American Eagle Outfitters jumping into Britain, while its U.S. business burns
American Eagle Outfitters (AEO) announced Monday that it is opening three stores in Great Britain this fall, the teen retailer’s first stores in Europe.
Normally, international expansion would be cause for celebration. But this is news coming from a retailer without a permanent CEO, sales in free fall in the United States, where it gets the bulk of its business, and is competing with retailers that are well entrenched in the U.K.
American Eagle’s comparable sales fell 6% in 2013—a decline that only got worse in the first quarter of the year, when they dropped 11%. Like its peers Abercrombie & Fitch (ANF) and Aeropostale (ARO) , American Eagle’s sales have been slammed as teens and their parents have pulled back on apparel purchases and no real new major fashion trend to get this kids into malls. And like its peers, American Eagle has had to resort to discount to move merchandise that flopped with shoppers, so much so that its gross merchandise profit margin fell to 33.7% of sales last year from 40% in 2012.
The chain is trying fix its business in part by closing dozens of stores, all the while it is looking for a new CEO nearly six months after Robert Hanson was canned less than two years into the job after he clashed with American Eagle executives resistant to his plans to update the retailers.
It’s not obvious how a British adventure will help American Eagle soar when so much of its business is in disarray.
“We are focused on profitably scaling our international growth and believe that American Eagle Outfitters will have great traction in the UK,” said Simon Nankervis, Executive Vice President, Americas & Global Country Licensing at American Eagle Outfitters in a statement. One store will be in Kent, while the two others will be in London.
In a moment of self-awareness, American Eagle warned investors in its most recent annual report that expanding further out internationally (it already has stores in Canada, Mexico and China, as well as licensed stores elsewhere) has its perils.
“A failure to properly implement our expansion initiatives… in these international markets, could have a material adverse effect on our results of operations and financial condition. We have limited prior experience operating internationally, where we face established competitors,” said American Eagle.
And one of the established competitors, Abercrombie, could tell its smaller sibling a thing or too about the perils of international markets. Last year, its international comparable sales fell 11%, doing as badly as its domestic business did.
The news, largely expected, was poorly received by investors and analysts alike.
“AEO’s (American Eagle) announced expansion into London may qualify as the most tone deaf press release of the year,” Rob Wilson, president of Tiburon Research Group, said in a tweet.