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Aeropostale Prepares for Takeoff, Projects 900-Unit Chain

NEW YORK — Aeropostale’s plans are soaring.<br><br>Three months after going public, the specialty chain is on track to open 80 to 100 new stores each year for five years. The goal, according to Julian Geiger, chairman and chief executive,...

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NEW YORK — Aeropostale’s plans are soaring.

Three months after going public, the specialty chain is on track to open 80 to 100 new stores each year for five years. The goal, according to Julian Geiger, chairman and chief executive, is to develop the 335-unit retailer into a 900-unit national chain, making it among the largest in the country.

In his first interview since he bought the business four years ago, Geiger laid out his strategy for growth. By December, he said, Aeropostale will have opened about 80 stores this year. Most of the company’s stores, which target tweens through age 20, are clustered in the Northeast; in fact, at the beginning of 2002, only 12 percent of them were located west of the Mississippi. But Geiger and his team have set their sights on Texas, the West Coast — and nearly every place else.

“Texas has the second-largest teenage population after California,” Geiger noted, “and many of our competitors do well there.” So far, Aeropostale has opened five stores in the state, and it will have seven by the end of the year. “We could open 20 there next year,” Geiger said.

Sales last year were $400 million and the guidance on the Street is for volume in excess of $500 million this year. “We can get a lot larger,” Geiger said matter-of-factly. “The potential here is enormous.”

The first and most dramatic step toward realizing that potential was going public in May. At that time, the company issued 14.4 million shares of common stock at $18 a share, raising $240.7 million. After paying off its investors, the company was left with under $20 million, which is slated primarily for the aggressive store-opening drive.

Jeffrey Klinefelter, a specialty retail analyst at U.S. Bancorp Piper Jaffray, said Aeropostale’s expansion plans make a lot of sense. “With its value pricing strategy and its very broad target demographic, it will enable them to expand into a lot of different markets, including larger and smaller malls and even some street locations.”

Another reason Klinefelter said he believed Aeropostale has a lot of opportunities to expand is it did not limit itself to only A-type malls in the Eastern half of the country, but has historically performed well in other locations. So as the company moves across the country, it can duplicate this pattern without risking an interruption of profitable growth.

This story first appeared in the August 12, 2002 issue of WWD.  Subscribe Today.

“Without any major fashion trend emerging for back-to-school, their approach for good value in basics with a modest amount of fashion will be a strong strategy for b-t-s and holiday,” Klinefelter said.

Aeropostale differentiated itself from the rest of the teen retail scene in July as it was one of only a handful to report a positive monthly comp increase, which was 4.3 percent on total sales that brought in $31.1 million last month, 34.8 percent higher than the $23 million in sales it rang up in July 2001. And for the quarter ended Aug. 3, comps increased 11.2 percent on total sales of $90.1 million, which was 41.4 percent higher than the $63.8 million in sales in the comparable quarter last year.

Based on July’s strong same-store sales performance, and the pummeling taken by specialty retailers in recent weeks, Klinefelter raised his rating on Aeropostale to “strong buy” from “outperform” based on the firm’s belief that the store will be “the main beneficiary of a more value-focused back-to-school selling season.”

Aeropostale closed Friday up $1.30, or 8.2 percent, at $17.15 in New York Stock Exchange trading.

Dana Cohen, retail analyst with Banc of America Securities, wrote in research notes in June that the most compelling aspect of the Aeropostale story is the promising growth opportunity that lies ahead for the brand.

“The Aeropostale brand is uniquely positioned within the teen space, given its more youthful and value orientation. The brand is also one of the more accessible teen brands and given its broad reach, I believe there is the potential to grow the store to 900-plus locations.”

Aeropostale’s mall-based stores sell active-inspired sportswear for young adults, including graphic T-shirts, casual shirts, pants, sweaters, jeans, outerwear and accessories, all under the Aeropostale or Aero labels. The stores, which average 3,500 square feet, are brightly lit, high-energy, unintimidating and filled with promotional signage, popular music and friendly sales associates. They are generally located in busy central mall locations near popular teen gathering spots, such as food courts, music stores and other teen-oriented retailers. There are no plans at this point to open street locations.

The company’s primary competitors are American Eagle Outfitters, which had sales of $1.37 billion last year, and Pacific Sunwear of California, which posted $685 million in sales, and Geiger is not ashamed to admit that he pores over the geographic range of these stores as he ponders his own path.

“When you position yourself as a follower in geography and real estate, there’s a real benefit,” Geiger said. “It makes site selection easier.”

Looking at the size of these competitors provides Geiger with a framework. “American Eagle has about 650 stores and has said it can grow to 1,000 to 1,200 stores, and PacSun has 750 or so,” he said. “Our concept is as transportable as theirs and our potential for expansion is better than anyone else in the market.”

What sets Aeropostale apart, however, is its merchandise mix and target market. “We’re younger than they are and more active,” he said.

For example, he said, the typical teen comes to the mall with $20 to $40 to spend. Last year, Aeropostale’s average transaction was $32 — “and they got two to three items for that. Then they have $8 to spend on pizza on the way home. That makes them happy.”

And making teens happy is what will spur Aeropostale to its goals. “Our customers are nice, middle-class kids,” Geiger said. “They’re athletic, and the girls are tomboys. But even though they’re young, they’re very sophisticated. They know what they want to wear and what they’re willing to pay. And we listen to them. We don’t want to be leaders; we want to be followers. We give them what they want today and let them lead us.”

Aeropostale conducts focus groups in high schools and also sponsors several collegiate conferences.

The merchandise centers on fleece, denim and knit shirts, and skews more heavily these days toward women’s wear. Historically, Aeropostale had offered more men’s apparel, but at the end of last year, women’s was 56 percent of sales, men’s 33 percent and accessories the remaining 11 percent. In 1996, men’s represented 55 percent of the business. “But women shop more often and there are more of them, so we wanted women’s to be dominant,” he said.

Overall, Geiger describes the business as a “design-driven, merchant-modified, promotional specialty store. Designers by nature are forward-looking and merchants look at today and maybe tomorrow. We let our designers create a vision of the future and our merchants create an assortment that’s salable today.”

As a result, Aeropostale’s in-house design team takes a different approach when researching future collections. “Everybody goes to Paris and London,” Geiger said. “We go to train stations, Great Adventure, Ohio and Indiana. We get a better handle on what kids are wearing [there] than we would in Barcelona.”

Geiger said that, contrary to what many in the fashion industry might believe, today’s youth “wants to be unique — as long as they look like everybody else. They want to conform.”

The ceo’s own three children — aged 14, 17 and 19 — do their part to keep Aeropostale on the right path. “They’re my harshest critics,” he said.

But Geiger, who has been in the business for more than 30 years, also has a lot of experience. A native of New York, he began his retail career as a buyer for Bloomingdale’s in 1970. He joined Macy’s in 1975 as a store manager and held several positions before being named president of merchandising in charge of men’s wear for Macy’s East in 1992. He joined Asian American Partners as president of its Eagle’s Eye wholesale and retail divisions in 1994 before rejoining Federated Department Stores as chief executive of its specialty store division (which included Aeropostale) in 1996.

However, the stores, which were offshoots of Macy’s private labels, did not fit into Federated’s plan and were sold in 1998 to MSS Delaware Inc., a New York-based investment group headed by Geiger, his management team and the Bear, Stearns Merchant Banking Group. At that time the company had 119 Aeropostale stores, with sales of around $123 million.

Geiger recalled that when he bought the chain, “the business was in total disarray. It had been for sale for a while, lots of people had left and those who were there were often in the wrong jobs. We came in and asked how we were going to make money and we knew we had to focus on people and product. We took a marginally profitable business and made it a larger, more profitable business.”

In its first earnings report since going public, the company recorded a net profit of $592,000, or 1 cent a diluted share, for the three months ended May 4, reversing a loss of $2 million, or 7 cents, in the comparable quarter last year. Sales skyrocketed 50.3 percent to $85.1 million from $56.6 million and 22 percent on a comparable-store basis in the quarter. Comps in May rose 19.1 percent and 11.8 percent in June.

Geiger has had success, he believes, by keeping the operation simple.

“Every business is fraught with peril, but through structure and simplicity, everyone gets better. And if you believe you can win, much of the time you do.”

But will things change now that Aeropostale is public? Geiger doesn’t think so. “In the short and long run, we have to run the business. All the externals fade into the background.”

And he has experience growing a business. In the six years since joining the company, Geiger has quietly tripled store count and volume, and made Aeropostale a force in the teen retailing sector. Yet he has kept a very low profile.

“That was intentional,” he said. “This is a nice business with old-fashioned principles. We believe in relationships, we have integrity, and we care about our customers and our employees. In the last 30 years, what’s changed the most in this business is relationships.”

Five manufacturers represent 60 percent of the company’s total business and Geiger prides himself on treating them fairly. “These vendors are here three days a week. They’re not our enemies, they’re our friends.

He added that his suppliers generally turn any classification in 30 to 60 days.

Although Geiger has spent his career in retailing, his father was a manufacturer — the late Howard Geiger founded Willis & Geiger, which manufactured authentic survival and exhibition gear, in 1932. “I have always thought about how my father would feel whenever I’m dealing with a vendor,” Geiger said. And that’s the root of the company’s culture. “I believe our reputation as merchants is less important than our reputation as human beings. And culture is not something you bring out of the closet on special occasions.”

That culture will also be evident when Aeropostale kicks off its first advertising campaign for back-to-school. Its TV campaign, a 2 1/2-minute movie, will kick off Sept. 17 on MTV. It will be supported by a series of 30-second spots that will start two weeks earlier.

“The ads are about young love,” Geiger said. “It’s all very sweet and innocent, and everybody’s clothed. We have a very strong social conscious. Columbine and then Sept. 11 had a tremendous effect on our kids. Parents are no longer ogres — they now represent safety and security,” and those are the values Geiger strives to provide at Aeropostale.

Overall, Geiger believes that by sticking to these values he will build Aeropostale into a true national brand, but he’s in no hurry. “There’s no shortcut to building a brand. This is a marathon, not a 5K. We just want to make it to the finish line.”

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