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American Eagle Outfitters, Inc.

American Eagle Outfitters, Inc.

150 Thorn Hill Drive
Warrendale, Pennsylvania 15086-7528
U.S.A.
Telephone: (724) 776-4857
Fax: (724) 779-5585
Web site: http://www.ae.com

Public Company
Incorporated:
1993
Employees: 10,892
Sales: $1.5 billion (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: AEOS
NIAC: 448190 Other Clothing Stores; 448150 Clothing Accessories Stores

American Eagle Outfitters, Inc. (AE) is a chain of mall-based stores that sells casual, outdoor-inspired fashion apparel. With nearly 700 shops in the United States and Canada, AE enjoyed average annual sales increases of 35 percent from 1996 to 2001. This growth rate earned AE a ranking of 63rd among Fortune magazines list of fastest growing companies. American Eagle generated record net income of $105.5 million in fiscal 2001 (ended February 2, 2002). Retail outlets in regional shopping malls account for the vast majority of sales, but the company also sells its gear via a website and its magaloga combination lifestyle magazine and catalog. AEs Canadian operations include the Thriftys/Bluenotes chain, as well as Bramear shops and National Logistics Services, a distribution arm. The company also operates a small distribution center, Eagle Trading, in Mexico.

The vast majority of the chains sales are generated from private label brandsAmerican Eagle Outfitters, AE, and AE Supply; this focus on private-label merchandise was launched through a 1992 repositioning and was intended to differentiate American Eagle from its mall competitors, such as The Limited, The Gap, and Abercrombie & Fitch. To keep up with the latest fashion trends, the company employs an in-house design team, whose merchandise designs are then manufactured to specification by outside vendors or by American Eagles manufacturing subsidiary, Prophecy Ltd. This private-label/in-house design system enables American Eagle to keep tight control of quality and hold prices down. Customer credit is offered through an American Eagle Outfitters credit card.

Approximately 26 percent of the companys stock is owned by the Schottenstein family, whose Schottenstein Stores Corp. is a large privately held company based in Columbus, Ohio, with numerous retail holdings. Jay L. Schottenstein acted as CEO of American Eagle from 1992 to 2002, when he stepped aside to make room for co-CEOs Roger S. Markfield and James V. ODonnell. Schottenstein remained as chairman of the board.

1977 Debut

When American Eagle Outfitters was launched in 1977, it was part of Silvermans Mens wear, Inc., a retailing company whose flagship was the Silvermans chain, which sold young mens apparel and accessories and was founded in McKees Rocks, Pennsylvania (near Pittsburgh), in 1904. The Silverman family owned and operated Silvermans Menswear, and by the mid-1970s two brothersin the third generation of Silvermans in the family businesswere running things: Jerry Silverman, president and CEO, and Mark Silverman, executive vice-president and COO. The Silverman brothers believed that they needed more than one concept to continue growing their companythat the addition of other chains would then enable them to operate more than one store in the same mall. They thus opened the first American Eagle Outfitters store in 1977, positioning it as a seller of brand-name leisure apparel, footwear, and accessories for men and women, with an emphasis on merchandise geared toward outdoor sports, such as hiking, mountain climbing, and camping. American Eagle quickly established itself as a mall store able to attract an unusually wide array of shoppers, although its rugged offerings were geared more toward men. And with a nationally distributed mail-order catalog supporting the retail units, the new chain quickly became a key competitor not only to such established retailers as The Gap but also to such venerable catalogers as L.L. Bean and Lands End.

In 1980, Silvermans Menswear changed its name to Retail Ventures, Inc. (RVI). That same year, the Silvermans ran into some financial difficulties and sold a 50 percent stake in RVI to the Schottenstein family. The Schottensteins owned Schottenstein Stores, a retailing giant based in Columbus, Ohio. Schottenstein Stores was founded in the early 20th century by E.L. Schottenstein when he opened the first Value City Department Store, a discount department store chain which by the early 21st century included DSW Shoe Warehouse and Filenes Basement.

In 1985, RVI launched three more new chains: His Place and Go Places, concepts similar to that of Silvermans, and Help-Ur-Self, a bulk food store. The following year the company spent $8 million to expand its headquarters, adding 25,000 square feet to its office space and 146,000 square feet to its 119,000-square-foot distribution center. Also in 1986 RVI added 34 new stores to its existing 200. Many of these were American Eagle units, as the company began that year to concentrate more of its resources on American Eagle, which was achieving rapid sales growth, than on Silvermans, whose sales were being hurt from increasing competition, particularly from discount chains.

This shift in emphasis culminated in early 1989 when RVI announced a major restructuring in which it sold its Silvermans, His Place, and Go Places chainsa total of 125 storesto Merry-Go-Round Enterprises Inc., a Towson, Maryland-based operator of 430 mall-based clothing stores, including Merry-Go-Round, Cignal, and Attivo. RVI also spun off to the Silverman family the 11-store Help-Ur-Self chain, which had performed reasonably well but was not considered synergistic with American Eagle. RVI was thus left with American Eagle Outfittersnow with 137 stores in 36 states and sales of $125 millionas its single focus. The company planned to aggressively expand its sole remaining chain by as many as 120 stores over the following three years. It began to implement this plan but only after The Gap had approached RVI in early 1989 about buying American Eagle and after negotiations to do so had fallen through.

The Early 1990s

Although the chain clearly had potential for growth, in the midst of the recessionary early 1990s American Eagle was saddled with dated inventory that brought low profit margins. With brand-name apparel increasingly being offered by various clothing chains, catalogers, and discounters, American Eagle was facing increasing competition. High management turnover also contributed to the chains difficulties during this period.

By mid-1991 American Eagle had grown to 153 storesnot nearly the expansion rate envisioned two years earlierand sales had stagnated. For the fiscal year ending in July 1991, sales were $144.3 million, a minuscule increase over the $142.4 million of the previous year. Worse yet, the chain posted a net loss of $8.9 million for the year. In a deal designed to position American Eagle for renewed growth, the Schottenstein family bought the 50 percent of RVI owned by the Silverman family, giving the Schottensteins full control of the company and its only chain. Jay L. Schottenstein became the new chairman and CEO of RVI, replacing Mark Silverman, while Sam Forman was brought in as president and COO. Forman had been CEO of Kuppenheimer Clothiers. The Schottensteins also hired Roger Markfield as president and chief merchant. Formerly of Macys and the Gap, Markfield helped AEO find its target customer.

Under its new ownership and leadership, the chain was repositioned in 1992 to focus on private-label casual apparel for men and women, while retaining the outdoor-oriented look for which it was best known. It hired its own cadre of designers and began developing its own sources of merchandise. The private label strategy was intended to position American Eagle merchandise as value priced. The company also began opening American Eagle outlet stores to reduce its inventory of out-of-season and branded clothing items.

Going Public in 1994

American Eagles 1994 fiscal year was its best year to date, evidence that the repositioning was working. Sales for the year were $199.7 million, while net income was a healthy $11.9 million. In the midst of this successful year, RVI announced that it would go public through an initial public offering (IPO). In November 1993 an American Eagle Outfitters, Inc. subsidiary was established and it was under this name that RVI and the American Eagle chain emerged in April 1994, with a listing on the NASDAQ stock exchange and with the Schottenstein family maintaining roughly a 60 percent stake in the new company and Forman about 10 percent. American Eagle went public as a 167-store chain with nine outlet stores and locations in 34 states.

Much of the approximate $37 million raised through the IPO was almost immediately poured back into the company for an aggressive program of expansion and renovation. From July through December of 1994 alone, 55 new stores were opened. At the one-year anniversary of the IPO, nearly 90 new stores had been added. Unfortunately, several of these new locations were unprofitable from the time they opened their doors, and it became apparent that the chain had expanded too rapidly.

Adding to the confusion at this time was a rapid succession of management changes. In early 1995, Forman was named vice-chairman, with Robert G. Lynn, a one-time president and CEO of F.W. Woolworth Co., becoming vice-chairman and COO and Roger S. Markfield being promoted to president and chief merchandising officer. Lynn, however, left the company in December 1995 over reported management differences. Later that same month, George Kolber took over Lynns vice-chairman and COO spots.

Company Perspectives:

American Eagle Outfitters is a leading lifestyle retailer that designs, markets, and sells its own brand of relaxed, versatile clothing for 16- to 34-year-olds, providing high-quality merchandise at affordable prices. AEs lifestyle collection includes casual basics like khakis, cargos, and jeans; fashion tops like rugbys, polos, and graphic Ts; and functional items like swimwear, outerwear, footwear and accessories.

Forman, meanwhile, sold his 10 percent stake in American Eagle in early 1995. Later that year he resigned from his position as vice-chairman following his purchase of 32 American Eagle outlet stores in 18 states for between $14 million and $16 million. The company had decided to divest the outlets in order to concentrate on its mall locations, and it subsequently closed its remaining seven outlet stores. Forman signed a licensing agreement with American Eagle, whereby the outlets he purchased would operate under the American Eagle Outlets name and would sell merchandise made specifically for the outlets. Through all of these changes, Jay Schottenstein continued in his role of chairman and CEO.

Repositioned Again in 1996

The year 1996 was a transitional one for American Eagle as it cut back drastically on its expansion plans in order to reposition the chain once again. In search of higher-margin merchandise to offer, Markfield and Kolber determined that the chain had to sell more womens apparel, which is typically more profitable. The leaders also decided to completely divorce American Eagle of its once-eclectic range of customers and target the lucrative youth marketages 16 to 34through a younger and hipper feel to the clothing and in the chains marketing. The company launched a magalog, a catalog of merchandise that also included editorial content of interest to this key demographic, including music and book reviews, feature stories, horoscopes, and advice columns. Finally, American Eagle would strongly emphasize value pricing through a commitment to private label merchandise. Remaining at the chains core was its venerable rugged, outdoorsy style.

For fiscal 1996 (the first year of the companys new fiscal year, which now ended at the end of January), about 98 percent of the companys sales were generated from its private label brands, American Eagle Outfitters, AE, and AE Supply. Womens clothing, meantimewhich in fiscal 1995 had accounted for only 30 percent of salesaccounted for 47 percent of sales by that time.

If 1996 was a transitional year for American Eagle, then the transition went exceedingly well, as 1997 turned into a breakout year. For the year, sales increased 24.3 percent to a record $405.7 million, while net income more than tripled, going from $5.9 million in 1996 to $19.5 million in 1997. Comparable store sales were very strong, increasing 15.1 percent in 1997 compared to the previous year.

In addition to opening 32 new stores in 1997, American Eagle that year also for the first time began manufacturing its own clothing through the acquisition of Prophecy Ltd., a New York-based contract apparel maker which had been majority owned by the Schottenstein family. This move toward further vertical integration was in keeping with the chains desire to control costs and maintain quality. The terms of the purchase were $900,000 in cash plus a contingency payment of up to $700,000.

Early 1998 was a busy period for American Eagle as it introduced the AE Clear Card, the first clear credit card. By the end of 1999, the card accounted for 14 percent of total sales. The company also began to open new stores outside of enclosed malls, in airports, strip malls, and other locales. AE also undertook a West Coast expansion that year, with openings in Seattle and Tacoma, Washington as well as Portland, Oregon. AE also launched a Web site to appeal to the chains youth-oriented customer base. The company envisioned its Internet outlet not so much as a primary sales vehicle, but more as a way for customers to preshop and for the company to track geographic areas that were ripe for retail expansion.

The companys growth strategies were well-timed, as AE rode a rising tide in the young mens clothing business. During the late 1990s, the U.S. teen populationAEs key demographicexpanded more rapidly than the general populace. Womens Wear Daily, a clothing industry periodical, called AE one of the hottest retailers in the country, citing it as a case study on how to build a brand. The renewed strength of American Eagle was also evident in two separate three-for-two stock splits, which occurred during the first five months of 1998. AE posted record results that fiscal year, as earnings increased more than 175 percent to $54.1 million on a 44.8 percent increase in sales, to $587.6 million.

AEOs success garnered the attention of upscale competitor Abercrombie & Fitch, which brought three lawsuits over the course of four years accusing AEO of intentionally and systematically copying everything from the paper its catalog was printed on to editorial content and product names like vintage sweatshirts and field jerseys. American Eagle won each case, some by outright dismissal.

Having successfully repositioned its brand, AEO moved to fine-tune in-house efficiencies in the latter years of the 1990s. The company instituted a new computer system that would separate inventory and personnel management from sales transactions. Capturing up-to-the-minute information on fast and slow moving merchandise gave the company the ability to refine production schedules in line with demand. More efficient distribution meant that the company could keep up with the fast-changing tastes of U.S. teens. In 2000, AE announced its plans to open a distribution center near Kansas City, Missouri, to support its growth plans for the Western United States.

Key Dates:

1977:
American Eagle Outfitters (AE) is launched as segment of Silvermans Mens wear, Inc.
1991:
AE grows to 153 stores.
1992:
The company focuses on private-label merchandise.
1993:
American Eagle Outfitters, Inc. is incorporated.
1994:
AE goes public with a listing on the NASDAQ stock exchange.
2000:
AE steps up its promotional campaign, gaining exposure for its clothing on the television series Dawsons Creek and in teen-oriented movies.
2001:
AE generates record net income of $105.5 million.

The company continued to hone its marketing strategy as well, becoming the official costumer for the television series Dawsons Creek and inking a deal with Dimension Films to provide the wardrobe for no fewer than four of its teen-oriented films in the years to come. AE subsequently signed a deal to provide clothing to the 10th anniversary season of MTVs Road Rules reality series as well. The company soon added national television advertising, primarily via cable.

Writing for WWD, Jennifer Weitzman attributed AEs success to its sole focus on the teen market, noting that the appeal to a particular cliquein this case, jock-prepdifferentiated it from stores like the Gap, which had a broader pull. The pitfall of this niche marketing strategy was the fickle nature of teen tastes; if AE were to fall out of favor, it would have a difficult time regaining its following.

The company reached a milestone at the end of the 20th century, crossing the $1 billion sales mark in fiscal 2000 (the year ended February 2, 2000).

New Century, New Country

In 2000, American Eagle made a bold move into the Canadian market with the purchase of the a 172-store chain and its warehouse operations from Dylex Limited for $74 million. Like AE, the 115-store Thriftys chain offered Bluenotes private-label clothing at locations in major shopping malls. The acquisition provided an opportunity for AE to quickly convert the majority of these stores to its own format. By early 2002, it had made 46 such changes. As American Eagle CFO Laura Weil told Mortgage Banking, It would have taken years to build up this kind of store location portfolio any other way.

The company chalked up another year of record earnings in fiscal 2001, with a net income of $105.5 million on sales of $1.37 billion. Despite a recession, sales continued to grow in fiscal 2002, increasing 6.7 percent to $1.5 billion. However, the Bluenotes/Thriftys operations proved a drag on results, with sales for that segment of the company falling 5.7 percent for the period.

After ten years at the helm, Jay L. Schottenstein relinquished the chief executive office to Roger S. Markfield and James V. ODonnell, who served as co-CEOs beginning in December 2002. By early 2003, American Eagle appeared to be weathering the recession quite handsomely, but its new leaders faced the ongoing challenges of converting the remaining Canadian operations to the AE format, as well as continuing to correctly gauge the finicky tastes of North Americas youth.

Principal Subsidiaries

Prophecy Ltd.; Eagle Trading (Mexico).

Principal Competitors

The Gap, Inc.; Eddie Bauer, Inc.; Abercrombie & Fitch Co.

Further Reading

American Eagle Buys Canadian Clothier, Pittsburgh Business Times, September 1, 2000, p. 49.

American Eagle Outfitters Inc. Wins Abercrombie & Fitch Lawsuit in U.S. Court of Appeals, Market News Publishing, February 26, 2002.

Benson, Betsy, Retail Ventures Plans Restructuring: New Focus on American Eagle Outfitters Unit, Pittsburgh Business Times, February 27, 1989.

Davis, Jim, American Eagle Lands $40 million Distribution Center in Lawrence, Kan., Pittsburgh Business Times, March 31, 2000, p. 10.

Fitzpatrick, Dan, New Lines Pace American Eagle Comeback Bid, Pittsburgh Business Times, December 30, 1996, pp. 1 +.

Gallagher, Jim, Gap Wont Buy American Eagle, Pittsburgh Post Gazette, March 18, 1989.

Lewis, David, American Eagle Outfitters Revamps Site, Eyes High Sales Growth, InternetWeek, March 26, 2001, p. 70.

Much, Marilyn, Retailer Moves into New Venues, Cyberspace, Investors Business Daily, January 30, 1998, p. A3.

Palmieri, Jean, American Eagle Makes a Name For Itself, WWD, December 9, 1998, p. 4.

, American Eagle Spreading Wings on West Coast, Daily News Record, June 5, 1998, p. 23.

Phillips, Jeff, Schottensteins Buy 153 Stores, Business First of Columbus, June 3, 1991, pp. 1 +.

Scardio, Emily, Specialty Rules, DSNRetailing Today, February 11, 2002, p. A6.

Walters, Rebecca, American Eagle Going Public, Business First of Columbus, March 21, 1994.

Warson, Albert, U.S. Retailers are SOLD ON Canada, Mortgage Banking, July 2001, p. 73.

Weitzman, Jennifer, Outfitters Net Results Diverge, WWD, August 19, 2002, p. 7.

, Tribal Looks Lead Teen Retailers, WWD, March 16, 2001, p. 21.

Young, Vicki M., A&F Sues American Eagle, WWD, June 3, 1998, p. 2.

, American Eagle Builds New Nests, WWD, August 18, 1999, p. 12.

Zimmermann, Kim Ann, American Eagle Gets Lean at POS, WWD, March 10, 1999, p. 17.

David E. Salamie

update: April D. Gasbarre

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American Eagle Outfitters, Inc.

American Eagle Outfitters, Inc.

150 Thorn Hill Drive
Warrendale, Pennsylvania 15086-7528
U.S.A.
(412) 776-4857
Fax: (412) 779-5585
Web site: http://www.ae-outfitters.com

Public Company
Incorporated:
1993
Employees: 5,441
Sales: $405.7 million (1997)
Stock Exchanges: NASDAQ
Ticker Symbol: AEOS
SICs: 5699 Miscellaneous Apparel & Accessory Stores

American Eagle Outfitters, Inc. is a specialty retail chain offering casual, outdoor-inspired fashion apparel, footwear, and accessories for men and women ages 16-34. There are more than 330 American Eagle Outfitters stores located in 40 states, primarily those east of the Rockies; nearly all the units are in regional shopping malls. The stores average about 4,200 square feet in size. Approximately 98 percent of the chains sales are generated from private label brandsAmerican Eagle Outfitters, AE, and AE Supply; this focus on private-label merchandise was launched through a 1992 repositioning and was intended to differentiate American Eagle from its mall competitors, such as The Limited, The Gap, and Abercrombie & Fitch. To keep up with the latest fashion trends, the company employs an in-house design team, whose merchandise designs are then manufactured to specification by outside vendors or by American Eagles manufacturing subsidiary, Prophecy Ltd. This private-label/in-house design system enables American Eagle to keep tight control of quality and hold prices down; for example, its clothes typically cost from 15 to 30 percent less than comparable clothes at The Gap. Nearly half of the chains sales are for ladieswear, while menswear accounts for about 35 percent of sales and outdoorwear/accessories/footwear for about 17 percent. Customer credit is offered through an American Eagle Outfitters credit card. Approximately 60 percent of the companys stock is owned by the Schottenstein family, whose Schottenstein Stores Corp. is a large privately held company based in Columbus, Ohio, with numerous retail holdings.

1977 Debut

When American Eagle Outfitters was launched in 1977, it was part of Silvermans Menswear, Inc., a retailing company whose flagship was the Silvermans chain, which sold young mens apparel and accessories and was founded in McKees Rocks, Pennsylvania (near Pittsburgh), in 1904. The Silverman family owned and operated Silvermans Menswear, and by the mid-1970s two brothersin the third generation of Silvermans in the family businesswere running things: Jerry Silverman, president and CEO, and Mark Silverman, executive vice-president and COO. The Silverman brothers believed that they needed more than one concept to continue growing their companythat the addition of other chains would then enable them to operate more than one store in the same mall. They thus opened the first American Eagle Outfitters store in 1977, positioning it as a seller of brand-name leisure apparel, footwear, and accessories for men and women, with an emphasis on merchandise geared toward outdoor sports, such as hiking, mountain climbing, and camping. American Eagle quickly established itself as a mall store able to attract an unusually wide array of shoppers, although its rugged offerings were geared more toward men. And with a nationally distributed mail-order catalog supporting the retail units, the new chain quickly became a key competitor not only to such established retailers as The Gap but also to such venerable catalogers as L.L. Bean and Lands End.

In 1980 Silvermans Menswear changed its name to Retail Ventures, Inc. (RVI). That same year, the Silvermans ran into some financial difficulties and sold a 50 percent stake in RVI to the Schottenstein family. The Schottensteins owned Schottenstein Stores, a retailing giant based in Columbus, Ohio. Schottenstein Stores was founded in the early 20th century by E. L. Schottenstein when he opened the first Value City Department Store, a discount department store chain which by the early 1990s included 93 stores in 15 states generating about $1 billion in sales annually.

Became Focus of RVI in Mid-1990s

In 1985 RVI launched three more new chains: His Place and Go Places, concepts similar to that of Silvermans, and Help-Ur-Self, a bulk food store. The following year the company spent $8 million to expand its headquarters, adding 25,000 square feet to its office space and 146,000 square feet to its 119,000-square-foot distribution center. Also in 1986 RVI added 34 new stores to its existing 200. Many of these were American Eagle units, as the company began that year to concentrate more of its resources on American Eagle, which was achieving rapid sales growth, than on Silvermans, whose sales were being hurt from increasing competition, particularly from discount chains.

This shift in emphasis culminated in early 1989 when RVI announced a major restructuring in which it sold its Silvermans, His Place, and Go Places chainsa total of 125 storesto Merry-Go-Round Enterprises Inc., a Towson, Maryland-based operator of 430 mall-based clothing stores, including Merry-Go-Round, Cignal, and Attivo. RVI also spun off to the Silver-man family the 11-store Help-Ur-Self chain, which had performed reasonably well but was not considered synergistic with American Eagle. RVI was thus left with American Eagle Outfittersnow with 137 stores in 36 states and sales of $125 millionas its single focus. The company planned to aggressively expand its sole remaining chain by as many as 120 stores over the following three years. It began to implement this plan but only after The Gap had approached RVI in early 1989 about buying American Eagle and after negotiations to do so had fallen through.

Sold to Schottensteins and Repositioned in Early 1990s

By mid-1991 American Eagle had grown to 153 storesnot nearly the expansion rate envisioned two years earlierand sales had stagnated. For the fiscal year ending in July 1991, sales were $144.3 million, a minuscule increase over the $142.4 million of the previous year. The chain also posted a net loss of $8.9 million for the year. In a deal designed to position American Eagle for renewed growth, the Schottenstein family bought the 50 percent of RVI owned by the Silverman family, giving the Schottensteins full control of the company and its only chain. Jay L. Schottenstein became the new chairman and CEO of RVI, replacing Mark Silverman, while Sam Forman was brought in to become president and COO. Forman had been CEO of Kuppenheimer Clothiers.

In the midst of the recessionary early 1990s, American Eagles difficulties could be traced in part to its line of branded merchandise. With brand-name apparel increasingly being offered by various clothing chains and discounters, American Eagle was facing increasing competition. Under its new ownership and leadership, the chain was repositioned in 1992 to focus on private-label casual apparel for men and women, while retaining the outdoor-oriented look for which it was best known. The private label strategy was intended to position American Eagle merchandise as value priced. The company also began opening American Eagle outlet stores to reduce its inventory of out-of-season clothing items.

Went Public in 1994

American Eagles 1994 fiscal year was its best year ever, evidence that the repositioning was working. Sales for the year were $199.7 million, while net income was a healthy $11.9 million. In the midst of this successful year, RVI announced that it would go public through an initial public offering. In November 1993 an American Eagle Outfitters, Inc. subsidiary was established and it was under this name that RVI and the American Eagle chain emerged in April 1994, with a listing on the NASDAQ stock exchange and with the Schottenstein family maintaining.roughly a 60 percent stake in the new company and Forman about ten percent. American Eagle went public as a 167-store chain with nine outlet stores and locations in 34 states.

Much of the approximate $37 million raised through the IPO was almost immediately poured back into the company for an aggressive program of expansion and renovation. From July through December of 1994 alone, 55 new stores were opened. At the one-year anniversary of the IPO, nearly 90 new stores had been added. Unfortunately, several of these new locations were unprofitable from the time they opened their doors, and it became apparent that the chain had expanded too rapidly.

Adding to the confusion at this time was a rapid succession of management changes. In early 1995 Forman was named vice-chairman, with Robert G. Lynn, a one-time president and CEO of F.W. Woolworth Co., becoming vice-chairman and COO and Roger S. Markfield, who had served as executive vice-president of merchandising, being promoted to president and chief merchandising officer. Lynn, however, left the company in December 1995 over reported management differences. Later that same month, George Kolber took over Lynns vice-chairman and COO spots.

Forman, meanwhile, sold his ten percent stake in American Eagle in early 1995, then in late 1995 resigned from his position as vice-chairman following his purchase of 32 American Eagle outlet stores in 18 states for between $14 million and $16 million. The company had decided to divest the outlets in order to concentrate on its mall locations, and it subsequently closed its remaining seven outlet stores. Forman signed a licensing agreement with American Eagle, whereby the outlets he purchased would operate under the American Eagle Outlets name and would sell merchandise made specifically for the outlets. Through all of these changes, Jay Schottenstein continued in his role of chairman and CEO.

Repositioned Again in 1996

The year 1996 was a transitional one for American Eagle as it cut back drastically on its expansion plans in order to reposition the chain once again. In search of higher-margin merchandise to offer, Markfield and Kolber determined that the chain had to sell more womens apparel, which is typically more profitable. The leaders also decided to completely divorce American Eagle of its once-eclectic range of customers and target the lucrative youth marketages 16 to 34through a younger and nipper feel to the clothing and in the chains marketing. Finally, American Eagle would strongly emphasize value pricing through a commitment to private label merchandise. Remaining at the chains core was its venerable rugged, outdoorsy style.

For fiscal 1996 (the first year of the companys new fiscal year, which now ended at the end of January), about 98 percent of the companys sales were generated from its private label brands, American Eagle Outfitters, AE, and AE Supply. Womens clothing, meantime, which in fiscal 1995 had accounted for only 30 percent of sales, accounted for 47 percent of sales in fiscal 1996.

If 1996 was a transitional year for American Eagle, then the transition went exceedingly well, as 1997 turned into a breakout year. For the year, sales increased 24.3 percent to a record $405.7 million, while net income more than tripled, going from $5.9 million in 1996 to $19.5 million in 1997. Comparable store sales were very strong, increasing 15.1 percent in 1997 compared to the previous year.

In addition to opening 32 new stores in 1997, American Eagle that year also for the first time began manufacturing its own clothing through the acquisition of Prophecy Ltd., a New York-based contract apparel maker which had been majority owned by the Schottenstein family. This move toward further vertical integration was in keeping with the chains desire to control costs and maintain quality. The terms of the purchase were $900,000 in cash plus a contingency payment of up to $700,000.

Early 1998 was a busy period for American Eagle as it introduced the AE Clear Card, the first clear credit card; announced plans to start selling merchandise from its web site, a move that would fit in well with the chains youth-oriented customer base (American Eagles mail-order catalog had been discontinued some years prior); and said it would open new units outside of enclosed malls, in airports, strip malls, and other locales. The renewed strength of American Eagle was also evident in two separate three-for-two stock splits, which occurred during the first five months of 1998. The company also announced that over the next several years it would expand its store count 15 to 20 percent each year; the largely untapped West Coast was likely to be a prime area of expansion. Also planned was an increase in average store size from 4,200 square feet to 5,000. And with its new youthful format that emphasized womens clothing, American Eagle was beginning to revamp many of its older stores whose designs were very masculine. All of these developments pointed toward a bright future for a company that seemed destined to outfit Americans for years to come.

Principal Subsidiaries

Prophecy Ltd.

Further Reading

Benson, Betsy, Retail Ventures Plans Restructuring: New Focus on American Eagle Outfitters Unit, Pittsburgh Business, February 27, 1989.

Fitzpatrick, Dan, New Lines Pace American Eagle Comeback Bid, Pittsburgh Business Times, December 30, 1996, pp. 1 +.

Gallagher, Jim, Gap Wont Buy American Eagle, Pittsburgh Post Gazette, March 18, 1989.

Much, Marilyn, Retailer Moves into New Venues, Cyberspace, Investors Business Daily, January 30, 1998, p. A3.

Phillips, Jeff, Schottensteins Buy 153 Stores, Business First of Columbus, June 3, 1991, pp. 1 +.

Walters, Rebecca, American Eagle Going Public, Business First of Columbus, March 21, 1994.

David E. Salamie

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