implemented on August 1, 2016 and continue through Jan 31, 2017 on a
trial basis. Through the back-to-school season and holiday season, we will be examining rewards card
activities, differences in investment, as well as any changes in sales. AEO sales will be compared to
industry averages to determine how well our strategy is working. Three formal audits in these areas will
be performed through the trial period to determine the net effects of our strategy. The audits will take
place after two months, four months, and six months. After the third audit, we will decide whether to
continue with this strategy permanently, or to make some changes that might help the success of our
implementation. A marketing strategy like this will likely take more than six months to fully reveal its
potential effect. At the six-month period, if our incurred costs are not being covered by newly created
sales that can tied to our implementation, major adjustments will be made. If there is an increase in
sales, possibly combined with a decrease in competitors’ sales, such as Abercrombie & Fitch, we will
continue with the program for another six months and reassess at that point.
This type of business strategy is not meant to be an ongoing strategy necessarily. At some point,
the supply of used jeans that our customers will have to bring in will decrease. This strategy will help
bring to light the socially responsible image that American Eagle Outfitters could be better known for
with a approach that is associated with a name like Brad Pitt. The purpose of the test-run is to get an
34
idea whether this strategy will be worth pursuing without incurring the cost of a companywide
implementation. The three determinants of sales, investment (stock sales), and rewards system activity
will be the indicators as to which way American Eagle Outfitter’s business strategy will be moving into
2017.
Specifically, we are looking to increase our sales by 3% ($105,655,440) over the 1-year period
while at least breaking even at the six-month point between the costs involved and the gains in sales.
After subtracting the costs involved in the operation of the strategy, the increase in net realized sales
are estimated to be 2.1%. The estimated cost of .9% ($31,696,632) divided by two is the estimated
minimum sales that we must realize at the six-month period ($15,848,316) to continue the strategy
without alterations such as changing the method of promotion. The estimated cost would include any
added labor, transportation, advertising, or operational costs that come up as a result of our
implementation.
Determining whether those that participate in the recycling of jeans are the same customers
that are buying new clothes and increasing our sales will be determined with the rewards card system. If
people are just dropping jeans off without purchasing product, we will be operating as a Goodwill Store
rather than a profit-seeking business, which is not our intention.
The last determinant of increased investment will be less specifically defined in regards to its
cause. The likelihood of a measurable increase in investment of 5%, which is our target, would be hard
to dismiss as coincidence if the other two more measurable indicators are pointing in the same
direction.
35
Balanced Scorecard
Financial
Customer
Internal
Process
Employee
Strategy
Goals
Budget allocation to
marketing in order
to support
promotions and
training
Keep funding
within budget
by
benchmarking
Objectives
Increase
brand
awareness,
market share,
and sales by
partner with
Make It Right
Increase customer
Increase
Successfully
purchases and brand customer
promote the
perception by
loyalty
strategy by
building goodwill
partnering
with Make It
Right and
applying
effective
marketing
campaigns
Allocate more
Maximize
Carefully
resources to Make It resources of
choose the
Right by cutting back the tested
test locations
on other charities
locations and and target
effective
areas for
logistics on
marketing
transportation campaign
policies with
Make It Right
Promote a culture
Accomplish
Communicate
that encourages
strategic goals project
environmental
by providing
progress to
awareness and
training to
eliminate
social responsibility
employees
barriers
Measures
Targets
Continuously
compare past
years ratios
and stock
trend
More than 37% of
gross profit margin
of sales in 6
months
Monitor
Reward points
redemption,
sales revenue,
and market
share along
with the
response from
social media
10% rise in
memberships
compared to the
previous year
Track
transportation
logistics and
marketing
expenses
Remain under all
budget without
negatively
impacting the
factory store’s
current operation
Employee
training
results and
monthly
feedback
Meeting with all
test store’s
management
employees for
feedback
36
Success/Failure
After completing this project, and analyzing every aspect of it, we do not believe that this
strategy will be successful. We hypothesize that the return on investment will not be high enough to
cover the costs associated with the implementation and upkeep of the project. We believe that in the
long run, our costs of transporting these donated pants, and marketing our campaign, will be far more
than the profits will justify. Though this strategy is a successful idea, as it allows us to build goodwill and
reduce waste, increasing our positive perception among the public, it holds no longevity. Perhaps it
would be best utilized for short periods of time, such as exclusively Earth Day or back-to-school, maybe
annually. Ultimately, the increase in goodwill will be the biggest benefit offered by the project, and this
is an intangible asset. We need to experience financial growth if this strategy is going to be a permanent
fixture, which is something we do not anticipate.
What We Learned
This project afforded us with valuable insight into the complexities of developing a strategy. The
most prevalent being the implantation process, which is extremely complicated. In a real world
situation, selecting a new strategy to pursue is a massive decision, as selecting the wrong one could
potentially destroy the company, leaving them with no capital to attempt a different strategy. For this
reason, the proposal needs to be extremely thorough and accurate, addressing even the small details of
implementation and evaluation, which are vital. It is easy to come up with an idea, but significantly more
complicated to execute its implementation, as well as predict the potential for success.
37
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