American Eagle Outfitters Needs a Stronger Instagram Presence

Leo Sun, The Motley Fool

American Eagle Outfitters (NYSE: AEO) is still reining as a favorite among U.S. teen shoppers, according to Piper Jaffray's latest "Taking Stock with Teens" survey. American Eagle was named the second favorite clothing brand after Nike with a 9% mindshare, and the fourth favorite shopping website after Amazon, Nike, and Urban Outfitters (NASDAQ: URBN) with a 3% mindshare.

Those results look solid, but American Eagle's fourth place ranking in shopping websites marked a step back from 2018, when it ranked third in both semi-annual surveys. Urban Outfitters, which ranked fourth in both surveys last year, claimed AEO's third place spot. Fashion Nova, which ranked fifth, joined the top five for the first time.

An American Eagle ad campaign.

Image source: American Eagle.

But that's not all. Abercrombie & Fitch's (NYSE: ANF) Hollister rose to number five in the top five clothing brands with a 2% mindshare after failing to crack the top five last year. These shifting tastes indicate that American Eagle's rivals are gaining ground again, and its weaker presence on Facebook's (NASDAQ: FB) Instagram could be the culprit.

Why Instagram matters

Instagram's importance is showcased by the meteoric rise of Fashion Nova, which only operates five brick-and-mortar stores in Southern California. Fashion Nova established a massive online presence by securing Instagram endorsements from Kylie Jenner, Cardi B, and other celebrities and influencers, and Alphabet's Google ranked it the most searched-for fashion brand of 2018.

Fashion Nova, which specializes in bodycon dresses and tight high-waisted pants, claims that a single Instagram post from Kylie Jenner can generate more than $50,000 in sales. The brand has a whopping 15.3 million followers on Instagram.

Here's how AEO's Instagram followers (for American Eagle and Aerie) stack up to Fashion Nova, Urban Outfitters, and Hollister's followers:

Brand

Instagram followers

American Eagle

3 million

Aerie

1 million

Fashion Nova

15.3 million

Urban Outfitters

8.5 million

Hollister

4.5 million

Source: Instagram.

Both Urban Outfitters and A&F both highlighted the importance of their social media efforts during their latest conference calls. Urban Outfitters CEO Richard Hayne discussed the brand's number of Instagram followers and stated that customers were discovering brands "mostly through social media."

A&F CEO Fran Horowitz stated that Hollister's swim collection videos on Instagram were the brand's "three most-viewed Instagram videos" ever, and that its YouTube series generated over 21 million views. It also launched an influencer program that recruits social media celebrities to promote its brands.

A Hollister ad campaign.

Image source: Hollister.

American Eagle's management, however, didn't discuss Instagram or YouTube efforts at all. Aerie brand president Jen Foyle briefly stated that its #AerieReal "campaign continues to gain momentum" with its body-positive message on social media channels, but didn't disclose any specific details.

Fashion Nova's rise was clearly supported by Instagram, and it's likely that Urban Outfitters and Hollister's Instagram efforts helped them gain ground with teens. After all, Piper's survey found that 35% of teens ranked Instagram as their favorite social media platform, which puts it in second place after Snap's Snapchat, which held a 41% mindshare.

But Instagram isn't a magic bullet

AEO should grow its Instagram user base more aggressively, since its namesake and Aerie brands both experienced decelerating comps growth over the past year:

Comps growth

Q1 2018

Q2 2018

Q3 2018

Q4 2018

American Eagle

4%

7%

5%

3%

Aerie

38%

27%

32%

23%

Urban Outfitters*

8%

15%

7%

4%

Hollister*

6%

4%

4%

6%

Source: Company quarterly reports. *Excludes the parent company's other brands.

However, a strong Instagram following isn't a magic bullet -- Urban Outfitters' comps growth also decelerated significantly over the past year, as its digital gains were partly offset by sluggish brick-and-mortar sales.

Nonetheless, gaining more Instagram followers can significantly enhance a healthy business, especially since Facebook is making it easier to directly buy products from posts with new checkout features. American Eagle already clearly captured the attention of teen shoppers, but brands with smaller brick-and-mortar footprints have more Instagram followers -- which indicates that it should rethink its social media strategies.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Amazon and Facebook. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Facebook, and Nike. The Motley Fool has a disclosure policy.