American Eagle Outfitters (AEO) SWOT Analysis / TOWS Matrix / 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 – digital marketing is dominated by two big players Facebook and Google, banking and financial system is disrupted by Bitcoin and other crypto currencies, customer relationship management is fast transforming because of increasing concerns over data privacy, increasing government debt because of Covid-19 spendings, challanges to central banks by blockchain based private currencies, central banks are concerned over increasing inflation, increasing inequality as vast percentage of new income is going to the top 1%, there is increasing trade war between United States & China, there is backlash against globalization, etc

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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.

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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

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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 -

High switching costs

– The high switching costs that American Eagle Outfitters has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its 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.

Operational resilience

– The operational resilience strategy of American Eagle Outfitters comprises – understanding the underlying the factors in the Retail (Apparel) industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.

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.

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.

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.

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.

Innovation driven organization

– American Eagle Outfitters is one of the most innovative firm in Retail (Apparel) sector.

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.

Organizational Resilience of American Eagle Outfitters

– The covid-19 pandemic has put organizational resilience at the centre of everthing American Eagle Outfitters does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.

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.

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.

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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 -

Workers concerns about automation

– As automation is fast increasing in the Retail (Apparel) industry, American Eagle Outfitters needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.

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.

Interest costs

– Compare to the competition, American Eagle Outfitters has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.

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.

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.

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 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.

Aligning sales with marketing

– From the outside it seems that American Eagle Outfitters needs to have more collaboration between its sales team and marketing team. Sales professionals in the Retail (Apparel) industry have deep experience in developing customer relationships. Marketing department at American Eagle Outfitters can leverage the sales team experience to cultivate customer relationships as American Eagle Outfitters is planning to shift buying processes online.

Products dominated business model

– Even though American Eagle Outfitters has some of the most successful models in the Retail (Apparel) industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. American Eagle Outfitters should strive to include more intangible value offerings along with its core products and services.

Skills based hiring in Retail (Apparel) industry

– The stress on hiring functional specialists at American Eagle Outfitters has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.

Ability to respond to the competition

– As the decision making is very deliberative at American Eagle Outfitters, in the dynamic environment of Retail (Apparel) industry it has struggled to respond to the nimble upstart competition. American Eagle Outfitters has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.

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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 -

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.

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.

Lowering marketing communication costs

– 5G expansion will open new opportunities for American Eagle Outfitters in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Retail (Apparel) industry, and it will provide faster access to the consumers.

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.

Leveraging digital technologies

– American Eagle Outfitters can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.

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.

Redefining models of collaboration and team work

– As explained in the weaknesses section, American Eagle Outfitters is facing challenges because of the dominance of functional experts in the organization. American Eagle Outfitters can utilize new technology in the field of Retail (Apparel) industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.

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.

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.

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.

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.

Better consumer reach

– The expansion of the 5G network will help American Eagle Outfitters to increase its market reach. American Eagle Outfitters will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.

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.

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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 -

Technology acceleration in Forth Industrial Revolution

– American Eagle Outfitters has witnessed rapid integration of technology during Covid-19 in the Retail (Apparel) industry. As one of the leading players in the industry, American Eagle Outfitters needs to keep up with the evolution of technology in the Retail (Apparel) sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.

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.

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.

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.

Stagnating economy with rate increase

– American Eagle Outfitters can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the Retail (Apparel) industry.

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.

Barriers of entry lowering

– As technology is more democratized, the barriers to entry to Retail (Apparel) industry are lowering. It can presents American Eagle Outfitters with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the Retail (Apparel) sector.

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.

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.

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.

Easy access to finance

– Easy access to finance in Retail (Apparel) industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. American Eagle Outfitters can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.

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.

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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.

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