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JULY 7, 2010, 3:14 P.M. ET
By ELIZABETH HOLMES
American Eagle Outfitters Inc. is giving away smartphones to shoppers who try on the company's jeans, the latest aggressive promotion in a summer that has seen retailers experiment with deeper discounts after a disciplined start to the year.
Teen retailers in particular have struggled against gadget makers for control of younger buyers' wallets. Since the recession, cash-strapped teens have opted to spend what little discretionary income they have on electronics, forcing retailers to compete heavily on price. Roughly 497,000 teens ages 16 to 19 found jobs in June, the lowest number of jobs added by teens since 1951, according to the Bureau of Labor Statistics.
American Eagle has had a particularly difficult time finding its place in the teen apparel landscape. The Pittsburgh-based company has lowered its prices sharply in many categories, putting it in contention with bargain-priced Aeropostale Inc. It's a marked shift from prerecessionary times, when American Eagle was competing more closely with high-priced peer Abercrombie & Fitch Co.
American Eagle declined to comment.
The chain's latest promotion runs from July 21 to Aug. 3. Customers who try on a new pair of jeans will receive an instruction card directing them to a website to select one of dozens of free phones, including the BlackBerry Bold, the Motorola Backflip and the HTC Aria—provided they agree to a two-year contract with either AT&T, Sprint-Nextel, T-Mobile or Verizon Wireless. The new device will be shipped to the customer along with a $25 American Eagle gift card.
American Eagle's promotion comes during the back-to-school period, an important time for mall retailers in advance of the crucial holiday season. The company has said it entered May with higher levels of inventory, up 15% from the first quarter. Eric Beder, managing director of equity research at of Brean Murray Carret & Co., said last week that investors should sell the stock, in part because of concerns over high inventory levels.
To clear merchandise and drive traffic into its stores in June, American Eagle relied heavily on deep discounts. Some graphic T-shirts were marked down to $5 from $15.50. Last weekend, roughly three quarters of the store was, on average, marked half off, according to Roxanne Meyer, a retail analyst with UBS Investment Research. Shoppers who spent $40 also received a $10 coupon for a future purchase.
Analysts polled by Thomson Reuters expect American Eagle to post at 2% increase in sales at stores open at least a year in June, which it will report Thursday. That's compared with an 11% decline in the year-ago period.
The company's shares were up 1.4% at $11.97 in early afternoon trading.
Write to Elizabeth Holmes at elizabeth.holmes@wsj.com
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