American Eagle Outfitters (AEO) SWOT Analysis / TOWS Matrix / MBA Resources
Retail (Apparel)
Strategy / MBA Resources
Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for American Eagle Outfitters (United States)
Based on various researches at Oak Spring University , American Eagle Outfitters is operating in a macro-environment that has been destablized by – challanges to central banks by blockchain based private currencies, banking and financial system is disrupted by Bitcoin and other crypto currencies, digital marketing is dominated by two big players Facebook and Google, increasing household debt because of falling income levels, cloud computing is disrupting traditional business models, technology disruption, increasing transportation and logistics costs,
increasing government debt because of Covid-19 spendings, central banks are concerned over increasing inflation, etc
Introduction to SWOT Analysis of American Eagle Outfitters
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that American Eagle Outfitters can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the American Eagle Outfitters, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which American Eagle Outfitters operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of American Eagle Outfitters can be done for the following purposes –
1. Strategic planning of American Eagle Outfitters
2. Improving business portfolio management of American Eagle Outfitters
3. Assessing feasibility of the new initiative in United States
4. Making a Retail (Apparel) sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of American Eagle Outfitters
Strengths of American Eagle Outfitters | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of American Eagle Outfitters are -
Sustainable margins compare to other players in Retail (Apparel) industry
– American Eagle Outfitters has clearly differentiated products in the market place. This has enabled American Eagle Outfitters to fetch slight price premium compare to the competitors in the Retail (Apparel) industry. The sustainable margins have also helped American Eagle Outfitters to invest into research and development (R&D) and innovation.
Ability to recruit top talent
– American Eagle Outfitters is one of the leading players in the Retail (Apparel) industry in United States. It is in a position to attract the best talent available in United States. The firm has a robust talent identification program that helps in identifying the brightest.
Learning organization
- American Eagle Outfitters is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at American Eagle Outfitters is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at American Eagle Outfitters emphasize – knowledge, initiative, and innovation.
Digital Transformation in Retail (Apparel) industry
- digital transformation varies from industry to industry. For American Eagle Outfitters digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. American Eagle Outfitters has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Low bargaining power of suppliers
– Suppliers of American Eagle Outfitters in the Services sector have low bargaining power. American Eagle Outfitters has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps American Eagle Outfitters to manage not only supply disruptions but also source products at highly competitive prices.
Analytics focus
– American Eagle Outfitters is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the Retail (Apparel) industry. The technology infrastructure of United States is also helping it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Highly skilled collaborators
– American Eagle Outfitters has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Retail (Apparel) industry. Secondly the value chain collaborators of American Eagle Outfitters have helped the firm to develop new products and bring them quickly to the marketplace.
High brand equity
– American Eagle Outfitters has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled American Eagle Outfitters to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Diverse revenue streams
– American Eagle Outfitters is present in almost all the verticals within the Retail (Apparel) industry. This has provided American Eagle Outfitters a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Cross disciplinary teams
– Horizontal connected teams at the American Eagle Outfitters are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Ability to lead change in Retail (Apparel)
– American Eagle Outfitters is one of the leading players in the Retail (Apparel) industry in United States. Over the years it has not only transformed the business landscape in the Retail (Apparel) industry in United States but also across the existing markets. The ability to lead change has enabled American Eagle Outfitters in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Effective Research and Development (R&D)
– American Eagle Outfitters has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – American Eagle Outfitters staying ahead in the Retail (Apparel) industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Weaknesses of American Eagle Outfitters | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of American Eagle Outfitters are -
High cash cycle compare to competitors
American Eagle Outfitters has a high cash cycle compare to other players in the Retail (Apparel) industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Lack of clear differentiation of American Eagle Outfitters products
– To increase the profitability and margins on the products, American Eagle Outfitters needs to provide more differentiated products than what it is currently offering in the marketplace.
Compensation and incentives
– The revenue per employee of American Eagle Outfitters is just above the Retail (Apparel) industry average. It needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Need for greater diversity
– American Eagle Outfitters has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
High bargaining power of channel partners in Retail (Apparel) industry
– because of the regulatory requirements in United States, American Eagle Outfitters is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the Retail (Apparel) industry.
High dependence on American Eagle Outfitters ‘s star products
– The top 2 products and services of American Eagle Outfitters still accounts for major business revenue. This dependence on star products in Retail (Apparel) industry has resulted into insufficient focus on developing new products, even though American Eagle Outfitters has relatively successful track record of launching new products.
Slow decision making process
– As mentioned earlier in the report, American Eagle Outfitters has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the Retail (Apparel) industry over the last five years. American Eagle Outfitters even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, American Eagle Outfitters is slow explore the new channels of communication. These new channels of communication can help American Eagle Outfitters to provide better information regarding Retail (Apparel) products and services. It can also build an online community to further reach out to potential customers.
No frontier risks strategy
– From the 10K / annual statement of American Eagle Outfitters, it seems that company is thinking out the frontier risks that can impact Retail (Apparel) industry. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
Increasing silos among functional specialists
– The organizational structure of American Eagle Outfitters is dominated by functional specialists. It is not different from other players in the Retail (Apparel) industry, but American Eagle Outfitters needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help American Eagle Outfitters to focus more on services in the Retail (Apparel) industry rather than just following the product oriented approach.
Low market penetration in new markets
– Outside its home market of United States, American Eagle Outfitters needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
American Eagle Outfitters Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of American Eagle Outfitters are -
Manufacturing automation
– American Eagle Outfitters can use the latest technology developments to improve its manufacturing and designing process in Retail (Apparel) sector. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects American Eagle Outfitters can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Use of Bitcoin and other crypto currencies for transactions in Retail (Apparel) industry
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for American Eagle Outfitters in the Retail (Apparel) industry. Now American Eagle Outfitters can target international markets with far fewer capital restrictions requirements than the existing system.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for American Eagle Outfitters to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for American Eagle Outfitters to hire the very best people irrespective of their geographical location.
Building a culture of innovation
– managers at American Eagle Outfitters can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Retail (Apparel) industry.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, American Eagle Outfitters can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help American Eagle Outfitters to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. American Eagle Outfitters can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Using analytics as competitive advantage
– American Eagle Outfitters has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Retail (Apparel) sector. This continuous investment in analytics has enabled American Eagle Outfitters to build a competitive advantage using analytics. The analytics driven competitive advantage can help American Eagle Outfitters to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Buying journey improvements
– American Eagle Outfitters can improve the customer journey of consumers in the Retail (Apparel) industry by using analytics and artificial intelligence. It can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Creating value in data economy
– The success of analytics program of American Eagle Outfitters has opened avenues for new revenue streams for the organization in Retail (Apparel) industry. This can help American Eagle Outfitters to build a more holistic ecosystem for American Eagle Outfitters products in the Retail (Apparel) industry by providing – data insight services, data privacy related products, data based consulting services, etc.
Low interest rates
– Even though inflation is raising its head in most developed economies, American Eagle Outfitters can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help American Eagle Outfitters to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Loyalty marketing
– American Eagle Outfitters has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Threats American Eagle Outfitters External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of American Eagle Outfitters are -
Increasing wage structure of American Eagle Outfitters
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of American Eagle Outfitters.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for American Eagle Outfitters in the Retail (Apparel) sector and impact the bottomline of the organization.
Consumer confidence and its impact on American Eagle Outfitters demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in Retail (Apparel) industry and other sectors.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. American Eagle Outfitters needs to understand the core reasons impacting the Retail (Apparel) industry. This will help it in building a better workplace.
Shortening product life cycle
– it is one of the major threat that American Eagle Outfitters is facing in Retail (Apparel) sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
High dependence on third party suppliers
– American Eagle Outfitters high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for American Eagle Outfitters in Retail (Apparel) industry. The Retail (Apparel) industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of American Eagle Outfitters.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of American Eagle Outfitters business can come under increasing regulations regarding data privacy, data security, etc.
Regulatory challenges
– American Eagle Outfitters needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Retail (Apparel) industry regulations.
Environmental challenges
– American Eagle Outfitters needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. American Eagle Outfitters can take advantage of this fund but it will also bring new competitors in the Retail (Apparel) industry.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. American Eagle Outfitters will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Weighted SWOT Analysis of American Eagle Outfitters Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at American Eagle Outfitters needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of American Eagle Outfitters is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of American Eagle Outfitters is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of American Eagle Outfitters to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that American Eagle Outfitters needs to make to build a sustainable competitive advantage.
