A floor-length mirror with a built-in camera allows a shopper to take her own pictures and see them displayed instantly on screens. Text messages such as "You look GR8 :)" and "Luv U" are printed on the wall.
This is what's going on at P.S. from Aeropostale, the new store by New York-based teen retailer Aeropostale Inc. (ARO) targeting kids 7 to 12 - a demographic commonly referred to as the tweens, and younger than the namesake chain's 14- to 17-year-old core customers. The merchandise assortment of graphic T-shirts, jeans and dresses is similar to the concept's 900-store sister chain with some exceptions, such as school uniforms for the elementary-school crowd.
After 13 straight quarters of record profit growth and 11 consecutive years of rising sales at stores open at least a year, Aeropostale's stock has more than doubled this year, outpacing pricier rivals such as Abercrombie & Fitch Co. (ANF) and American Eagle Outfitters Inc. (AEO), as well as each member of the S&P Specialty Retail Index group. The new store, according to Chief Executive Julian Geiger, is a key part of Aeropostale's strategy to sustain its momentum.
"This is a real business with huge sales and profit potential," Geiger said in an interview at the P.S. store's opening at Palisades Center in West Nyack, N.Y. Aeropostale plans to open 10 P.S. stores this year with the goal to open more than 500, expanding its share in what he described as an underserved $14 billion market. "We are very confident we can grow this brand prudently but aggressively over the next decade."
Analysts said it's too early to gauge the store's growth potential, located near shops such as Tween Brands Inc.'s (TWB) Justice chain, Gap Inc.'s (GPS) GapKids.
"From the store environment they've hit it," said retail consultant Customer Growth Partners' Craig Johnson, who was among one of about 30 analysts at the company's opening. "It creates something fun for kids to stay in stores longer. It's mom-friendly. But I'm not convinced that this can go to 500 stores. The jury is still out."
Like other retailers such as No. 1 discounter Wal-Mart Stores Inc. (WMT), Aeropostale (known for its promotions such as two T-shirts for $20) has benefited from the economic downturn that made shoppers more budget-conscious, favoring stores perceived to have lower prices.
Geiger said the company's success isn't just recession-driven and far beyond a "value story." Over two years ago, he hired industry veteran and former Victoria's Secret (LTD) executive Mindy Meads as president and chief merchandising officer, who has cut the stock-keeping units by 30%. They've concentrated on better selling styles and revamping merchandise, including adding sparkles or sequins and new fonts to graphic T-shirts.
"We are moving away from the follower to being more relevant in a timely manner," Meads told MarketWatch. The new P.S. store carries 35 design finishes for graphic T-shirts, for example.
After lagging for more than two years, Aeropostale's profit margins started to outpace that of either American Eagle or Abercrombie & Fitch, with sales per square foot sharply accelerating since the third quarter, according to research firm Retail Metrics.
At the Palisades Center, while American Eagle and Abercrombie & Fitch each had either clearance or big sales signs, the Aeropostale chain didn't have any additional discounts on top of its regular promotions.
To make sure the jeans are more acceptable for moms to buy for their 10-year olds, P.S. hiked their rise by about one inch
compared with the older Aeropostale chain, to make them less "risque," Meads said. She added it took 18 months of work to get ready to open, hosting events and focus groups, as well as finding out whether existing customers wouldn't be turned off with the company opening a sister chain.
"The store looks really good and different relative to competition," said Standard & Poor's analyst Marie Driscoll. "It looks a little grown-up and more sophisticated. It's really what the younger kids want. They want to look like their older brother and sister."
The company also has been remodeling some of its namesake shops, adding full-body mannequins, replacing metal hangers with wooden hangers and stocking items such as spring scarves to be more on trends. Its design and merchandising team is constantly in airports, amusement parks and train stations, shopping competitors' stores and seeing fashions from Europe to make sure it's got what its teen customers want, Geiger said.
"There used to be a gap in pricing and in fashion" between Aeropostale and its competitors, pointed out analyst Eric Beder of Brean Murray Carret & Co. For instance, the retailer's prices are on average 20% to 30% below that of American Eagle, he said. "The fashion quotient has really improved."
Eleven-year old Annie Rogers from West Point, N.Y., has noticed the difference. With her mom and her sisters, ages 13 and 6, the family just came out of the Aeropostale store with bags of T-shirts, shorts, camisoles and flip-flops - spending a total of $130.
"Whenever we come, we see new clothes now," Rogers said, adding she wants to check out the P.S. store so she doesn't have to worry about scouting out the extra-small sizes at Aeropostale. "They have more styles. I like the clothes and how they look on me."
-By Andria Cheng, 415-439-6400; AskNewswires@dowjones.com