The kids are alright

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Two of America’s largest teenage fashion retailers are venturing outside North America for the first time to tap the lucrative GCC market. But do brand-savvy Gulf teens want the same thing as their suburban US peers?

Julian Geiger, chief executive of Aéropostale, America’s third largest teen retailer by market value, is in a good mood as we meet on the 43rd floor of Jumeirah Emirates Towers, panoramic views of the Gulf’s number one retail hub behind him.

“We feel we have a very strong global brand,” he says before the opening of the company’s flagship store in The Dubai Mall, its fourth in the UAE, after the country became its first market outside the US and Canada in April this year.

American Eagle Outfitters, Aéropostale’s main rival, appears to feel the same way — about their own brand. The company is set to open a number of stores across the region starting in the first quarter of next year, after signing a franchise agreement with retail giant MH Alshaya. The deal requires no capital investment by the US company.

“We believe there’s considerable opportunity for a casual, value-oriented sportswear brand like American Eagle Outfitters,” chief executive James O’Donnell said on a conference call in May.

There will be no photo shoot at the interview with Geiger, possibly because the Aéropostale team is a little too casually dressed in their polo shirts.

Casual can be a problem in this part of the world, but we’ll get to that later.

Aéropostale may be the biggest success story American retail has seen in the past 10 years. The company has gone from $140m in annual sales in 1998, when it was spun off from Macy’s and Geiger took the helm, to $1.9bn in 2008. The number of stores has mushroomed from 119 to over 900 this year.

While the US recession has weighed on earnings at pricier rival Abercrombie & Fitch and somewhat more expensive American Eagle, the New York-based retailer has managed to post double digit revenue growth. Near-luxury brands like Abercrombie are always vulnerable to a downturn in consumer spending, and the company’s initial refusal to give discounts as debt-ridden shoppers were hit by the worst recession in modern history may have played into the hands of discounters.

The teenage juggernaut argued that it was protecting its brand; once prices have been cut it can be hard to bring them back up. In the end the company gave in and lowered the price of some products, but analysts claim that it could have been a case of too little, too late. Not so at Aéropostale, where affordability and heavy discounting are at the heart of the brand even at the best of times. Designs often look similar to those of Abercrombie, at least to the untrained eye.

“We are a lifestyle brand that tends to have an East Coast preppy look in the United States, and we give customers the confidence they [need] to go to school and wear clothes that help them be fashionable and fit in with their peers,” says Geiger.

He insists that the recession is not the reason for the company’s success, pointing instead to investments in product and store design; and distribution technology that allows it to get the right products to the right shop at the right time.

Part of teenagers’ attraction to retailers is that they are fairly recession-proof. Unlike their parents, kids aren’t bogged down by mortgages. Parents are also relatively unselfish spenders: most of them would rather cut back on their own costs than their children’s.

However, the severity of this economic slowdown in the US appears to have changed the rules somewhat, with many parents feeling that they have had no choice but totake control of their children’s discretionary spend. Consequently, the brand’s mum-friendliness was instrumental in driving sales when the downturn struck.

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