American Eagle Outfitters:

Social Responsibility, Community Betterment, and Philanthropy.

May 2016

Team:

Business, as Usual

Team Members:

Yuen Allison, Gabe Heaton, Rowan Murdock, Hannah Slinkard

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Table of Contents

Executive Summary.....................................................................................................................................4

About Our Team..........................................................................................................................................5

Organization Chart...................................................................................................................................7

About the Company....................................................................................................................................7

Vision.......................................................................................................................................................8

Purpose...................................................................................................................................................8

Organizational Culture.............................................................................................................................8

Social Responsibility................................................................................................................................8

Environmental Responsibility..................................................................................................................9

Strategic Leadership..............................................................................................................................10

Stakeholders..........................................................................................................................................11

Analysis......................................................................................................................................................13

Company Analysis..................................................................................................................................13

Strengths...........................................................................................................................................13

Weaknesses.......................................................................................................................................14

Opportunities....................................................................................................................................14

Threats...............................................................................................................................................16

SWOT.................................................................................................................................................17

Financials...........................................................................................................................................17

Industry Analysis....................................................................................................................................20

Potential Entrants..............................................................................................................................20

Rivalry among Existing Firms.............................................................................................................21

Bargaining Power of Suppliers...........................................................................................................21

Bargaining Power of Buyers...............................................................................................................21

Substitute Products...........................................................................................................................21

Economic Environment..........................................................................................................................22

Demographic and Economic Trends..................................................................................................22

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Sociocultural Trends..........................................................................................................................22

Technological Trends.........................................................................................................................22

Global Trends.....................................................................................................................................23

Strategy Formulation.................................................................................................................................23

IFAS........................................................................................................................................................23

EFAS.......................................................................................................................................................24

TOWS.....................................................................................................................................................24

Strategic Opportunity............................................................................................................................25

Implementation.........................................................................................................................................27

Reward Program....................................................................................................................................27

Make It Right.........................................................................................................................................28

Test Market...........................................................................................................................................28

Marketing..............................................................................................................................................29

Timeline.................................................................................................................................................29

Evaluation..................................................................................................................................................30

Reward Points........................................................................................................................................30

Goodwill................................................................................................................................................31

Sales......................................................................................................................................................31

Control.......................................................................................................................................................32

Balanced Scorecard...............................................................................................................................33

Success/Failure..........................................................................................................................................34

What We Learned......................................................................................................................................35

References.................................................................................................................................................36

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Executive SummaryAmerican Eagle Outfitters (AEO) is a socially responsible company that currently has its hands in

many different projects and causes that truly make a difference in the world. These include charity

donations, scholarships, and clothing drives. With so many different interests, AEO hasn’t truly received

the potential image boost that is available, nor have they been able to focus on the development of one

particular venture. Narrowing their focus would allow them to most effectively use their capital in a way

that benefits the company and the causes they try to serve. This paper focuses on the proposed strategy

to form an alliance with Make It Right, a charitable organization formed by the actor, Brad Pitt. Pitt’s

A&Ffiliation and social standing alone will help shine the spotlight on the good that American Eagle

Outfitters is doing. We propose to partner with Make It Right, and donate used jeans that we have

collected from customers, to be recycled and used to insulate homes for people in need. We want to

align with Make It Right to decrease waste, oppose fast fashion, and support the community.

Our strategy is to focus our resources more effectively and increase sales as a consequence of

further brand awareness and a desire to support AEO in its efforts as a good corporate citizen. We will

market our campaign to existing customers in hopes of increasing our customer base for a trial period

when retail sales are high, catching both the back-to-school and holiday shoppers. Customers who bring

used AEO jeans into the store will be rewarded with extra points on their rewards card. This will increase

the foot trA&Ffic in stores, as well as incentivize the customers, both contributing to increased sales.

This image of giving back will also attract those customers, as well as investors, to spend their money

with AEO rather than a competitor with a slightly different image like Abercrombie & Fitch. Through a

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variety of audits and control processes, at the end of a 6-12 month period, we will be able to determine

if our strategy increased AEO’s goodwill, sales and image, particularly with the Make It Right program.

About Our TeamYuen Allison

My name is Yuen Allison. I was born in China. I moved to the United States in

1999. After working as a Bookkeeper for 10 years, I have decided to work part-

time so I can focus on my Accounting education. I will graduate in May with a

Bachelor’s degree in Business Administration with Accounting Emphasis. I have

an 11-year old loving son who has changed my life completely and taught me what unconditional love is.

I have been accepted by Gonzaga University to attend their Master in Taxation program with two

scholarships. I will start the program right after graduation and I plan to study for the CPA exams at the

same time. After that, I would like to teach accounting classes at colleges and universities.

Gabe Heaton

My name is Gabe Heaton, and I was born in Fargo, North Dakota. On May 1st,

2016, I will be graduating from LCSC with a Bachelor’s Degree in Business

Administration with an Accounting Emphasis. Currently I am an intern at

Magnuson, McHugh & Company, a local accounting firm. After graduation, I will

start the process of studying for, and taking the four parts of the CPA exam. I also plan to coincidently

continue my education by pursuing a Master’s of Science in Taxation at Gonzaga University. I look

forward to taking the knowledge and skills that I have attained at Lewis-Clark on to Gonzaga and

eventually a career in accounting.

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Rowan Murdock

My name is Rowan Murdock, and I was born in San Jose, California. I was raised

primarily in Santa Cruz, California until my family relocated to Northern Idaho in

2007. I will be graduating from Lewis-Clark State College in May with my

Bachelors of Science in Business Administration with a minor in Marketing. In

the fall I plan to attend the University of Idaho, where I will be studying Law, possibly with an emphasis

in business. I am excited to live in Moscow, along with my two siblings who are both there studying

Chemical Engineering. In my free time I enjoy being outside, hiking, swimming, doing yoga, and am

perpetually looking forward to summer.

Hannah Slinkard

My name is Hannah Slinkard and I am currently a senior at LCSC, majoring in

Business Administration with a minor in Psychology. After obtaining my bachelor’s degree, I aspire to

earn a master’s degree in Business. I will look to hold true to my original goal of zero student loans

before embarking on that journey. I was born in Coeur d’Alene, Idaho in 1993 and my grandmother and I

are two of the only individuals in our family who were not born in Sandpoint, Idaho. When I am not at

school, I am typically working at Costco Wholesale where I have been working now for three years in

May. In my few moments of spare time, I love spending time with my boyfriend Logan, my family, and

my friends. Activities that I enjoy with these individuals include; dirt bike riding, camping, fishing,

snowmobiling, and snowboarding.

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Organization Chart

About the Company

197719901994

19961997200120062007200820102016First Store

Becomes Private

Goes PublicIntroduces

denimChanged Target Market

Sales surpass 1 billion

Aerie is added

Traded on

NYSE

77 Kids lineAEO goes

Global

Over 1,000

stores to date

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Vision“Live Your Life, Love Your Planet, Build a Better World.”

Purpose“Deliver performance that rewards our investors, creates economic opportunity for our

associates and allows us to leverage our success to have a positive social impact on the communities

where we live, work and play.”

Organizational CultureAmerican Eagle Outfitters has a strong desire to better the world through social and

environmental changes. This mentality is embraced by all company associates. American Eagle Outfitters

understands that the heart of the company resides in people: their contacts, customers, and partners.

AEO not only values and respects different backgrounds, but also appreciates unique talents. Diversity

will strengthen the company’s ability to succeed. They care about their associates, empower them, and

reward them.

Social ResponsibilityAmerican Eagle Outfitter’s social responsibility is top priority in everything they do as a

company, and they encourage customers to be a part of the journey in building a better world. AEO has

participated in a variety of socially responsible projects in the past and continues to find new ways to

give back to communities.

Pittsburgh Promise- This program provides the opportunity for students of all backgrounds to

continue their education. American Eagle Outfitters has donated $1 million to this foundation.

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Teach for America (TFA)- In 2013 American Eagle Outfitters partnered with TFA where they

contributed $400,000 in cash and kind donations.

o This program provides the opportunity for college graduates and professionals to teach

in low-income communities.

Big Brothers Big Sisters- American Eagle Outfitters donated $117,000 last December alone,

through gift card purchases.

Bright Pink- In-store donations for this project were $250,000 which was used to fight breast

and ovarian cancer through early detection.

Other Projects:

o SCA Alternative Spring Break- American Eagle Outfitters has donated more than $5

million dollars to this foundation.

o 21st Century Conservation Service Corps- This inspires the youth to “play, learn, serve

and work outdoors.” American Eagle Outfitters was the first company to pledge

$1,000,000 to support this project over the next four years.

Environmental ResponsibilityAmerican Eagle Outfitters has participated in multiple other projects and continues to support

new ways to create a positive change in the world we live in. This company also takes great pride in the

environment, and has participated in countless efforts to conserve the planet we call home. Some of

these programs include:

Boot the Bottle- This program brings awareness to recycling day-to-day products such as

disposable water bottles. Currently, AEO has prevented over 50,000 bottles from hitting the

landfill.

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I:CO- AEO has partnered with I:CO allowing associates to donate clothing to be recycled and

transformed into reusable bags or insulation.

Blue to Green: This is a recycling program that AEO has partnered with to extend their

recycling venture. Blue to Green takes the gently used denim recycled by AEO to provide

insulation for homes built by Habitat for Humanity.

American Eagle Outfitters takes pride in not only donating and giving back to communities, but

also in surpassing the social responsibility expectations of the public through their work in helping the

environment.

Strategic LeadershipAmerican Eagle Outfitters strives to be a top competitor in their field while holding true to their

social and environmental standards. As a whole, American Eagle Outfitters continues to believe that

recruiting both externally and internally is beneficial for their team and the overall success of the

business. Recently in 2015, Jay L. Schottenstein was promoted to Chief Executive Officer. Schottenstein

has been with the company since 1992. In addition to this, he continues to serve as Chairman and

president at his family business, Schottenstein stores. Schottenstein stated that, “delivering

performance that rewards our investors, creates economic opportunity for our associates, and allows us

to leverage our success to have a positive economic and social impact on the communities where we

live, work and play.” Furthermore, Schottenstein will be the ultimate decision maker on future products

including our new strategy.

Mary Boland is another key player to the American Eagle Outfitters team. She has been the

Executive Vice President, Chief Financial Officer, and Administrative Officer at AEO since 2012. She

previously worked for Global Levi’s at Levi Strauss & Co. and as the Senior Vice President for Finance of

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Americas for five years. Boland will be retiring in April of 2016. Boland said, “the company is in strong

financial condition and well-positioned for future success.” Boland will be the financial commander and

will guide the company in terms of economic opportunities, and help develop potential strategies.

Michael Rempell has been the Executive Vice President and the Chief Operations Officer at

American Eagle Outfitters since 2012. He has various experiences in other companies including the New

York Design Center as both the Senior Vice President and the Chief Supply Chain Officer for three years.

Rempell adds value to new strategies in terms of implementation and offering extended support from

the supply chain.

All key players that AEO has on their team bring a variety of unique experiences and diversity

that offer various advantages. Charles Kessler is a perfect example of this. Kessler has worked for the

company since 2014 but offers credibility and experience from other retailers including Urban Outfitters,

Coach, and Abercrombie & Fitch. Todd Snyder also brings various insights from companies such as, Polo

Ralph Lauren, The Gap, and J. Crew. Overall, American Eagle Outfitter's team is a huge part of their

success as they continue to innovate and set the bar high in regards to company goals.

StakeholdersCustomers- AEO understands that customers are the reason for their current success, and

therefore strive to exceed their expectations. They continue to provide opportunities for consumers to

give feedback through their website. With this feedback, AEO is then able to continue their customer-

focused business strategies to better meet customer demands and wants. From offering clothing in their

retail stores, to creating projects and providing funding to causes that can change the world, customers

are the center of the AEO enterprise.

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Associates: AEO strives to incorporate diversity in all aspects of the work environment. AEO

employs over 30,000 people worldwide and that number continues to grow, as the company does.

Shareholders: American Eagle Outfitters is a publically traded company that continues to

increase profits over the long-term for investors. Shareholders include associates, individuals, large

financial institutions, and socially responsible investment funds. Fiscal responsibility and a strong

financial position allow AEO to consistently retain investors. This approach continues to improve as they

withstand various external events of the economic environment.

Supply Chain Partners and Stakeholders- AEO ensures that the supply chain is operating

efficiently at all times. The supply chain has specific guidelines, codes of conduct, and inspections they

must constantly uphold. AEO’s supply chain is a major part of the business and will remain productive as

long as suppliers continue to operate within company guidelines.

Analysis

Company Analysis

StrengthsBrand Loyalty: American Eagle Outfitters has loyal customers who both value, and hold a

positive perception of the brand. These people shop at the retailer regularly, and are a benefit to the

company. This loyalty is fostered through product quality, customer service, and consistently

fashionable pieces, all working together to increase profits.

High Quality Product: AEO sells high quality products that are not considered “disposable

fashion.” This sets them apart from competitors such as H&M and Forever 21. Further, this gives their

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brand a more positive perception in regards to the public’s view as they are more responsible in regards

to conservation. Their clothes are also more durable and therefore have more wear value.

Positive Public Image and Positive Body Image Campaign: American Eagle Outfitters is

perceived in a very positive light by their consumers. They engage in community betterment, make

donations, and responsibly source their materials and labor. In addition, they promote positive body

image with their #aeriereal campaign, by refusing to edit their models in photos.

Aerie-Underserved Teen Intimate Apparel and Swimwear Availability in Store-Teens: American

Eagle Outfitter’s sub brand, Aerie, offers intimates and swimwear to female customers. The retailer

constantly holds a large variety of sizes and styles in stock, for people to try on. This allows consumers to

more confidently purchase items, knowing they will fit, and that they have selected the correct size. This

helps to justify a little higher price tag compared to some competitors.

WeaknessesHigher Prices: American Eagle Outfitters offers products at a higher price than many of its

competitors. Companies like Aeropostale and Old Navy sell a similar style of clothing at consistently

lower prices. Although the quality is different, the price variance may cause potential customers to

experience sticker shock.

Condensed Target Market: American Eagle Outfitters has a fairly focused target market

consisting of teenagers and early twenty somethings. This specific market naturally would have a much

lower disposable income available to buy high end clothing. AEO’s narrow targeted age also creates a

reliance on a small percentage of the population to act as the customer base. American Eagle Outfitters

is not a brand to grow old with, but rather a brand for a period of life.

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Senior Management Age: The average age of senior management is 47.2 years old. This is about

thirty years older than the age of the people in the target market. There is the possibility of

disconnection between management’s goals and customer desires due to this significant age difference.

Management Turnover: American Eagle Outfitter’s management has experienced considerable

changes in recent years. This lack of stability could cause inconsistent goal setting and structure for the

rest of the company. All factors in the company must be aligned with goals and values set by

management, therefore, this instability must be resolved for ultimate success.

OpportunitiesRelatively Strong Exchange Rate: Exchange rate is one country’s currency rate expressed in

another country’s currency. In the modern economy, exchange rates of the most successful countries

tend to be in the floating exchange market. This system is set by the foreign exchange market by supply

and demand for the one currency in relation to other currencies in the world. As a result of the steady

exchange rate and the increasing strength of the dollar recently, American Eagle Outfitters can

potentially cut costs through outsourcing.

Increase Awareness of Environmental Preservation: Recently, the importance of environmental

preservation has continued to grow, and businesses are looking for ways to become more

environmentally friendly. Companies that focus on this could earn like-minded consumer support and

patronage. As environmental consciousness grows nation-wide, consumers are looking for

environmentally friendly products and services. AEO has been very active in this area and continuing to

do so will increase brand awareness.

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U.S. GDP Growth: According to the Bureau of Economic Analysis, the Real Gross Domestic

Product increased 2.4 percent in 2015. The increase in real GDP last year was primarily based on the

positive contributions from personal consumption expenditures (PCE). A consensus of private

forecasters is projecting real GDP growth of 2.7 percent over the four quarters of 2016.

Based on the Bureau of Economic Analysis, personal income increased by $79.6 billion, or 0.5

percent, and disposable personal income (DPI) increased by $63.5 billion, or 0.5 percent, in January. PCE

increased $63.0 billion, or 0.5 percent. In December, personal income increased $45.6 billion, or 0.3

percent. Real DPI increased by 0.4 percent in January, the same increase as in December. Real PCE

increased 0.4 percent in January, compared with an increase of 0.2 percent in December. The steady

growth of the GDP and PCE give indications of a positive future for the retail industry.

Made In USA Campaign: The recession has created a sobering realization. Outsourcing

manufacturing to overseas nations has hurt the US economy. A growing group of consumers have

connected the dots between their shopping carts and America’s future. For years, the main attraction of

outsourcing has been access to low-cost labor, though some patriotic consumers have decided to buy

American made products even it comes with a little higher price tag.

ThreatsEver-Changing Fashion Industry: The fashion industry is constantly changing. Every company

within the industry is either trying to stay on top of the latest trends, or trying to start the next big

trend. It is difficult to stay with the current fads in the market. AEO might struggle keeping the company

vision in mind while remaining competitive within the market.

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Competitors: Large retailers like Macy’s, PINK, Buckle, and A&F, are adding pressure to AEO’s

goal of becoming more popular and gaining customers. Swaying consumers from these large chains is

difficult and it continues to be a challenge as AEO attempts to gain customer loyalty.

Fads: Things like crop tops and lace up shirts are fad trends that companies must pay attention

to if they are going to be successful. For American Eagle Outfitters, this can be dangerous in terms of

changing the brand perception. With new management behind the wheel, the vision of the company

could easily change and the loyalty of customers could be lost.

Public Relations: American Eagle Outfitters is very involved in the environment and is associated

with a positive ecological influence. This could prove to be a slippery slope for a few reasons. If there is a

policy that is missed or a source leaks that American Eagle Outfitters is not holding true to their

promoted promises, it could be disastrous to the company.

SWOT

Strengths Weaknesses Brand Loyalty High Quality Product Positive Public Image and Positive Body

Image Campaign Aerie-Underserved Teen Intimate Apparel

and Swimwear Availability in Store

Higher Prices Condensed Target Market Senior Management: Average Age 47.2 yrs.

old Changes in Management

Opportunities Threats To expand the target market

internationally Increase awareness of community outreach

and conservation Attracting higher level employees Create products in the United States

“American Eagle Outfitters”

Fashion industry is ever changing Competitors and luxury brands “fads” crop tops, lace up, etc. changing

brand perception PR: AEO’s community involvement is a

large part of their brand and what they are known for

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Financials-Based on the latest 10-K released to the SECThe current ratio is a liquidity ratio that measures a company’s ability to pay short-term

liabilities. Any current ratio over 1 is considered fairly healthy. With a current ratio under 1, a company

would owe more in the near term than it has available in readily accessible assets. In many cases that is

troublesome, but not always. At 1.56, AEO has a healthy current ratio. A close competitor, Abercrombie

& Fitch (A&F), has a higher current ratio of 2.20. This could be a sign of good health or even a few

negative things like poor asset allocation, an inability to secure financing, or mismanagement of working

capital.

The quick ratio is another liquidity ratio that focuses on the ability of a company to pay its short-

term liabilities with its most liquid assets. It is similar to the current ratio but does not include inventory

in the current assets. With a quick ratio of .90, AEO in theory has less liquid assets to pay current

liabilities compared to A&F’s quick ratio of 1.56. In short, AEO has $.90 in liquid assets for every dollar of

short-term liabilities while A&F has $1.56 in liquid assets for every dollar of short-term liabilities. The

difference in quick ratios is not always what it appears to be. Many times the timing of asset purchases,

policies defining payments and collection, and bad debt allowance can skew the comparison between

two similar companies. In the case of these two companies, AEO tends to have more funds working for

them and A&F has more funds sitting idle which increases both a current and quick ratio.

Working capital is another calculation that can be a good measure of a company’s operational

efficiency. Although a company wants more current assets than liabilities, if it gets too lop-sided, it can

indicate inefficiencies such as too much inventory or slow collections. A&F has over twice as much

working capital as AEO, which is a red flag that there could be some operating inefficiency at A&F. AEO’s

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working capital is considered healthy. Perhaps A&F’s recent struggles at the top of their organization

have restricted their ability to gain financing, lessening their willingness to put their assets to work.

American Eagle Outfitters has an inventory turnover of about 7, while A&F’s is around 8. This

basically says that AEO and A&F are buying and selling their inventories at a similar rate. The faster they

can bring in and sell inventory the better. Sitting on inventory too long can indicate poor sales, especially

in the fashion industry. Excess inventory equates to investment with zero return.

With an ROA, return on assets of 13.5%, AEO is leveraging their assets more efficiently than

A&F, who is at a dismal 1.5%. This can be viewed as being overly cautious by not allowing your money to

work for you. This may be acceptable to a certain extent for an individual, but not a business.

Management’s most important job is to allocate company resources to maximize profitability, not to

stockpile current assets. Return on equity (ROE) is a similar ratio. ROE shows a company’s profitability

with shareholder investments. Investors would find this ratio of particular interest. With AEO at almost

21% as opposed to A&F at about 3%, AEO would currently be much more attractive as an investment.

Current R

atio

Quick Rati

o

Inventory

Turnove

r

Fixed

Asset T

urnove

r

Total

Asset T

urnover0123456789

1.560.9

7

5.01

2.182.21.39

8.06

3.94

1.451.60.4

3

5.29

1.5

American Eagle Abercrombie & Fitch Industry Average

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Gross profit margin determines how much money is left after accounting for cost of sales. This

does not account for every expense included in the sales revenue activity. That is called profit margin

where net income is divided by net sales. AEO has a gross profit margin of around 37% and a profit

margin of just over 6%. When compared to A&F with a GPM of 61% and a profit margin of barely 1%,

further investigation would be needed to fully understand the causes of these numbers. It appears that

A&F is spending less on raw materials but has much higher indirect expense than AEO which gives a

poor profit margin but high gross profit margin. As AEO is known for high quality clothing, it would

equate to a higher cost of goods sold that is seen in the gross profit margin calculation.

Gross Profit M

argin

Profit M

argin

ROAROE

0%

10%

20%

30%

40%

50%

60%

70%

37%

6%14%

21%

61%

1% 2% 3%

36.00%

3.50%9.60% 12.50%

American Eagle Abercrombie & Fitch Industry Average

Overall, AEO has stable financial health when compared to A&F and industry averages. A&F has

had significant social pressure as a result of some statements made by upper management. This has

created a void in the market that philanthropy and social responsibility could fill. A&F has reaped the

financial effects of alienating potential customers, which creates potential profitability for AEO. AEO can

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not only make a positive impact on the world with this opportunity, but can capitalize on the market

that has turned its back on A&F for its cavalier stance.

When comparing financial ratios with the industry averages, AEO is fairly similar. The ROA, ROE,

and profit margin are higher than industry average which boasts asset efficiency. The liquidity ratios

(current and quick) are not materially different along with inventory and fixed asset turnover.

Industry Analysis

Potential EntrantsEven though there has been moderate growth of the U.S. apparel retail industry in recent years,

the threat of new entrants is not critical. The growth may attract new investors but it’s almost

impossible to compete with chain retail stores. A small number of large corporations account for a

significant share of overall market revenues. Their strong vertical structure and centralized buying gives

them a competitive advantage over these smaller, and independent retailers.

Rivalry among Existing FirmsDespite the current global economic downturn, the apparel industry continues to grow at a

healthy rate. In 2014, the total sales revenue of the US apparel retail industry was $375.1 billion,

marking a 4.4% of compound annual growth rate between 2010 and 2014. Moreover, the absence of

switching costs for consumers and great product differentiation leads to a more than moderate rivalry

among existing firms. Black Friday is a good example as during this time, stores cut prices to compete

with others. As a result, customers have the tendency to move from one retailer to another based solely

on the price.

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Bargaining Power of SuppliersThere are two main suppliers in this industry, these being clothing manufacturers and

wholesalers. Due to the liberalization of international trade, the U.S. clothing manufacturers and

wholesalers are fragmented. They cannot compete with low-wage region manufacturers such as China

and India.

Bargaining Power of BuyersAll buyers are individuals in the apparel retail industry; therefore, their buying power is

weakened. However, consumers can request high-quality products at reasonable prices and ensure

retailers are aware of the developments that shape public perception and consumer’s subsequent

demand.

Substitute ProductsThere is no substitute for clothing, but there are alternatives to retail stores like AEO. With the

increasing popularity of the Internet, manufacturers and wholesalers may seek this opportunity to cut

the middleman and sell directly to the consumers. Consumers will welcome this idea because no

middleman equates to lower prices. Homemade and customer made clothing are also alternatives to

readymade retail stores. Other alternatives include second-hand clothing as well as counterfeit clothing.

Economic Environment

Demographic and Economic TrendsAEO offers a variety of products, including clothing and accessories. Their female clothing line

has a wide selection. In particular, their intimate line, Aerie, has expanded their market. In 2014, the

United States apparel retail industry, clothing, foot/sportswear, and accessories retailers accounted for

62.3% of the market distribution, with 51% being womenswear and 33.5% menswear.

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Sociocultural TrendsSocial culture has changed due to many domestic factors. Currently, women have more freedom

and opportunity to choose their education and career than they did in the past. In the United States,

more women are entering the workforce with 38% in 1970 and 47% in 2012. Females provide new

human capital in many areas including employment and these different roles require a variety of

clothing options.

Technological TrendsTechnology has been advancing rapidly since the 1990’s. Internet and Smartphones are very

popular and so prevalent that nearly everyone has them. These advances promote both online buying

and e-commerce. The estimate of U.S. retail e-commerce sales for the fourth quarter of 2015 was $89.1

billion, an increase of 2.1% from the third quarter of 2015. Further, since 2006, the retail e-commerce

sales have been increasing steadily due to constant, new technology.

Global TrendsBoth globalization and technological advances have shortened the distance between countries.

Perhaps, the growth of developing countries has the biggest potential for impact on the world market in

the future. American Eagle Outfitters sells merchandise through their two websites: ae.com and

aerie.com. These e-commerce websites allow the company to expand their potential market to 81

countries.

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Strategy Formulation

IFAS

No Strengths Grade Rate Score

1 Brand Loyalty 0.1 3 0.3

2 High Quality Product 0.2 4 0.8

3 Positive Public Image and Body Image Campaign 0.15 4 0.6

4 Aerie-Underserved Teen Intimate Apparel and Swimwear Availability in Store-Teens 0.1 5 0.5

Subtotal 0.55 2.2

Weaknesses Grade Rate Score

1 Higher Prices 0.2 4 0.8

2 Condensed Target Market 0.1 5 0.5

3 Senior Management Age 0.05 1 0.05

4 Management Turnover 0.1 2 0.2

Subtotal 0.45 1.55

IFAS Total 1 3.75

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EFAS

No Opportunities Grade Rate Score

1 Relatively Strong Exchange Rate 0.1 3 0.15

2 Increase Awareness of Environmental Preservation 0.15 5 1

3 U.S. GDP Growth 0.15 3 0.45

4 Made In USA Campaign 0.1 1 0.1

Subtotal 0.5 1.7

Threat Grade Rate Score

1 Ever-changing Fashion Industry 0.15 4 0.6

2 Competitors 0.2 3 0.6

3 Fads 0.05 3 0.2

4 Public Relations 0.1 5 0.5

Subtotal 0.5 1.9

EFAS Total 1 3.6

TOWS

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American Eagle Outfitters

Strengths: High quality products Positive public image

and positive body image

Weaknesses: Higher prices Condensed target market

Opportunities: Increase awareness of

environmental preservation

U.S. GDP growth

Actively involved in environmental preservation awareness

As disposable income increases high prices are attainable

Threats: Ever changing fashion

industry Competitors

Keeping up with ever changing industry by promoting a positive body image with #aerie (inclusive rather than exclusive)

Offering Aerie which is part of a condensed market that separates them from a competitive market

Strategic OpportunityBased on the strength of “high quality products” and the opportunity to “increase awareness of

environmental preservation” we will promote the strategy of being actively involved in eliminating

waste, offering disaster support, and promoting environmental awareness. Ultimately, we will

incorporate AEO’s practice of social responsibility and philanthropy by partnering with Make It Right, a

nonprofit company, encouraging customer involvement through incentives and donations. Make It Right

was founded by the actor Brad Pitt, to aid in rebuilding after Hurricane Katrina. Tying his face to the

project will be a positive asset to the promotion efforts. The Make It Right headquarters is about six

miles away from the AEO Factory Store in New Orleans, Louisiana, where all of the individual AEO stores

will send their collected jeans, to be picked up by the partnering company, Make It Right.

We have decided that this is a valuable strategy primarily due to the fact that American Eagle

Outfitters is a member of the fashion industry, which is currently under scrutiny for “fast fashion.” Fast

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fashion is the idea that retailers pump out cheaply made, inexpensive clothing for the masses, which

quickly becomes out of style or un-wearable due to poor quality. These items are then just thrown away

into the landfill. It is an extremely wasteful process that AEO does not support. This fact gives them a

competitive advantage that this strategy will be able to capitalize on in the future. The company

produces a variety of quality products that have high use value. They will not wear out as rapidly as

pieces from competition such as H&M or Forever 21. The responsible consumer will recognize this fact

and is likely to develop a more positive perception of the company, providing it is properly publicized.

Studies have shown that 54% of 16-25 year olds believe that climate change and the local environment

are key global concerns. Along with concern of climate change, 75% of 16-24 year olds said that they

feel it is important for them as an individual to do something about climate change. Marketing this

campaign will also build goodwill in the industry, and will further justify in the consumer’s mind, the

slightly higher prices that American Eagle Outfitters charges for their products.

Next, jeans are a product that are primarily worn in developed countries, and are arguably a

symbol of the United States of America. The company name “American Eagle Outfitters” is a blatant

badge of patriotism and therefore our strategy will target our home country. This will allow us to focus

our efforts and have the most powerful impact. Our plan to collect used denim from pervious customers

will allow us to support and provide for the community. We will exchange these used pieces from

customers for 50 points on the customer Rewards Card, which will be redeemed for coupons. This

existing card offers various coupons in relation to the amount of money you spend at AEO, with one

dollar being equal to one point. This will not only reduce waste, as additional products will not be going

into the landfill, but also provide an incentive to the customer to donate their jeans. In addition to this,

AEO will build a constructive relationship with charitable organizations, further promoting a positive

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perception of the company. Make It Right will then have more ability to help the local community, at

their discretion. These old jeans will be donated by AEO to Make It Right, who will recycle them by

means of shredding them for use as insulation in the walls of homes in the community.

It is important to note that AEO currently has a wide variety of philanthropic projects in which

they participate in continually. They are spread too thin and do not have the infrastructure or resources

necessary to make all of these projects ultimately successful. We believe this proposed strategy fits well

with the company mission, and will allow AEO to focus their resources in a way that brings maximum

impact and benefit to both AEO and the Make it Right organization. It will allow AEO to increase brand

awareness and public perception, build goodwill, decrease waste, and better the environment.

Implementation

Rewards ProgramThe current AEO program is called AERewards. It is a point reward system. For in store and

online purchases, $1 spent = 1 point.

100 Points 15% Off

200 Points 20% Off

350 Points 30% Off

500 Points 40% Off

Customers will receive rewards in the mail every 3 months. Rewards include:

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15% off the month of the customer’s birthday at AEO and Aerie

Buy 5 Aerie Bras and get the 6th free

Members-Only Sales and Events

The new strategy will incorporate the existing rewards system to encourage customer to bring in

used AEO jeans by rewarding 50 AEO points. 50 points is equal to $50. This allows customers to earn

points faster and shop at AEO more often. Consumers have 3 months to earn points and at the end of

each 3-month period, American Eagle Outfitters will send coupon rewards in the mail based on the

number of points earned. The points then reset, and the coupons have expiration dates.

Make It RightMake It Right is a non-profit company that was founded by Brad Pitt after Hurricane Katrina.

Make It Right builds environmentally friendly homes for people in need. Within New Orleans, Make It

Right has built 109 homes for people in the lower Ninth Ward since 2008. This non-profit also has

provided housing for children who are in between foster homes in Missouri, apartments for disabled

veterans in New Jersey, and homes for Native Americans in Montana. Specific green features that Make

It Right focuses on are solar panels, ENERGY STAR appliances, no-VAC paint, recycled concrete, and high

velocity air conditioning. American Eagle Outfitters has partnered with Make It Right in the past to aid in

building these eco-friendly homes by donating jeans to provide insulation in homes, but never on the

scale necessary to significantly increase awareness in the majority of customers.

Test MarketAmerican Eagle Outfitters will implement this strategy on a trial basis at the six retail stores

closest to New Orleans, Louisiana, where they have a factory store. All of the jeans will be delivered to

this factory store. At this point, they will be picked up by Make It Right, whose headquarters is about six

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miles away. The participating stores for the trial period will be Baton Rouge, Gonzales, Houma,

Mandeville, Metairie, and New Orleans. Make It Right will then be responsible for storing and

transporting the donated jeans. Southern Louisiana has been selected for this test due to their close

proximity to the partnering company’s location, and the AEO factory store where the jeans can

temporarily be held. Further, workers in the New Orleans area have an average wage of $20.71 per

hour, per capita. This is slightly below the national average, but slightly above the Louisiana state

average. It provides people with the disposable income necessary to purchase more luxury goods, such

as fashion attire. There are also many different colleges and universities including Tulane University,

University of New Orleans, and Loyola University in close proximity to the AEO stores. This will increase

the density of the target market. The average age for both genders in New Orleans is 35 years, which is

significantly lower than the national average of 40 years. This is valuable, as it equates to a higher

percentage of people in AEO’s target market. There is a pretty even number of men and women as well

as variety of ethnicities. It makes for a convenient, and appropriate location to test this project.

MarketingThis program needs to be marketed effectively to increase public awareness, and subsequently

ensure the success of the program. Due to the fact that we initially need previous customers to bring

their old jeans in, we should begin by contacting them through mail, with an explanation of the

promotion. The campaign should be attached to the coupons that are already going out, allowing AEO to

save on mailing costs. It would also be valuable to utilize social media to reach our target market in a

very efficient and inexpensive way. American Eagle Outfitters should encourage people to virtually

connect with them through the use of “#newlifeAEO,” on all forms of social media. This hashtag plays

into AEO’s motto of “live your life,” while emphasizing the fact that these old pants are being given a

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second life. This will help people who were previously in a poor situation, metaphorically giving them a

new life as well. The customers will subsequently feel like they are making a difference in the world and

impacting other people’s lives. Lastly, the campaign should be advertised on local, highly visible

platforms, such as billboards, and should showcase Brad Pitt as a means to attract attention. These

billboards should be located in high traffic areas for people in the target market such as near colleges

and public transit.

Next, the partnering company, Make It Right will be involved in the marketing campaign, to

further increase awareness. Their founder, Brad Pitt, is a well-known and respected actor whose social

status and influence could be capitalized on as a marketing tool. He should discuss the program on a

variety of platforms including on social media, talk shows, and in interviews to increase the public

awareness and build positive public perception. Depending on the future success of the program, prizes

and giveaways could be held. Customers who donated jeans could be entered into a contest to help

Brad Pitt actually insulate one of the homes. This would be a great way to increase publicity as well as

customer involvement.

Timeline

Start Date Jun 1, 2016

Month 1 2 3 4 5 6 7 8 9 10 11 12

Jun Ju Aug Se Oc No De Ja Fe Ma Ap Ma

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l p t v c n b r r y

'16 '16 '16 '16 '16 '16 '16 '17 '17 '17 '17 '17

Phase

Marketing Planning

Ben

chm

arki

ng: E

valu

ate

Sal

es R

even

ueOne Management Planning

Financial Planning

Quality Assurance

Plan Review/ApprovalPhas

e Promotions Start

Two Staff TrainingPlan Adjustment

Phase Campaign Starts

Three Project Evaluation

EvaluationSpecific criteria must be established in order to make a determination as to the effectiveness of

this proposed strategy. Beyond the goodwill that will be created by recycling American Eagle Outfitters

jeans, there is an interest in increasing our bottom line. The degree to which this happens can be

determined by examining possible differences in sales, investment, and customer involvement in our

rewards program.

Reward PointsAs part of the incentive for our customers to trade in their used jeans, we will be offering fifty

points per pair of jeans to put on their rewards card. Beyond the fifty points, we will track any changes in

the frequency of customers using their rewards cards. Our rewards system not only offers savings for

our customers, but it also serves as a record of sales. The card can tell us with what frequency our

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customers visit our stores and make purchases. Not only will we track the activity of existing

cardholders, we will also determine whether our promotion increases the number of overall rewards

cardholders.

GoodwillGoodwill, as mentioned earlier, is another indicator of a successful implementation of our

business strategy. Many investors may feel better about putting their money into a company that makes

a difference socially and environmentally. For that group of investors, a strategy such as ours may be

what triggers them to invest with American Eagle Outfitters. As there are a significant number of

investors who exclusively invest with companies that practice social responsibility like American Eagle

Outfitters does, this could prove to be potentially lucrative. An increase in the number of socially

responsible investors with AEO in their portfolio could prove that our strategy is succeeding. Further, an

increase in social media followers could be a result of growing goodwill.

SalesOf course, the most obvious and telling sign that our strategy has been effective would be an

increase in sales. This may be a result of the savings offered through the AEO rewards system or the

goodwill attained by their socially responsible image. In light of what various competitors such as

Abercrombie & Fitch have faced, this likely will prove to be a valuable, intangible asset. Retail companies

track their sales in multiple ways in order to discover trends and to ensure they are ultimately offering

their customers what they want. As our strategy is implemented, any effective changes in sales that take

place from the time we launch the promotion until the end of the initial evaluation period will be

accounted for.

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ControlOur strategy will be implemented on August 1, 2016 and continue through Jan 31, 2017 on a

trial basis. Through the back-to-school season and holiday season, we will be examining rewards card

activities, differences in investment, as well as any changes in sales. AEO sales will be compared to

industry averages to determine how well our strategy is working. Three formal audits in these areas will

be performed through the trial period to determine the net effects of our strategy. The audits will take

place after two months, four months, and six months. After the third audit, we will decide whether to

continue with this strategy permanently, or to make some changes that might help the success of our

implementation. A marketing strategy like this will likely take more than six months to fully reveal its

potential effect. At the six-month period, if our incurred costs are not being covered by newly created

sales that can tied to our implementation, major adjustments will be made. If there is an increase in

sales, possibly combined with a decrease in competitors’ sales, such as Abercrombie & Fitch, we will

continue with the program for another six months and reassess at that point.

This type of business strategy is not meant to be an ongoing strategy necessarily. At some point,

the supply of used jeans that our customers will have to bring in will decrease. This strategy will help

bring to light the socially responsible image that American Eagle Outfitters could be better known for

with a approach that is associated with a name like Brad Pitt. The purpose of the test-run is to get an

idea whether this strategy will be worth pursuing without incurring the cost of a companywide

implementation. The three determinants of sales, investment (stock sales), and rewards system activity

will be the indicators as to which way American Eagle Outfitter’s business strategy will be moving into

2017.

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Specifically, we are looking to increase our sales by 3% ($105,655,440) over the 1-year period

while at least breaking even at the six-month point between the costs involved and the gains in sales.

After subtracting the costs involved in the operation of the strategy, the increase in net realized sales

are estimated to be 2.1%. The estimated cost of .9% ($31,696,632) divided by two is the estimated

minimum sales that we must realize at the six-month period ($15,848,316) to continue the strategy

without alterations such as changing the method of promotion. The estimated cost would include any

added labor, transportation, advertising, or operational costs that come up as a result of our

implementation.

Determining whether those that participate in the recycling of jeans are the same customers

that are buying new clothes and increasing our sales will be determined with the rewards card system. If

people are just dropping jeans off without purchasing product, we will be operating as a Goodwill Store

rather than a profit-seeking business, which is not our intention.

The last determinant of increased investment will be less specifically defined in regards to its

cause. The likelihood of a measurable increase in investment of 5%, which is our target, would be hard

to dismiss as coincidence if the other two more measurable indicators are pointing in the same

direction.

Balanced Scorecard

Strategy Goals Objectives Measures TargetsFinancial Budget allocation to

marketing in order to support promotions and training

Keep funding within budget by benchmarking

Increase brand awareness, market share, and sales by

Continuously compare past years ratios and stock trend

More than 37% of gross profit margin of sales in 6 months

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partner with Make It Right

Customer Increase customer purchases and brand perception by building goodwill

Increase customer loyalty

Successfully promote the strategy by partnering with Make It Right and applying effective marketing campaigns

Monitor Reward points redemption,sales revenue, and market share along with the response from social media

10% rise in memberships compared to the previous year

InternalProcess

Allocate more resources to Make It Right by cutting back on other charities

Maximize resources of the tested locations and effective logistics on transportation policies with Make It Right

Carefully choose the test locations and target areas for marketing campaign

Track transportation logistics and marketing expenses

Remain under all budget without negatively impacting the factory store’s current operation

Employee Promote a culture that encourages environmental awareness and social responsibility

Accomplish strategic goals by providing training to employees

Communicate project progress to eliminate barriers

Employee training results and monthly feedback

Meeting with all test store’s management employees for feedback

Success/FailureAfter completing this project, and analyzing every aspect of it, we do not believe that this

strategy will be successful. We hypothesize that the return on investment will not be high enough to

cover the costs associated with the implementation and upkeep of the project. We believe that in the

long run, our costs of transporting these donated pants, and marketing our campaign, will be far more

than the profits will justify. Though this strategy is a successful idea, as it allows us to build goodwill and

reduce waste, increasing our positive perception among the public, it holds no longevity. Perhaps it

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would be best utilized for short periods of time, such as exclusively Earth Day or back-to-school, maybe

annually. Ultimately, the increase in goodwill will be the biggest benefit offered by the project, and this

is an intangible asset. We need to experience financial growth if this strategy is going to be a permanent

fixture, which is something we do not anticipate.

What We Learned This project afforded us with valuable insight into the complexities of developing a strategy. The

most prevalent being the implantation process, which is extremely complicated. In a real world

situation, selecting a new strategy to pursue is a massive decision, as selecting the wrong one could

potentially destroy the company, leaving them with no capital to attempt a different strategy. For this

reason, the proposal needs to be extremely thorough and accurate, addressing even the small details of

implementation and evaluation, which are vital. It is easy to come up with an idea, but significantly more

complicated to execute its implementation, as well as predict the potential for success.

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