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American Eagle might buy Abercrombie & Fitch

Business of Fashion has reported that American Eagle is working with Cerberus Capital Management to position themselves to buy longtime rival Abercrombie & Fitch.

Abercrombie & Fitch, which also owns Hollister, confirmed earlier this month that they were in talks with potential buyers for acquisition of their company. American Eagle is in a unique position to buy given their financial success over the past several years. Compared to many of their contemporaries who have gone out of business or are struggling, the teen retailer is still going strong.

New York-based Cerberus Capital specializes in distressed investing and could help provide American Eagle with the capital needed to acquire Abercrombie & Fitch.

American Eagle looking to acquire Abercrombie & Fitch

The challenge of American Eagle and Abercrombie & Fitch merging is that they are aimed toward the same demographic. However, American Eagle goes for more of the traditional, all-American teen segment while Abercrombie & Fitch has more of an outdoors vibe.

By merging the two companies, they will also be able to cut costs in real estate, supply chain and digital costs.

The other problems both these retailers will face is a decrease in mall traffic. Both of these are very mall-based brands, and consumers, especially teens, are forgoing malls in favor of shopping online and mobile commerce.

Fast-fashion brands like H&M and Zara are also the go-to for teens nowadays, making it a tough market for more traditional teen retailers like American Eagle and Abercrombie & Fitch.

However, American Eagle has a secret weapon, their Aerie lingerie brand. In 2016, Aerie posted a 23 percent year-over-year sales increase. Their message about body diversity works well with millennial consumers.

Abercrombie & Fitch has taken strong efforts towards rebuilding their brand. Aaron Levine, the brand's menswear designer, was also named designer for womenswear last December, and chief merchandising officer Fran Horowitz was named chief executive in February.

If American Eagle buys Abercrombie & Fitch, they will have to revamp their entire strategy, figure out what stores are performing and which aren't and work out an omni-channel approach between brick-and-mortar and digital. Needless to say, they have their work cut out for them.

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