Aug. 26, 2006
 
BUSINESS: American Eagle Has a New Niche on Its Mind
 
By Teresa F. Lindeman
Pittsburgh Post-Gazette
 
If an American Eagle Outfitters store is a teen with fun friends and preppy clothes, the company's new chain sounds like a well-traveled adult more interested in new ideas and experiences than taking suits to the dry cleaner.
 
The persona the Pittsburgh-area-based retailer is crafting for its new Martin + Osa brand, which is targeting 25- to 40-year-olds, is starting to emerge through ads and information on a Web site that offers summer reading suggestions, such as a book on beach houses and a translation of a Roman philosopher's ideas called "On the Shortness of Life." The first store is scheduled to open early next month.
 
But it will take more than a compelling backstory to build a new brand that can sell millions of dollars' worth of clothes, according to industry consultants who say American Eagle is attempting a difficult maneuver: Re-creating the magic that helped the original chain succeed.
 
A recent Bain & Co. analysis of nearly 300 attempts by more than 60 U.S. retailers to grow beyond their core expertise found that just 29 percent of the moves contributed to profitable growth. Just 15 percent added more than 5 percent to revenues and profits, according to the consulting firm.
 
Still, retailers must make the attempt, said Michael Bills, managing partner of the Columbus, Ohio-based design firm Fitch. "There is now a dramatically increased awareness that you can not subsist by expanding your brand" forever, he said.
 
Overbuilding the core brand can be a problem, but simply calling a halt to new store openings doesn't work either. Wall Street wants to see continued revenue growth and shareholders want good returns on their investments. The result is a rash of unfamiliar store names regularly popping up in select malls. Those that fail to find an audience will disappear, while others may grow to thrive in shopping centers all over the country.
 
For instance, Hollister has become one of Abercrombie & Fitch's more popular divisions. Indeed, the teen clothing stores are all over the country now.
 
Abercrombie seems to still be tinkering with a 2-year-old format called Ruehl, described as Greenwich Village-inspired chain selling designer denim, leather goods and casual clothing to 22- to 35-year-old men and women. The Gap earlier this year unveiled Forth & Towne for women over 35. Chicos is working on Fitigues while Pacific Sunwear recently created a shoe store called One Thousand Steps.
 
Historically, retailers have not always been effective in understanding their original brand, much less creating a new one. The Gap, an example that comes up regularly in such discussions, conquered the country's shopping centers with its reliable selection of casual basics before getting distracted by celebrities and edgier fashions.
 
"They mistook a marketing opportunity for a brand opportunity," said Robert Passikoff, president of the New York consulting firm Brand Keys. He noted the retailer was getting back to the basics that first connected with consumers.
 
Developing a completely new brand rather than tinkering with an established one has the advantage of starting fresh. Toyota made its name selling reliable cars at a good value so it created the Lexus brand when it wanted to move into the luxury market, Passikoff said.
 
For many clothing retailers, the easiest way to create a new growth vehicle has been to offer a similar product at a different price or for a different age group. That logic led to Gap Kids, tween-focused Limited Too and even Ann Taylor Loft, which is less expensive than the original brand. The hard part is creating divisions that don't just cannibalize the main brand.
 
"It is incredibly tempting to develop similar product," said Bills. As retailers figure that out, he said, they are starting to reorganize their buying organizations so each division uses different sources for its designs.
 
Fitch designers have been impressed by the Philadelphia company that operates college-oriented Urban Outfitters, Free People stores for slightly older urban professionals and Anthropologie, popular among married women willing to pay a bit more for an eclectic, vintage mix of merchandise. The three audiences are distinct, said Bills.
 
The Bain study found that retailers hoping for success shouldn't stray too far from their core expertise when trying new ideas, and they should be careful not to choose a potential customer base that's too small to support a new business.
 
Meanwhile, Fitch's research indicates consumers have begun looking for stores where not everyone else shops. "We don't think the future is about a giant concept but (instead) a portfolio of micro-niches," Bills said.
 
American Eagle, which earlier gave up on an attempt to develop a second line of stores in Canada, can take heart from another finding by the consulting group. Bain found that retailers who repeatedly tried new ideas had a better track record than the rest, in part because they learned from the experience.
 
Distributed by Scripps Howard News Service, www.scrippsnews.com.