During a March 17 fourth-quarter earnings call, which noted an authorization for an exploration of strategic and financial alternatives, Aeropostale CEO Julian Geiger expressed optimism that a focus on “Factory Stores” will generate greater customer engagement in the future.
“We believe that a more immediate focus on the larger store group, that we will now be calling Factory Stores, will accelerate the pace of our financial improvement,” Geiger said, according to Seeking Alpha. “The customers at these stores have an appreciation for a more classic overall assortment, which includes a higher mix of our key basics and logo merchandise. The customers are not only teenagers, but are families looking for a strong value proposition on key items. These stores tend to be located primarily in outlets and in select B and C malls, and as such become our Factory Chain.”
Geiger believes that there is a “significant opportunity” to improve the results of these stores in the near term by continuing to return to company roots in terms of merchandise, presentation, and promotion.
“At many of these locations, you will see the exterior store sign changed to include the factory tag below the Aéropostale name,” he explained. “You may have already seen these signs displayed in certain markets. The product assortment within these stores will be more narrow and deep, with some merchandise exclusive to factory stores arriving for back-to-school. The assortment on average will also have less fashion, which is less desired by our factory customers.”
With a greater focus on key items, Geiger said these stores will have a more simplified merchandise presentation, including high-capacity fixtures.
“The marketing will also have powerful and consistent promotional messages and will be flexible in order to highlight promotions that are either classification-specific or storewide,” he said. “While it is still early, we have seen a significant change in our overall sales trends since implementing the factory strategy across the store group, as well as introducing new spring merchandise in old stores. Factory comparable sales and gross margin dollar comp have increased by a low double-digit percentage since its introduction at the end of February. In this factory model, we expect a marginally lower average unit retail to be offset by higher unit sold.”
Aeropostale’s second target group of stores is its mall chain, with stores located primarily in A and B malls. For back-to-school, the mall chain will have a merchandise assortment focused on updates classics with a twist and a reduced assortment of logo merchandise, which company officials believe will resonate with a more fashion-oriented customer.
Fourth-quarter sales sank 16.1%, to $498 million, marked by a decline of 6.7% in comparable sales as well as a decline in weighted average square footage of 18.8%. For the quarter, average unit retail declined 8.8% and units per transaction increased 4.9% versus last year.
“While we are not satisfied with these results, we were aggressive in selling excess heavyweight and seasonal inventory during the quarter and are comfortable with the composition and currency of our inventory as we enter the spring season,” Geiger said. “When I rejoined Aéropostale in 2014, we developed a strategy for back-to-school 2015. Three of the major pillars of that strategy were: One, balancing our assortment of core and fashion merchandise; two, reducing skew count; and three, improving allocation across our store base. While these changes were structurally necessary to build the foundation for benefits in the future, our financial results have remained below our targets. Going forward, we believe that the right approach is to continue to build on this foundation by refining our allocation strategy further and an even more targeted store-based approach.”