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American Eagle Outfitters SWOT Analysis / Matrix
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SWOT analysis is a vital strategic planning tool that can be used by American Eagle Outfitters managers to do a situational analysis of the organization . It is a useful technique to map out the present Strengths (S), Weakness (W), Opportunities (O) & Threats (T) American Eagle Outfitters is facing in its current business environment.
The American Eagle Outfitters is one of the leading organizatations in its industry. American Eagle Outfitters maintains its dominant position in market by carefully analyzing and reviewing the SWOT analysis. SWOT analysis a highly interactive process and requires effective coordination among various departments within the company such as – marketing, finance, operations, management information systems and strategic planning.
The SWOT Analysis framework facilitates an organization to identify the internal strategic factors such as -strengths and weaknesses, & external strategic factors such as - opportunities and threats. It leads to a 2X2 matrix – also known as SWOT Matrix.
The Strengths-Weaknesses-Opportunities-Threats (SWOT) Analysis / Matrix enables the managers of the American Eagle Outfitters to develop four types of strategies:
- SO (strengths-opportunities) Strategies
- WO (weaknesses-opportunities) Strategies
- ST (strengths-threats) Strategies
- WT (weaknesses-threats) Strategies
SWOT Matrix Strategies Objective
The central purpose of SWOT matrix is to identify the strategies that a company can utilize to exploit external opportunities, counter threats, and build on & protect American Eagle Outfitters strengths, and eradicate its weaknesses.
Step by Step Guide to American Eagle Outfitters SWOT Analysis
Strengths of American Eagle Outfitters – Internal Strategic Factors
As one of the leading companies in its industry, American Eagle Outfitters has numerous strengths that help it to thrive in the market place. These strengths not only help it to protect the market share in existing markets but also help in penetrating new markets. Based on Fern Fort University extensive research – some of the strengths of American Eagle Outfitters are –
- Strong dealer community – It has built a culture among distributor & dealers where the dealers not only promote company’s products but also invest in training the sales team to explain to the customer how he/she can extract the maximum benefits out of the products.
- Automation of activities brought consistency of quality to American Eagle Outfitters products and has enabled the company to scale up and scale down based on the demand conditions in the market.
- Good Returns on Capital Expenditure – American Eagle Outfitters is relatively successful at execution of new projects and generated good returns on capital expenditure by building new revenue streams.
- High level of customer satisfaction – the company with its dedicated customer relationship management department has able to achieve a high level of customer satisfaction among present customers and good brand equity among the potential customers.
- Strong distribution network – Over the years American Eagle Outfitters has built a reliable distribution network that can reach majority of its potential market.
- Strong Free Cash Flow – American Eagle Outfitters has strong free cash flows that provide resources in the hand of the company to expand into new projects.
- Superb Performance in New Markets – American Eagle Outfitters has built expertise at entering new markets and making success of them. The expansion has helped the organization to build new revenue stream and diversify the economic cycle risk in the markets it operates in.
- Reliable suppliers – It has a strong base of reliable supplier of raw material thus enabling the company to overcome any supply chain bottlenecks.
Weakness of American Eagle Outfitters – Internal Strategic Factors
Weakness are the areas where American Eagle Outfitters can improve upon. Strategy is about making choices and weakness are the areas where a company can improve using SWOT analysis and build on its competitive advantage and strategic positioning.
- There are gaps in the product range sold by the company. This lack of choice can give a new competitor a foothold in the market.
- Limited success outside core business – Even though American Eagle Outfitters is one of the leading organizations in its industry it has faced challenges in moving to other product segments with its present culture.
- The profitability ratio and Net Contribution % of American Eagle Outfitters are below the industry average.
- The marketing of the products left a lot to be desired. Even though the product is a success in terms of sale but its positioning and unique selling proposition is not clearly defined which can lead to the attacks in this segment from the competitors.
- Days inventory is high compare to the competitors – making the company raise more capital to invest in the channel. This can impact the long term growth of American Eagle Outfitters
- Investment in Research and Development is below the fastest growing players in the industry. Even though American Eagle Outfitters is spending above the industry average on Research and Development, it has not been able to compete with the leading players in the industry in terms of innovation. It has come across as a mature firm looking forward to bring out products based on tested features in the market.
- Not very good at product demand forecasting leading to higher rate of missed opportunities compare to its competitors. One of the reason why the days inventory is high compare to its competitors is that American Eagle Outfitters is not very good at demand forecasting thus end up keeping higher inventory both in-house and in channel.
Opportunities for American Eagle Outfitters – External Strategic Factors
- Stable free cash flow provides opportunities to invest in adjacent product segments. With more cash in bank the company can invest in new technologies as well as in new products segments. This should open a window of opportunity for American Eagle Outfitters in other product categories.
- The new taxation policy can significantly impact the way of doing business and can open new opportunity for established players such as American Eagle Outfitters to increase its profitability.
- Economic uptick and increase in customer spending, after years of recession and slow growth rate in the industry, is an opportunity for American Eagle Outfitters to capture new customers and increase its market share.
- Government green drive also opens an opportunity for procurement of American Eagle Outfitters products by the state as well as federal government contractors.
- Decreasing cost of transportation because of lower shipping prices can also bring down the cost of American Eagle Outfitters’s products thus providing an opportunity to the company - either to boost its profitability or pass on the benefits to the customers to gain market share.
- Opening up of new markets because of government agreement – the adoption of new technology standard and government free trade agreement has provided American Eagle Outfitters an opportunity to enter a new emerging market.
- Organization’s core competencies can be a success in similar other products field. A comparative example could be - GE healthcare research helped it in developing better Oil drilling machines.
- New customers from online channel – Over the past few years the company has invested vast sum of money into the online platform. This investment has opened new sales channel for American Eagle Outfitters. In the next few years the company can leverage this opportunity by knowing its customer better and serving their needs using big data analytics.
Threats American Eagle Outfitters Facing - External Strategic Factors
- No regular supply of innovative products – Over the years the company has developed numerous products but those are often response to the development by other players. Secondly the supply of new products is not regular thus leading to high and low swings in the sales number over period of time.
- Shortage of skilled workforce in certain global market represents a threat to steady growth of profits for American Eagle Outfitters in those markets.
- New environment regulations under Paris agreement (2016) could be a threat to certain existing product categories .
- New technologies developed by the competitor or market disruptor could be a serious threat to the industry in medium to long term future.
- Imitation of the counterfeit and low quality product is also a threat to American Eagle Outfitters’s product especially in the emerging markets and low income markets.
- Rising pay level especially movements such as $15 an hour and increasing prices in the China can lead to serious pressure on profitability of American Eagle Outfitters
- Rising raw material can pose a threat to the American Eagle Outfitters profitability.
- Intense competition – Stable profitability has increased the number of players in the industry over last two years which has put downward pressure on not only profitability but also on overall sales.
Limitations of SWOT Analysis for American Eagle Outfitters
Although the SWOT analysis is widely used as a strategic planning tool, the analysis does have its share of limitations.
- Certain capabilities or factors of an organization can be both a strength and weakness at the same time. This is one of the major limitations of SWOT analysis . For example changing environmental regulations can be both a threat to company it can also be an opportunity in a sense that it will enable the company to be on a level playing field or at advantage to competitors if it able to develop the products faster than the competitors.
- SWOT does not show how to achieve a competitive advantage, so it must not be an end in itself.
- The matrix is only a starting point for a discussion on how proposed strategies could be implemented. It provided an evaluation window but not an implementation plan based on strategic competitiveness of American Eagle Outfitters
- SWOT is a static assessment - analysis of status quo with few prospective changes. As circumstances, capabilities, threats, and strategies change, the dynamics of a competitive environment may not be revealed in a single matrix.
- SWOT analysis may lead the firm to overemphasize a single internal or external factor in formulating strategies. There are interrelationships among the key internal and external factors that SWOT does not reveal that may be important in devising strategies.
Weighted SWOT Analysis of American Eagle Outfitters
In light of the above mentioned limitations of the SWOT analysis / matrix, corporate managers decided to provide weightage to each internal strength and weakness of the firm. Organizations also assess the likelihood of events taking place in the coming future and how strong their impact could be on company's performance.
This method is called Weighted SWOT analysis. It is better than doing simplistic SWOT analysis because with Weighted SWOT Analysis American Eagle Outfitters managers can focus on the most critical factors and discount the non-important one. It also solves the long list problem where organizations ends up making a long list but none of the factors deemed too critical.
Limitation of Weighted SWOT analysis of American Eagle Outfitters
This approach also suffers from one major drawback - it focus on individual importance of factor rather than how they are collectively important and impact the business holistically.
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SWOT Worksheet & Template
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References / Citations & Bibliography
- M. E. Porter, Competitive Strategy(New York: Free Press, 1980)
- A. D. Chandler, Strategy and Structure (Cambridge, Mass.: MIT Press, 1962)
- O. E. Williamson, Markets and Hierarchies(New York: Free Press, 1975);
- L. Wrigley, Divisional Autonomy and Diversification (PhD, Harvard Business School, 1970)
- R. E. White, Generic Business Strategies, Organizational Context and Performance: An Empirical Investigation, Strategic Management Journal7 (1986)
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