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Monday, July 26, 2010

Special Delivery

At around midday Aeropostale shares are trading 3.1% lower. Aeropostale a specialty retailer that sells casual apparel and accessories targeted primarily at youth aged 14-17, has seen its stock price more than double in the last year but Allan Edwards co-CEO of the Markets Are Open does not expect this trend to continue.

He stated "Aeropostale is seen as an inferior brand to rivals American Eagle and Abercrombie and Fitch. " he continued "I asked my 14 year old daughter if she wanted a Aeropostale gift card for her birthday and she lovingly said 'daddy, I don't want to lose all my friends' she explained that children who wear Aeropostale just aren't cool." Edwards went on "Aeropostale is what us economists call a substitutable brand." A substitutable brand refers to a product which sales decrease more rapidly in relation to other goods as real income rises. In order to illustrate his point Edwards began an economics 201 lesson and has shown his research in the chart below, his research illustrates that more American Eagle is demanded and less Aeropostale is demanded as income rises. This is because consumers more rapidly buy American Eagle the superior good as income rises. Edwards pointed out "This will definitely hurt (Aeropostale's) top line growth." Edwards recommended all his readers to swap out of Aeropostale and into American Eagle.


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