Can Aeropostale Sell More Clothes Online Via Mobile Phones?

by Trefis Team
+179.31%
Upside
2.28
Market
6.38
Trefis
ARO
Aeropostale
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Teen apparel retailer Aeropostale (NYSE:ARO) is looking to revamp its m-commerce (e-commerce through mobile) channel to strengthen its direct-to-consumer business. This channel has become important for retailers due to the growing online retail market and increasing use of smartphones, tablets and other mobile devices. Aeropostale launched its m-commerce business in June 2010 and recently added new features to its iPhone app to make shopping more convenient and interactive. [1]

Although the revenue contribution of m-commerce is very low for now, it is necessary for Aeropostale to continue investing in it. Apparel sales will continue to shift from physical stores to online, and Aeropostale and other retailers have to be part of this broader shift.

See our complete analysis for Aeropostale

Why Is M-Commerce Important For Retailers?

Mobile commerce is a convenient way of shopping as people carry their mobile devices everywhere they go. This channel has been growing aggressively with the proliferation of smartphones and tablets. Although m-commerce as a percentage of total online retail sales in the U.S. remains low, it has registered triple digit growth in recent years. [2] As a result, Forrester expects sales via smartphones to account for 9% of total online retail sales in the U.S. by 2017, up from 3% in 2012. [3] This, combined with the anticipated growth in online retail sales (CAGR of about 10% for next few years), provides an optimistic outlook for m-commerce. [4] [5]

About 29% of smartphone users in the U.S. already have used their mobile devices to shop online, and this percentage is likely to increase going forward. [6] Moreover, the introduction of mobile payment solutions and growing influence of social media are likely to complement growth in e-commerce and m-commerce channels. Bank of America estimates retail sales through smartphones and tablets in the U.S. and Europe to increase from $25 billion in 2012 to $67 billion in 2015. [6] Realizing this shift, the U.S. retailers have started to strengthen their mobile presence. According to a survey conducted in 2011, 78% of 200 retailers surveyed were planning to invest in the mobile channel. [7]

What Is Aeropostale Doing?

Aeropostale’s m-commerce channel has registered healthy growth since its launch in mid 2010. The retailer recently added new features to its iPhone app such as a bar code scanner, outfit style guide & builder and a video section. [1] The bar code scanner enables customers to access information such as product description, customer reviews and inventory status. [8] The outfit style guide provides an interactive display where customers can mix and match tops, bottoms and accessories according to their liking. According to Aeropostale’s management, this conceives playfulness among its shoppers as they enjoy using this feature. [1] The video section in the app is designed in such a manner that users do not need to constantly update their apps to access latest content on Aeropostale’s YouTube channel. This allows customers to get in touch with latest products and offers regularly.

Together, these factors are expected to enhance Aeropostale’s mobile order conversion rate. Currently this channel accounts for 36% of the retailer’s web traffic but only 13% of its online sales. [1] Aeropostale is also expanding iPad kiosks in its stores to improve the in-store shopping experience. [8]

Will There Be An Impact?

Aeropostale’s m-commerce sales account for just 1.2% of its revenues. [9] [1] Although the figure has increased historically, it is far from making a material contribution to the company’s stock.

However, this channel can help the retailer in growing its direct-to-consumer business. Given the anticipated growth in the U.S. online retail market and increasing Internet penetration in emerging markets, a strong direct channel (including e-commerce and m-commerce) is becoming a necessity for the retailers. Aeropostale is already facing troubles with its product mix and would not want to miss any growth opportunities that the industry presents.

Our price estimate for Aeropostale stands at $15, implying a premium of 10% to the market price.

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Notes:
  1. Aeropostale adds a bar code scanner and outfit builder to its iPhone app, Internet Retailer, March 27 2013 [] [] [] [] []
  2. Why brands should embrace m:commerce now, Biz Report, Feb 13 2013 []
  3. M-Commerce sales via smartphones hit $8 billion in 2012, Internet Retailer, Jan 16 2013 []
  4. U.S. Online Retail Sales To Reach $370B by 2017, Forbes, Mar 14 2013 []
  5. U.S. Online Retail Forecast, 2010 to 2015, Forrester, Feb 28 2011 []
  6. BII Report: Why Mobile Commerce Is Set To Explode, Business Insider, Jan 10 2013 [] []
  7. Half of retailers say m- commerce is important to achieving strategic goals, Internet Retailer, April 25 2011 []
  8. Aeropostale Amplifies m-commerce efforts with new app, in-store iPad kiosks expansion, Mobile Commerce Daily, March 20 2013 [] []
  9. Aeropostale’s SEC filings []
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