Apparel retailers focus on teens and technology

The advancement of tablets and smartphones has made Internet and mobile sales a prime strategy for many companies.

By Trefis Nov 11, 2011 1:02PM
The technology world is rapidly changing how business is done in the apparel industry. Suddenly, the advancement of tablets and smartphones has catapulted Internet and mobile sales as the prime strategy of retailers.

The teen apparel sector, including companies like Aeropostale (ARO), Abercombie & Fitch (ANF), American Eagle Outfitters (AEO) and Gap (GPS), is abuzz with these technical advancements in retail, with the 15-25 age group at the core of key smartphone and tablet users.

According to a study by IHL Group, more than 2.7 million tablet devices will be shipped for use in North American retail and hospitality by 2015, an astronomical increase of 450% over current rates. 

"A complete transformation of the customer experience will occur at clothing and department stores over the next three years," notes IHL Group president Greg Buzek. Below we look at how the apparel sector is influenced by technical advancements.

See our full analysis for Aeropostale | Abercrombie | American Eagle | Gap

Growing scale of smartphones and tablet penetration

The number of people using smartphones and tablets is rapidly increasing. A Nielsen report published in September showed U.S. smartphone penetration at 43% in August. The tablet had a penetration rate of 5% in May 2011 -- just one year after the release of Apple's (AAPL) first iPad.

And the impact of these platforms has already started emerging. In August, Aeropostale announced an Android app to help grow its mobile business. Recently, American Eagle launched a Google Wallet mobile shopping experience in selected American Eagle Outfitters, Aerie and 77kids stores.

Aeropostale Internet & Catalog Orders EBITDA Margin

Brand identity not just limited to retail

With the social networking sites becoming a daily part of life, brand identity as well as loyalty has moved beyond the retail space to the Internet. Most big apparel retailers actively maintain online stores on Facebook, and are followed by an ocean of users.

Additionally it has also allowed retailers to do business in markets where they don't have a store presence. Quite recently, Aeropostale rolled out global shipment plans banking primarily on the strength of its more than 5 million Facebook followers.

Aeropostale Stores EBITDA Margin

Cost consciousness and margin improvement

Internet and mobile business have given apparel retailers an opportunity to save on the costs, which is extremely important in current macroeconomic weakness. Establishing an Internet/mobile channel requires significantly fewer capital expenditures than setting up stores, which helps the already cash-strapped apparel industry.

We expect the margins of apparel retailers to improve, since the online business carries significantly higher margins than that of retail sales. For instance, according to Trefis estimates, Internet & catalog EBITDA margin is roughly 2x that of Aeropostale Stores EBITDA margin.



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