Time for a Turnaround at MARTIN + OSA? (AEO)

I understand why the Street wrote off MARTIN + OSA, owned by American Eagle Outfitters (AEO), for a long time: With few stores, no marketing, merchandise misses and their parent company reporting losses on the concept and expressing uncertainty about its future, there wasn’t reason to think M+O was formidable.  But that changed a bit in 1Q09, after which management said in its May earnings call:

MARTIN + OSA comped at a positive 7%, driven by increased traffic and conversion. Leadership is focused on continuing to improve assortments with a more cohesive point of view for this customer.  Based on the positive comp trends since the beginning of 2008, combined with the encouraging feedback from extensive consumer research, we remain committed to the M+O concept.

As you may recall, M+O was earnings dilutive in FY08, so AEO is waiting to see whether it can keep a positive trend going for the rest of FY09 and reduce that loss.  Now, M+O has 28 stores and may have recently embarked on their first direct mail campaign.  I say “may have” because last week was the first time I had gotten anything from them (today was the second time) and the sales associate with whom I spoke said she also thought it was the first because the company is “very excited about the fall collection”.

Although there was a very poor response to the assortment in 2007-08, the product has improved dramatically.  It’s a combination of the best of each Madewell (JCG) and Ann Taylor (ANN): It’s casual and edgy, but for someone who also wants the polish of a more feminine look.  I really like it.  Their denim is cool without being extravagant, at a sweet spot of $89.50-99.50.  It’s shown with a chic cardi for $69.50.  The color story is centered around grey and black, with a good amount of pinks and some lavender and blue (similar to Ann Taylor new fall floorset).  They have short-sleeve ruffle blouses for $59.50-69.50 and are hitting the plaid trend with a 3/4 sleeve blouse, the Washed Shadow Plaid Shirt, for $79.50.  Similar to J. Crew and, again, to Ann Taylor, they’re all over sleeveless blouses embellished with pleats or ruffles for $59.50-79.50.  Cute skirts with pleats and an inverted pleat are $59.50 and $69.50, respectively.

M+O is doing a great job of serving their target, the 28-40 year-old, with age appropriate looks for day and night, often at very reasonable prices.  More to come on Ann Taylor’s fall floorset.

Ann Taylor (ANN) Gets to Know Customers on Facebook

Below is an excerpt of a dialogue in which Ann Taylor (ANN) engaged with customers on Friday.  It’s a perfect way for a retailer to be a part of the conversation happening all over Facebook, “meet” its customers and learn about what they want.  While this isn’t a company one might think of as being on the cutting edge of social media, Ann Taylor is much more proactive and interactive than many other retailers on FB.  And, in return, they’re rewarded with useful nuggets of consumer research, even if this isn’t a random, statistically significant sample population.  (I’m a “fan” of Ann Taylor on FB, so I see their updates like these in my news feed.)

Ann Taylor® Official Page

There have been so many great comments about our suits that we wanted to share a tiny glimpse of some pieces that are set to debut this fall. Take a look and let us know what features you love or look for in your suits. We’d love to hear what you think as we’re putting the finishing touches on our Spring 2010 line!

 Check back next week for more August sneak peeks!

Wear to Work Sneak Peek

We’re so excited to hear you’re looking for more suits! Here’s a tiny sneak peek of some of what’s to come for fall (there’s much more so stay tuned!). We’ve designed a coll…

By:Ann Taylor® Official Page

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8 people like this.

JB at 8:28am July 10

I think that in addition to offering pencil skirts, you should consider a-line or fuller skirts as well. For women with hips, it’s extremely difficult to wear a pencil skirt. It would be great if you offered the suits in more colors and patterns (pinstripes, checkered, dots, etc) all year round. I think a basic suit (3-4 seasons) in 4 colors for… Read More

MD at 8:49am July 10

I’m glad to see more suits getting ready to hit the stores. I know a lot of ladies have been anticipating new suiting from Ann, and I’m sure Lisa and her team have some beautiful and effortless pieces coming our way. I’m really looking forward to this season.

SJ at 8:52am July 10

I LOVE MY ANN TAYLOR SUITS

TG at 8:52am July 10

I am a pencil skirt girl, but I am short, petite and have no real hips. It forces a curve for me.

MD at 8:53am July 10

On a side note, I just want to comment that the new pencil skirts work surprisingly well for various body shapes. Admittedly, it’s fairly impossible to achieve “one style fits all,” but they’re constructed in a way that is more flattering and better fitted than other pencil skirts I’ve seen from Ann. Otherwise yes, I agree that it would be great to see new A-line skirts (and dresses).

TG at 9:02am July 10

I wear pencil skirts regardless of fashion trends. Next time “your shaped” skirt is in, buy out the shop so you have a supply until next time

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American Eagle (AEO) vs. Aeropostale (ARO)

For a long time, we talked about the A-team trio of teen retailers: Abercrombie (ANF), American Eagle (AEO) andAeropostale (ARO).  Abercrombie was always quite different from the other two, with its higher prices, darker stores and less parent-friendly image.  But American Eagle and Aeropostale seem to be two of a kind on the surface: reasonable prices, colorful product, wholesome presentations.  However, as the recession has progressed, we’ve seen Aeropostale referred to as a value player and we’ve watched it deliver month after month of same-store sales increases, bested only by a teen retailer of a different type, Buckle (BKE) (to be covered at a later date).  In contrast, American Eagle has experienced the comp sales declines plaguing the rest of the industry (though, nothing near Abercrombie’s ~30% drops).

In light of the divergent results of AE and Aero — and the persistent references to Aero as a value player — I’ve been curious about how different the two retailers’ offers are.  I live near an AE and have been impressed with the selection, pricing, deals and presentation on my frequent visits.  But since I don’t live near Aero, I’ve conducted a straightforward online survey of each retailer’s web site to compare them.

American Eagle:

• The bottom corner of the landing page says that AE jeans, including new washes, start at $29.50.  Of the 31 women’s styles, which I consider to be an impressive selection, 5 are $29.50, 12 are $39.50 and 14 are $49.50.  This is less of a bait-and-switch than it may seem like because at least one wash in four of the six styles is available for $29.50.  The trendiest styles, Skinny and Boy Fit & Crop, are only offered at the highest price points.  The page starts with a fit guide, which is a quality touch.
• There’s a “Buy One, Get One 50% Off” deal on graphic tees (which I also noticed in-store last weekend).  Most are $15.50 or $19.50 and a handful of men’s styles with embroidery are $24.50.  So, you’re looking at two tees for as little as $23.25.
• Moving into the fall arrivals, pullover hoodies for men and women are $29.50, a cardigan is $44.50 and a 3/4-sleeve striped sweater is $39.50 (the latter two are women’s).
• New arrival dresses look great, but are styled for a gal who’s probably out of high school.  Most are $34.50-$44.50, with one item at $59.50.
• For men, the limited selection of fall pants includes chinos for $39.50, cargo pants for $44.50 and sweatpants for $39.50.  That last one seems expensive to me.  It’s called Dorm Pants, which suggests AE is going after the college student, rather than the high school student (or just appealing to the precocious high schooler with a college-named item, which is rarely a bad idea).
• Jewelry is $9.50-$12.50, which positions it as a reasonable grab-and-go impulse buy.

Aeropostale:

• Promos abound on the landing page, which offers a BOGO on all non-clearance polo shirts ($19.50-$29.50 for girls and $24.50-$39.50 for guys), as well as free speakers with any jeans purchase.
• Girls and guys graphic tees are $17.50-$29.50, or 2 for $22.  Most of the girls tees are white and look less substantial than the AE ones.
• Aero has 18 girls jeans options across four styles.  The original prices are $39.50 and $49.50 and are marked down to $29.99 and $34.99.  Note that some of these styles also appear in the “New Arrivals” section, with the blacklined price being used as a way to attract customers to a “sale”…
• Similarly, new arrival zip-up hoodies for girls are $24.99, marked down from $39.50-$49.50.  The very limited selection of new dresses is $19.99, marked down from $44.50 and $49.50.
• On the guys side, many of the new zip-up and pullover hoodies are full price – $44.50-$89.50 – but some are marked down to $19.99-$34.99.
• Back-to-school chinos for guys are $39.50, but all are marked down to $24.99.  Cargo pants are $5 more.
• Jewelry is $10.50-$15.50 or 2 for $15.

Conclusions:

• On pricing, AE and Aero are equal when it comes to girls/women’s jeans.  But AE wins for selection.
• Graphic tees are slightly less expensive at Aero.  It’s hard to speak to quality from an online survey, but from what I can see, the tees at AE look much nicer.
• AE has the lower price on guys hoodies.  Aero offers girls hoodies for $5 less than AE, but the Aero price is a markdown.
• Dresses are much less expensive at Aero, but look much less substantial than those at AE.
• Prices on guys chinos would be the same at the two retailers, except that Aero has them blacklined.
• Aero has the less expensive jewelry.

Aero may be the more promotional of these two players but, overall, I pick AE for pricing, style and perceived quality.  I can see why Aero appeals to teens (referred to by the chain as “girls” and “guys”) who are drawn to sales and want ultra-casual apparel for school, while AE is a bit more versatile and can grow with customers  into college (merchandise is grouped by “women’s” and “men’s”).

All this said, I’m surprised Aero has outperformed AE on a comp sales basis as dramatically as it has.  My rationale for the trend is that for the teen who aspires to buy – or who used to buy – Abercrombie and can’t afford it now, Aero offers a similar aesthetic and occasion and wins the sale.  But AE likely competes for a slightly older customer with the likes of Gap, Old Navy (GPS) andH&M, so its value proposition isn’t as stark in relative competitive terms.

Finally, take a look at how closely together AEO and ARO have indexed over the past year:

Surprising for companies whose stories have gone in different directions?  Investors think – and I agree (I hold no positions in these stocks) –  that these are two companies with similarly appealing stories whose slight difference in customer has meant a world of difference in top-line results during the recession.  Glad to see that AEO hasn’t been punished and ARO hasn’t been rewarded for recession-time results that aren’t long-term indicators of company positioning.  (FYI, the two-year view shows AEO taking a hit, but the five-year history looks more similar to the one-year movement.)

July 4th Weekend Channel Check Marathon

Gap – Looks better than it has in a while.  There are a number of items that seem “inspired” by J. Crew, but are significantly less expensive.  A smaller % of the store is on sale relative to the past few times I’ve been in there.  It’s also neater, with less product on every shelf and rack.  Makes me think they’re in okay shape for the fall floorsets to hit and don’t have a ton of inventory to sell out before then.  They also have some new promos going on: They’re clearly trying to drive basket size with an additional 30% off 4 or more sale items, and a variety of jeans are $20 instead of $50-70.

Bebe – Same issue I’ve felt about them for a while: Hard to believe there are enough customers who like this style, have the occasions to wear it AND will pay these prices for it when the quality doesn’t even feel like a sure thing.

Chico’s – About a quarter of the store is on sale, which is consistent with what it’s been for the past several months (other than clearance events).  The product doesn’t look great, only partially because every rack is stuffed with a mix of colors, textures, patterns and materials that clash and bring out the worst in each other.

White House | Black Market – Half of the store is on sale, which isn’t unusual.  But half of the product is also unattractive.  A pricing strategy is hard to discern, as items within the same class run the gamut of price, even when material, etc. seem similar.

Victoria’s Secret – The PINK product looks great, but I’ve started to wonder whether the company only pays attention to that.  The entire rest of the store was on sale, with deeper markdowns than I recall seeing in the recent past.  Traffic was low, but everything was a mess.

Lululemon – Just a few items marked down, as usual.  A new product emphasis appears to be skirts (for running and tennis, I guess).  I’m interested to see how they’ll move farther from their yoga core enough to diversify but not enough to hurt their positioning.

Gymboree – Their new location, unlike their old one, has aisles wide enough to fit strollers.  Seems logical.  They’re getting a jump on back-to-school specials by discounting school uniforms (20%, I think).

Coach – Their new line, Poppy, lives up to the marketing hype.  The product is also very consistent with the social media messaging around the launch.  The sizes, materials and prices vary, but they’re definitely more accessible than many handbags out there (Coach and beyond).  While I was in the store, one woman asked for the price on the largest sequin-covered bag, joked that she shouldn’t even ask because it would be too expensive, and then expressed pleasant surprise at learning it was $595.  They’re offering Poppy-themed pencils and a notebook with a $200 Poppy purchase and have re-designed the Coach shopping bags to look like Poppy.

J. Crew – Doesn’t look as great as I typically think it does.  About 2/3 of the women’s inventory is on sale — clearly have a lot to clear through before fall.  There’s a lot of core, whereas they’ve probably sold out of the more iconic product that gives the store its personality.  It just feels like you’re hitting them between seasons, which can’t be good for them.

Talbots – While I feel like I read all the time about who they’re latest target customer is, it’s hard to tell by looking at the product.  From one rack to the next, it looks like a different customer.  And while traffic was decent, the mix of customers was eclectic.

Coldwater Creek – Big improvement here.  Better than I’ve seen this product look in a year.  The colors and silhouettes seem updated and more modern.  Almost the whole store is full-price.  Prices seem to be approaching those of CHS, probably as a result of CWTR getting more expensive and CHS going the other way.  Not sure about that.

Abercrombie – Another surprise: I think the prices are actually at the high end of reasonable.  $30-40 for a graphic tee is much more than at other teen players, but it’s in the J. Crew range — it’s not $80 anymore.  Maxi dresses (not even plain ) are $88.

Free People – The brand has evolved from earthy to sequins and studs.  Their own store says this loudly.  The product is cute, but I have a hard time understanding who has occasion to wear it, and will pay for it.  They have a limited amount of merchandise on sale and the markdowns aren’t very steep.

Ross – Longest line I saw all weekend.  I think it’s difficult to shop.  I didn’t see brand or price signage to really understand the draw, but I didn’t give it a lot of time.

Men’s Wearhouse – Another one that looked awful, even the windows.  I was in and out very quickly so don’t have much to say.

Ann Taylor LOFT – A lot of the new product looks fantastic, though a little pricier than I would have expected — particularly some $48 tops.  Some of the t-shirts are obvious J. Crew knock-offs, and other product has a similar feel.  They seem to be doing a better job with color stories, and I can more imagine the product being flattering than I could in the past (i.e. some of it used to look hideous even on the mannequins).

Brooks Brothers – I hadn’t been in there in ages, and it feels like nothing’s changed since I shopped there nine years ago.  They’re clearly very focused on their target, which I guess is good.  Big sale, affecting about 1/3 of the store.

American Eagle - Nearly everything is cute and a good value (and most of it is on sale).  I’d be interested to see their price points, inventory position relative to ARO right now.  This is minor, but AEO has been playing louder music lately.  I wonder whether they’re trying to appeal to the disenchanted ANF customer.

Ann Taylor - Big news: They’re now carrying Design History dresses and Wyeth tops.  That’s the best-looking product in the store.  The sales associate pointed out the section that is the product of their new designer, which I didn’t like.  About 1/3 of the store is marked down and they’re expecting the first fall floorset at the end of the month.

H&M – Chaos of Sale and $5 and $10 signs.  As I walked through this, I noticed how many items appeared to be designer knock-offs.  There wasn’t a correlation between price and the quality that I perceived a product to be (i.e. some of the stuff that felt the worst was more expensive).

American Apparel – Nothing feels new, except the harem pants.

Old Navy – A lot of 4th of July spirit with decorations and a charity drive going on, and a lot of traffic and conversion.  They’re prices seem even lower than in the past, but the quality may have dropped, too: Product on the floor was falling apart already.