DANA POINT, Calif. — There’s a new kid at American Eagle Outfitters Inc.

Targeting a growing market, chief executive officer Jim O’Donnell said Thursday the company is launching a children’s apparel retail concept called 77kids by american eagle aimed at youngsters between the ages of two and 10. American Eagle plans to make the first sale at 77kids.com by early fall with a roll out of the inaugural store next year. The line will expand into infants’ clothing 18 months after the launch.

“It fits into the American Eagle brand,” O’Donnell said at a financial conference sponsored by ICR at the St. Regis Monarch Beach Resort & Spa here. “American Eagle has this connection with the young consumer. It’s known by moms who shopped [at American Eagle] when they were younger.”

American Eagle is venturing into the kids’ market as other brands, including Marc Jacobs, J. Crew and Lucky Brand Jeans place more attention on the booming sector. Marshal Cohen, chief industry analyst for market research firm NPD Group in Port Washington, N.Y., said sales of children’s clothing rose 7 percent in 2007, outpacing the 2.6 percent growth for men’s and 1.9 percent increase for women’s.

That’s not to say children’s wear is easy. Talbots Inc. this month said it will discontinue kids’ and men’s businesses by the fall to help focus on its core misses’, special sizes, Collection, accessories, shoes and J. Jill operations.

O’Donnell said 77kids will cater to a broader market than higher-end labels such as Marc Jacobs and J. Crew by being a moderate-priced “value player” with attention to style and fit.

There were few details about 77kids’ pricing, locations of new stores and sales goals, but O’Donnell said the styles will encompass denim, fleece and knitwear. “It’ll capture the heritage of the [American Eagle] brand,” he said. “It’s not only cute and trend-right, but it also has all the facets that a mom wants: durability [and] versatility.”

American Eagle, which is based in Pittsburgh and generates more than $2 billion in annual sales, mulled the idea four years. The company put the concept on the back burner to introduce Martin + Osa, its label geared toward 28- to 40-year-olds, in September 2006.

This story first appeared in the January 18, 2008 issue of WWD.  Subscribe Today.

In the interim, American Eagle amassed information to ready for the kids’ launch, O’Donnell said. He emphasized that 77kids won’t reflect a miniature version of the company’s namesake brand, which caters to the 15- to 25-year-old customer. One-third of the stock in the 77kids stores will include accessories that will be kid-focused.

The new concept is the first time that American Eagle will launch a new brand via the Internet. Part of the reason is ease. The Web will facilitate a simultaneous international kickoff and American Eagle already ships products sold on its flagship brand’s Web site to 50 countries.

“Our financial exposure is very minimal [with the Web launch],” O’Donnell said. Moreover, the Internet allows the amassing of research and comments from consumers. “You can gain a tremendous amount of valuable knowledge before your brick-and-mortar launch,” he said.

Investors reacted positively to American Eagle’s announcement. The company’s stock was up almost 1.8 percent in New York Stock Exchange trading, closing at $19.10.

Though American Eagle is taking its time to build stores for 77kids, this year it will kick off an aggressive campaign to open new units and remodel existing ones for both its namesake brand and aerie by American Eagle, the lingerie brand for 15- to 25-year-old women. O’Donnell said the company plans to open at least 40 shops and renovate 50 existing units for American Eagle. He also said aerie will open 70 new stand-alone stores, compared with 36 last year.

O’Donnell said there are no plans to close Martin + Osa, although he is taking a more cautious approach with the concept, which emphasizes style, fit and better fabrics such as cashmere and Merino wool for the more sophisticated customer. Martin + Osa opened 19 stores in the past 16 months.

O’Donnell said gross margins and sales per square footage are among the benchmarks for being tracked for Martin + Osa. “We’ll know in black and white very definitively whether we’re moving along in the right vein,” he said.

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