American Eagle Closing Martin & Osa
Back in 2006, as American Eagle was getting ready to launch
its Martin + Osa concept, the chain was hoping the new format would give it
a bridge to consumers (25 – 40) that had outgrown its teen and young adult
American Eagle line.
On Monday, the company pulled the plug on the concept
when it announced it was closing all 28 Martin + Osa stores and its website.
The chain lost $44 million in fiscal 2009.
“Closing Martin + Osa was a difficult decision, particularly in light of the
progress that was made over the past year,” said Jim O’Donnell, chief executive
officer, in a press release. “Creating new brands is never an easy endeavor.
The valuable lessons and experiences we gained will serve us well, as we continue
to develop and launch new lifestyle brands.”
Brian Sozzi, an equity research
analyst with Wall Street Strategies, wrote in a client note that American Eagle
Outfitters’ “financial resources would
be better served cultivating the core AE brand and to develop 77 kids both
online and in the malls (perhaps through pop up locations).”
According to Mr.
Sozzi, the 77 kids business will help “create early stage
mind share of the American Eagle brand, with this core customer essentially
growing with the company into the teen years.”
Cutting Martin + Osa was a signal
that American Eagle had decided “not to throw
good money after bad,” wrote Mr. Sozzi.
Discussion Questions: What is your reaction to American
Eagle’s decision to close Martin + Osa? Why do you think the chain failed? Do
you agree about the upside potential of the 77 kids’ business?
I have shopped several Martin & Osa stores since the concept began a few years ago, especially the Old Orchard store (outside Chicago) a couple of times a year. The original concept made sense–targeting male and female customers in their late 20s to mid-40s who had “outgrown” American Eagle–but the execution was inconsistent from one visit to the next. The assortment veered from its original vision and skewed too “young,” approaching J.Crew and Banana Republic territory with an overly casual point of view. (And the quality was inconsistent from visit to visit.)
It’s worth keeping an eye on the rollout of Madewell (from J.Crew) as a better-executed strategy from this vantage point.
In my opinion it’s always a good idea to “stick to your knitting.” Certain things sound like a good idea, but they turn out to be distractions from the core business.
American Eagle is riding a wave now, taking business from Abercrombie and driving a strong brand. I say, drive those comps, get across every channel and social network you can, and stay in touch with your core customer. Don’t try to grab her early (Gap Kids, anyone?) and don’t try to hang on to her when she grows up…just keep following the next generation of YOUR generation. That’s hard enough.
Both of American Eagle’s extensions are in no man’s land.
If you are going to try to build a lifetime brand, start the brand early and end it late. Build the BRAND. We may denigrate BabyGap, but they are doing it the right way. There is a GAP in every extension they make. The banner has a meaning. The demographic is the same (though the age is different).
American Eagle, by not using the AE brand, loses that connection; which by the way, is fine, but then the new operation must be operated independently, focusing on the age demographic and not the AE demographic.
This is not a surprise. The strategy looked good on paper, but failed in the real world. During this recession, consumers have resisted any change. The question is, did the merchandising really take the consumer where they wanted to go? There is a logic jump that says at this age I like this, but as I age further, what will I like? Age brings both minor and major change. A new wife will surely have input into any wardrobe change. Was this factored in correctly?
AE has been quite successful in catering to Gen Y in its late teens and early twenties. Martin & Osa was SSC’s attempt at following the Gen Y market into its late twenties. Creating a new format to offer a bridge to a core market as it ages is essential, but it is challenging. It is all too easy to fall into the trap of informing the new format with the sensibilities of the old. As the market ages, it will dress differently and expect a different look than what it used to wear. In a totally subjective scan, there was simply too much similarity between the assortments at AE and M&O. This just serves to create new competition for the same customer instead of capturing the new (older) customer.
The other key element of success is endurance as the new format goes through the inevitable hits and misses to fine-tune the format and offering. While Wall Street analysts can offer worthwhile insights, they are focused on the next quarter’s financial results. (That’s their job.) Building a new format (if it is to be successful) is a multi-year project. SSC should be listening to its customers, not Wall Street. They should definitely not abandon this critical market.
I’m not sure the concept of lifetime loyalty to a brand makes much sense when novelty and trendiness are often what attracted the customer to the brand in the first place: just because someone got older doesn’t mean their desire to try “the latest thing” has gone away; on the contrary, it’s THAT attribute–rather than loyalty–that will persist throughout their lifetime.
It’s sad to see Martin & Osa go. They were nice looking stores, but I never shopped in them. Makes me wonder where this age group is actually shopping because they are out there. I can’t think of a branded store that caters to this group and is identified with them for fashionable, quality clothing, particularly men.
I never got the feel for the brand. They were very expensive for an unknown commodity and often reminded me of L.L.Bean. I guess barriers for new customers would have been lower with a different price point or they should have tried harder to establish their brand. If I recall correctly, Coach wasn’t an overnight success either and had many other factors in its favor. I doubt they’ll be missed.