Eddie Bauer’s Performance

A pitch letter was written on March 16th, on the thoughts of Tony Gao, a marketing professor at the College of Business Administration at Northeastern University who specializes in retail issues, about Eddie Bauer’s recent performance, compared with other prominent retailers, including Abercrombie and Fitch, American Eagle and The Gap:

“Eddie Bauer’s inventory turnover for the nine months ending Oct. 1 2006 is comparable to competitors, slightly lower than those of the same time period of Gap and American Eagle, but higher than that of Abercrombie and Fitch. Their asset turnover for the same time period is lower than all of the mentioned competitors but not by a major degree “The areas where the company is most lacking are in gross margin and net profit margin. Their gross margin for the first three quarters of 2006 is at 36%, similar to that of the same time period of Gap, but is considerably lower than that of American Eagle Outfitters (at 48%), and the current gross margin of Abercrombie and Fitch, at 67%. (Note: Gap’s and Eddie Bauer’s costs of goods include both buying and occupancy costs, while those of other companies typically only include costs of goods).“Their overhead is also too large a percentage of the sales, at about 45% for the first three quarters of 2006, as compared to the 13% of Abercrombie and Fitch, 25% of American Eagle, and 29% of Gap, all for the same time period. “Why has this (the combination of a relatively low gross margin and a relatively high overheads percentage) happening? Eddie Bauer is not well at bridging the gap between average cost of goods and average selling price. They could have been paying too much for their goods, not getting a good sales price on these items, or perhaps experiencing both. “Some mostly likely reasons are: “They are not getting the items that consumers want so they’ll have to mark them down to turn the inventory around. This is possible as Eddie Bauer is increasing pursuing a younger market but the merchandise on the racks might not be exactly what these consumers want. Men and women of this age group 30-45, for example, are mostly very busy pursuing a career and raising a family. They’re staying most of the daily time in the workplace or between family functions. As a result, they’re not in the outdoors that often. So the need for workplace appropriate apparel is more important to these people than the need to wear for outdoor activities. These differences in buying habits may present a merchandising challenge to Eddie Bauer. “Store traffic may have been a challenge for Eddie Bauer. Even though they may have got the right items for their target consumers, an insufficient number of consumers are coming to buy them. In other words, the people coming to the store are happy but there aren’t enough people coming so the retailer has to reduce the price. This has to do with the image of the store in consumers’ minds. Consumers may not have a clear-cut image as to what the store is about. “When overhead is higher, we would expect to see a higher level of customer service, a more comfortable shopping environment, and more positive publicity generated from the advertising spending. This does not seem to be happening to Eddie Bauer. It didn’t help that have the strong competition from other companies not suffering from the negative news of a bankruptcy filing. Competitive positioning of specialty apparel retailers – Specialty apparel retailers have used various ways to differentiate themselves from the competition: Whom to serve (Target market by age, gender, wearing occasion, and geography):
Where to serve (channel of distribution):
What to serve (type of merchandise and usage occasion – when to wear and parts of the body to wear on):
How much to charge (price):
How to serve (physical store environment and customer service):
“Other than competing among fellow specialty apparel retailers, they also compete with department stores and discount stores.”

Below is Prof. Gao’s bio. Please let me know if you’d like to interview him.

Tao (Tony) Gao, Assistant Professor, Marketing Group. Professor Gao received a Ph.D. in marketing from Virginia Polytechnic Institute and State University, an M.E. in business management from Harbin Institute of Technology (Harbin, China), and a B.E. in industrial and management engineering from Hebei University of Technology (Tianjin, China). Previously, he held faculty positions at Washburn University, Hofstra University, College of William and Mary, and Hebei University of Technology (China). He also worked with the China branch of Mitsubishi Corporation (a general trading company in Japan) in the areas of international trade and joint venture developments. Professor Gao conducts research primarily on the development, governance, and consequences of buyer-seller relationships, customer value and risk perceptions, international business strategies, and business ethics. He has published in Journal of Business Research, Journal of Business Ethics, Research in Marketing, International Review of Retail, Distribution and Consumer Research, Journal of Relationship Marketing, Journal of International Business and Economy, Latin American Business Review, and Multinational Business Review. For his dissertation work on industrial buyer-seller relationships, he was a former winner of the National Association of Purchasing Management (now Institute for Supply Management) Doctoral Dissertation Competition.