Aeropostale Tries Appealing To Tech-Oriented Shoppers Amid A Challenging Environment

Aeropostale (NYSE:ARO) recently revealed its new prototype store to differentiate itself and drive tech-savvy customers to its stores. The retailer has installed iPods, iPads and Apple desktops throughout its store to improve the shopping experience. ^[1] Shoppers can use these gadgets to browse through apparel, buy online, design their own clothes and change the music according to their preferences. The company hopes that these new tech friendly additions will help engage customers and ultimately drive traffic to stores.

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Customers Are Likely To Welcome The Technological Addition

Aeropostale mainly caters to the teenagers who are highly conscious and particular about fashion trends. The retailer has maintained positive growth by keeping its product range in-line with the prevailing fashion trends at affordable prices. Apart from these key selling points, an enjoyable shopping environment will help in building the brand loyalty of the customers.

The target customers (teenagers) are likely to be more tech friendly than other age groups and will welcome this technological addition. They can use the build-your-own-outfit guide on the iPads installed in the store to optimize and design apparel according to their own preference. Furthermore, they can select different music in the changing room and vote for the music playing in the stores. This is something that many youngsters will find interesting and enjoyable. The retailer will also provide an in-store e-commerce platform to make shopping convenient. ^[1]

Trends Negatively Impacting Aeropostale

Although this technology might seem to be a valuable addition to the store, Aeropostale still remains susceptible to consumer spending trends in the U.S. To add to that, the retailer keeps its margins lower than its competitors such as American Eagle Outfitters (NYSE:AEO) and Gap (NYSE:GPS) to stay competitive and so increases in manufacturing costs can have a greater negative impact on its margins relative to its peers.

The holiday season this year might be challenging for Aeropostale due to the sluggish economy. ^[2] The National Retail Federation expects retail sales in the U.S. to rise by 4.1% this season, which is less than the growth seen in the last two years. ^[3] In such an environment, a focus on promotional activities and discounts might help the retailers drive traffic to stores.

Aeropostale has a young customer base, and we feel that current move will appeal to this demographic. There has been an average annual increase of 8% in Aeropostale’s revenues since 2008. ^[4] However, we expect this growth to slow as evident from a decrease in the comparable store sales last year. ^[4]

The company’s moves to appeal to customers with technological additions to stores might have a slight mitigating effect amid the challenging environment, but the key factors driving the stock are still the manufacturing costs and consumer spending trends.

Our price estimate for Aeropostale stands at $25, implies substantial upside to the market price based on a long term recovery in margins and sales.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. There Are iPads, iPods And Macs All Over Aeropostale’s Cool New Prototype Store, Business Insider, Oct 22 2012 [↩] [↩]
2. Aeropostale Uses iPads Display To Attract Customers, Media Post, Oct 23 2012 [↩]
3. Express promotion woes highlight tough holiday selling, Reuters, Oct 2 2012 [↩]
4. Aeropostale’s SEC filings [↩] [↩]