May 30, 2008, 12:00 AM

The web drives retail

The e-commerce strategies of a chain, American Eagle Outfitters (p. 56); a manufacturer, American Apparel (p. 66); a cataloger, Fingerhut (p. 58); and a web-only merchant, Diapers.com (p. 62).

When American Eagle Outfitters Inc. introduces its fourth major retail brand this fall in time for the holiday shopping season, the launch won’t feature a ribbon cutting ceremony or a spotlight shining on a storefront.

Instead, the launch of 77kids, an apparel brand that will target children ages 2 through 10, will happen where American Eagle Outfitters’ customers spend most of their time: online. “We’re launching 77kids as an e-commerce site first because we can target customers and perfect the marketing and merchandising strategy at a critical time faster than we can with other channels,” says American Eagle Outfitters chief marketing officer Kathy Savitt. “The Internet provides us with the perfect vehicle to reach a key audience of shoppers.”

Chains may have been asleep at the Internet wheel, but the economic potholes of the past year have awakened them to the web’s importance as a sales channel. For chain after chain-including Gap Inc. (No. 24), Office Depot Inc. (No. 3), Staples Inc. (No. 2), The Talbots Inc. (No. 64) and Williams-Sonoma Inc. (No. 21)-the web accounted for a small portion of sales last year, but a huge chunk of growth in total sales (see Internet Retailer, April 2008).

Even American Eagle Outfitters itself (No. 59), which had a good year in which total sales grew 9% and comparable store sales 1%, the web accounted for 21% of overall growth, while generating only 8% of sales. In 2007 American Eagle Outfitters posted web sales of $240 million, up 30% from $184.6 million in 2006.

The retailer, which began selling online a decade ago when it launched AE.com, an apparel and accessories web store for consumers 15 to 25, expects to achieve $500 million in web sales within a few years. “Our customers live on the web so we have to as well,” Savitt says. “We sell across multiple channels, but it’s the Internet that gives us the ability to launch new lines quickly and introduce marketing and merchandising strategies.”

The Internet is the fastest growing channel at American Eagle Outfitters because the retailer is working to keep its e-commerce strategy flexible enough to keep pace with the changing shopping and social behavior of a younger web audience. In 2007, the retailer redesigned its flagship e-commerce site and added features such as advanced product recommendation tools, better zoom and swatch functions and a product locater that uses ZIP codes to help shoppers find a particular item in the color and size they want that’s in stock at a convenient American Eagle Outfitters store. “We have a pretty relentless focus, so when a visitor clicks on AE.com they will land on a destination that’s all about social networking and shopping,” says American Eagle Outfitters executive vice president of e-commerce Fred Grover. “We are constantly adding to the web site in ways that cater to the lifestyle of Internet-savvy young shoppers.”

On AE.com, visitors can shop online, as well as register to vote, download new music each Monday, post videos about their favorite types of jeans and view other original content. American Eagle Outfitters was also an early believer in social networking to drive traffic to its own e-commerce sites and its chain of about 1,000 stores in North America. In August American Eagle Outfitters launched an entertainment series of video content that ran on AE.com, on social networks such as YouTube, Facebook and MySpace, in stores, and on TV.

The videos were a combination of American Eagle Outfitters’ original content as well as contributions by consumers in several genres, including music, comedy, drama and reality programming. American Eagle Outfitters called the entertainment platform 77Entertainment. It debuted with “It’s a Mall World,” a 12-episode series directed by Milo Ventimiglia of NBC TV’s “Heroes.”

The video featured the lives of two record store employees, a greeter at the American Eagle Outfitters’ store across the way, a young woman who works in a lingerie store and a young man from the mall juice bar. “Creating and delivering relevant content is another way for American Eagle Outfitters to maintain a lasting connection with our customers,” says Savitt. “By making content available online, in stores and on television, American Eagle Outfitters is aligned with how our customers live their lives every day.”

Other chain retailers also are adding videos, customer reviews, and features and functions in an effort to make their e-commerce sites more interactive. But what makes American Eagle Outfitters different from other chains and apparel retailers is its willingness to try new e-commerce strategies early and to use the web as the company’s major business development tool, says Jim Okamura, senior partner at retail consulting firm J.C. Williams Group Ltd.

“After a decade of perfecting the model for selling online to a niche audience, now they are leveraging the franchise and looking to do the same in other apparel segments,” Okamura says. “If they are utilizing the web to launch their latest brand instead of stores, that tells me they are using the Internet to drive a big portion of their overall corporate strategy and business development.”

Engaging interactive content and a consistent online shopper experience has helped American Eagle Outfitters build a loyal following. Today slightly over one-half of all web site traffic at AE.com-54%-is generated by repeat shoppers, according to Internet measurement firm Hitwise Inc. Visitors also stay longer at AE.com than at most other youth and teen-oriented online retailing sites, says Hitwise: 10 minutes, 37 seconds, compared with 10 minutes, 2 seconds at dELiAs.com, part of dELiA*s Inc. (No. 101); 9 minutes, 33 seconds at Abercrombie.com, the web site of Abercrombie & Fitch Co. (No. 54); 9 minutes even at JCrew.com, which is owned and operated by J. Crew Group Inc. (No. 50); and 8 minutes, 43 seconds at Aeropostale.com, the Internet arm of Aeropostale Inc (No. 203).

“The competition among apparel retailers for younger online shoppers is fierce,” says Okamura. “This segment has a very short attention span. If young shoppers are staying longer at AE.com than elsewhere, American Eagle Outfitters is doing a good job of targeting its customers.”

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