Aéropostale, Inc.

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Aéropostale, Inc.

112 West 34th Street
New York, New York 10120-2400
U.S.A.
Telephone: (646) 485-5398
Toll Free: (877) 674-0624
Fax: (646) 485-5430
Web site: http://www.aeropostale.com

Public Company
Incorporated: 1998
Employees: 10,756
Sales: $1.41 billion (2006)
Stock Exchanges: New York
Ticker Symbol: ARO
NAIC: 448110 Men’s Clothing Stores; 448120 Women’s Clothing Stores; 448150 Clothing Accessories Stores

THE FIRST 15 YEARS

PURSUIT OF THE “PLAIN VANILLA” TEEN: 1998–2003

TOUCHES OF GLAMOUR: 2004–07

PRINCIPAL SUBSIDIARIES

PRINCIPAL OPERATING UNITS

PRINCIPAL COMPETITORS

THE FIRST 15 YEARS

R.H. Macy & Co., Inc., introduced Aéropostale as a private label, targeting young men, for its department stores in the early 1980s and established it as a shopping mall specialty-store chain in 1987. The first ones opened in November of that year in Jersey City and Short Hills, New Jersey, and Pleasanton, California. Designed to convey a feeling of drama and adventure, Aéropostale recalled the glamour of the Compagnie Generale Aéropostale, the pioneering French mail service of the 1920s that connected the nation by air to its colonies in North Africa and was also the first to link France to South America. One of its pilots was novelist Antoine Saint-Exupéry, whose works included the children’s classic The Little Prince.

The format was anything but subtle. When Aéropostale made its southern California debut in the Westwood Pavilion of Los Angeles in 1989, the interior was a simulated airplane hanger with two parachute-clad mannequins breaking through the ceiling and a biplane propeller hovering over the cash register. Period props such as oil drums, gas pumps, shipping crates, and steamer trunks competed for attention with the merchandise displays.Los Angeles Times staffer Martha Groves was not impressed by the store. She compared Aéropostale’s offerings unfavorably to what she called authentic aviator clothing at The Cockpit. While Aéropostale, like The Cockpit, displayed leather bomber jackets, most of its items, such as T-shirts, pastel colored pullovers, and full cut trousers, were unrelated to the aviator theme. Groves wrote that they resembled The Gap’s clothing in styling and price. Also noted was Aéropostale’s similarity in concept to the safari theme of Banana Republic, which was losing favor with shoppers. Westwood Pavilion carried merchandise for women as well as men. There were 35 Aéropostale stores in 1989 and 37 in 1991.

PURSUIT OF THE “PLAIN VANILLA” TEEN: 1998–2003

Federated Department Stores, Inc., Macy’s parent, sold the chain to MSS Delaware Inc., a New York-based investment group headed by Julian Geiger, who had been president and chief executive officer of Federated’s specialty store unit for two years. The investors, who paid about $14 million, included Geiger’s management team and Bear, Stearns Merchant Banking Group, which put up most of the money and took the majority stake. They inherited an operation with 119 stores and annual sales of about $123 million. Geiger, who became Aéropostale’s chairman and chief executive officer, later told Jean E. Palmieri of DNR/Daily News Record that the chain was in “total disarray” when it was sold.

Aéropostale may not have been a hit with jaded marketers, fashionistas, or retail-beat reporters, but, under new ownership, it won an enthusiastic reception from teenagers and young adults. During fiscal 2000 (the year ended August 4, 2000) it opened 57 stores, and in the following fiscal year, 74 more. These units averaged 3,500 square feet in size, and over 90 percent were profitable within their first 13 weeks in operation. Aéropostale’s sales roughly doubled in fiscal 2000 and 2001. A preteen venture called Aero Kids, introduced in 2000, failed to connect with shoppers, however, and closed the following year.

By the time the company made its initial public offering of stock in May 2002, there were 273 outlets in 33 states. The stock sale raised $240.7 million, but after paying off investors and paying down debt, much of it held by Bear Stearns Cos. itself, less than $20 million remained in company coffers. Bear Stearns was also the underwriter, and about half the shares were being offered by its merchant banking group rather than by Aéropostale. Even so, the merchant group retained about 37 percent of the shares. Fourteen months later, Bear Stearns and other investors garnered about $180 million more in a secondary stock offering. By 2005 Bear Stearns had realized $476.6 million from its original investment of $6 million, according to the newsletter Buyouts.

Aéropostale continued to offer its clientele a variety of casual wear in small mall based stores strategically located near other places where teenagers would gather, such as food courts, music stores, and other youth-oriented retailers. The merchandise was intended to be easy on the teen pocketbook, with the average sum spent $32, often for two or three items. “Our customers are nice, middle-class kids,” Geiger told Palmieri. “They’re athletic, and the girls are tomboys. ... And we listen to them. We don’t want to be leaders, we want to be followers.” With regard to design, he added, “Everybody goes to Paris and London. We go to train stations, Great Adventure, Ohio and Indiana. We get a better handle on what kids are wearing than we would in Barcelona.”

A sign in Geiger’s office on Seventh Avenue in Manhattan read, “If the customer wants vanilla, give him vanilla.” To find out what its customers wanted, vanilla or otherwise, Aéropostale organized focus groups of high school students. It also handed out merchandise to college athletes in the hope that they would act as display models and influence what teenagers wanted to wear. The goods tended to be fleece, denim, and knit shirts, but there was a decided emphasis on girls’ wear, since females bought more clothing, and the items they bought carried higher profit margins.

By mid-2003 the Aéropostale roster of stores had reached about 400. Though primarily an East Coast chain, it was placing a greater emphasis on the populous states of California, Florida, and Texas. It also entered six states for the first time, among them Oklahoma, Oregon, and Washington. The chain had lowered its sights, in terms of age, to concentrate on youngsters between the ages of 11 and 16. This meant selling smaller ticket items, but it allowed Aéropostale to separate itself from tough competitors such as Abercrombie & Fitch Co. and American Eagle Outfitters Inc. Still unreservedly mainstream in styling, it was experiencing rapid growth in accessories. Girls’ underwear was another expanding area, with the company adding matching tops and boy-cut briefs to its offerings. Aéropostale also introduced an Internet-based program to encourage shoppers’ input in marketing potential new items, seeking responses from 10,000 of its best customers.

COMPANY PERSPECTIVES

The company provides customers with a focused selection of high-quality, active-oriented, fashion basic merchandise at compelling values.

TOUCHES OF GLAMOUR: 2004–07

When back-to-school shopping began in the late summer of 2004, Aéropostale was filling its shelves with preppy wear such as button-down shirts and woven tops, knit polo shirts, pleated skirts, and corduroy jackets. This meant that after years of redirecting its merchandise toward a slightly younger teen, the company was reversing its field of play to attract a more mature shopper, somewhere between 14 and 17. Two years later, its back-to-school clothing was featuring neutral gray, brown, and burgundy instead of brighter colors. Aéropostale also unveiled a new store format. The prototype had window screens that rose and fell every 15 seconds to entice bystanders. The interior included skylights and elongated bamboo shoots rising from floor to ceiling. There were also updated displays of merchandise, a backlit graphic behind the cash register, lifestyle graphic images throughout the store, and additional, anatomically correct mannequins. A flirtation-type grabber were the transparent doors of the fitting rooms, which became opaque when a customer stepped inside to change clothes. Aéropostale was planning to convert 40 percent of its stores to the new prototype by 2010.

Aéropostale added glamour to its plain vanilla image in 2005, when it launched Jimmy’Z, a clothing chain for young adults who wanted to look like celebrities, but at an affordable price. The first six opened for business in July, with eight more scheduled during the year and an ambitious eventual goal of 800. The Jimmy’Z brand dated from 1984, when a Malibu surfer launched what became a wholesale array of mostly men’s and boys’ beach inspired products. A core product of the new chain was to be fashion jeans priced at about $60 (compared to about $40–$45 for jeans at Aéropostale). Other merchandise would include blazers, tracksuits, polo shirts, T-shirts, and women’s underwear and loungewear, plus accessories such as jewelry, handbags, sunglasses, and belts in what was described as an eclectic mix of Hollywood-, West Hollywood–, and New York–inspired goods. Store design was to lean toward a retro California beach house look, with one of two models featuring a bar down the middle of the store and the other with an open layout. Each of four fitting rooms would feature a different music genre. A financial analyst said that the new chain was necessary for Aéropostale since, at 628 stores, it was rapidly reaching saturation point.

Aéropostale had net sales of $1.41 billion and net income of $106.65 million in fiscal 2006 (the year ended February 3, 2007). There were 728 Aéropostale stores, all of them leased, in 47 states at the end of the fiscal year. The company planned to open 85 more, including ten in Canada, during fiscal 2007. In addition, there were 14 Jimmy’Z stores in 11 states, including one in Manhattan’s Herald Square. Merchandise for women accounted for 60 percent of company sales, men’s merchandise for 25 percent, and accessories for 15 percent. Aéropostale’s corporate headquarters were in Manhattan’s garment district and its distribution facilities in Ontario, California, and South River, New Jersey. The corporation’s common stock was held by a broad range of shareholders, with the largest stakes held by a London-based investment fund (6.3 percent) and a Tokyo-based investment fund (5.3 percent).

Robert Halasz

KEY DATES

1987:: Previously a Macy’s private label, Aéropostale becomes a clothing store chain.
1998:: Aéropostale is sold to private investors, including its executives.
2002:: The company goes public with its initial offering of shares of stock.
2004:: Formerly targeting very young shoppers, Aéropostale seeks more mature teens.
2005:: The company launches Jimmy’Z, a casual clothing chain for young adults.
2006:: Aéropostale ends the fiscal year with 742 stores.