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 – supply chains are disrupted by pandemic , digital marketing is dominated by two big players Facebook and Google, increasing transportation and logistics costs, increasing commodity prices, increasing household debt because of falling income levels, customer relationship management is fast transforming because of increasing concerns over data privacy, increasing government debt because of Covid-19 spendings,
there is backlash against globalization, increasing inequality as vast percentage of new income is going to the top 1%, 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 -
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.
Superior customer experience
– The customer experience strategy of American Eagle Outfitters in Retail (Apparel) industry is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
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.
Strong track record of project management in the Retail (Apparel) industry
– American Eagle Outfitters is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
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.
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.
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.
Training and development
– American Eagle Outfitters has one of the best training and development program in Services industry. The effectiveness of the training programs can be measured in – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
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.
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.
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.
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.
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 -
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.
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.
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.
Capital Spending Reduction
– Even during the low interest decade, American Eagle Outfitters has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the Retail (Apparel) industry using digital technology.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of American Eagle Outfitters supply chain. Even after few cautionary changes, American Eagle Outfitters is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left American Eagle Outfitters vulnerable to further global disruptions in South East Asia.
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.
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.
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.
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.
Slow to strategic competitive environment developments
– As American Eagle Outfitters is one of the leading players in the Retail (Apparel) industry, it takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the Retail (Apparel) industry in last five years.
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.
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 -
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.
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.
Developing new processes and practices
– American Eagle Outfitters can develop new processes and procedures in Retail (Apparel) industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Changes in consumer behavior post Covid-19
– consumer behavior has changed in the Retail (Apparel) industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. American Eagle Outfitters can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. American Eagle Outfitters can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
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.
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.
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.
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.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, American Eagle Outfitters can use these opportunities to build new business models that can help the communities that American Eagle Outfitters operates in. Secondly it can use opportunities from government spending in Retail (Apparel) sector.
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.
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.
Learning at scale
– Online learning technologies has now opened space for American Eagle Outfitters to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
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.
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 -
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.
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.
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.
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.
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.
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.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
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.
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.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, American Eagle Outfitters may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of 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.
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.
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.
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.