Today, the retail sector is often considered a slow-growth market filled with brick-and-mortar players getting crushed between sluggish foot traffic and dominant e-commerce players. But over the long term, many retailers have still generated multi-bagger returns for their early investors.

Over the past few decades, American Eagle Outfitters (NYSE:AEO), Urban Outfitters (NASDAQ:URBN), and Gap (NYSE:GPS) all turned modest initial investments of $8,000 into small fortunes. Let's see how these companies flourished, and whether or not they can still keep growing in today's challenging retail environment.

An AEO ad depicting two young women.

Image source: American Eagle Outfitters.

American Eagle Outfitters

American Eagle Outfitters went public in 1994 at $18 per share. $8,000 would have been enough to buy 444 shares. After six splits, that position would have blossomed to 7,857 shares -- which would be worth over $121,000 today. That investment would also be generating over $4,000 in annual dividends.

AEO had a rough start. In its first two years as a public company, it expanded too quickly, didn't adequately upgrade its computer systems, failed to identify its customer base, and suffered from high management turnover rates. But in 1997, the company turned itself around by redesigning fashions for young and cost-conscious customers, upgrading its computer systems, and keeping tighter control of its inventory.

That effort boosted its cash flows and sent the stock soaring in the late 1990s and early 2000s. Times got tougher after the financial crisis, as fast fashion players like H&M aggressively expanded, mall traffic declined, and e-tailers sapped away brick-and-mortar sales. But despite those challenges, AEO's annual revenue rose from $2.3 billion to $3.5 billion between fiscal 2005 and 2015, and its top line is expected to grow another 3% in 2016 on the strength of its denim products and Aerie lingerie and activewear.

Urban Outfitters

Urban Outfitters went public in 1993 at $18 per share. You could have bought 388 shares for $8,000 -- which would have been split four times into 6,208 shares -- and would be worth over $170,000 today.

Urban Outfitters carved out distinct niches with three core brands -- its namesake stores, which target young adults with quirky print shirts, accessories, home goods, gifts, and electronics; Anthropologie, which sells women's casual apparel, accessories, home furnishings, and decorative items; and Free People, which sells private-label apparel, home furnishings, and gifts for young women.

An Urban Outfitters ad depicting spring break fashions.

Image source: Urban Outfitters.

That diverse business model often enabled Urban Outfitters to offset declines at one brand with gains in another. Like AEO, Urban Outfitters faces intense competition from fast fashion players and e-tailers. But the company more than tripled its annual revenue from $1.1 billion to $3.4 billion between fiscal 2006 and 2016, as its eclectic stores and growing e-commerce ecosystem pulled in more shoppers. Analysts expect its top line to grow another 3% this year.


American Eagle and Urban Outfitters delivered multi-bagger returns over the past two decades, but both retailers pale in comparison to Gap. Back in 1976, $8,000 would have been enough to buy 444 shares of Gap's IPO. The nine subsequent stock splits would have increased that position to 72,727 shares -- which would be worth $1.82 million today and pay out almost $67,000 per year in dividends.

Much of Gap's early growth was fueled by its tiered pricing strategy. Old Navy catered to the low-end market, its namesake brand sold mid-range products, and Banana Republic targeted higher-end shoppers. That formula worked well because Old Navy would excel during economic downturns, while sales at Banana Republic would perk up when things improved.

But in the late 1990s, Gap over-expanded, added confusing fashions which muddled its reputation as a "basics" apparel retailers, managed costs poorly, and was squeezed by tougher competition and pricing pressure. The recent fast fashion and e-tailing challenges exacerbated that pain and turned Old Navy into the company's only pillar of growth. Between 2005 and 2015, Gap's annual revenue actually declined from $16 billion to $15.8 billion -- and analysts expect sales to fall another 2% this year.

The road ahead

The high growth days for AEO, Urban Outfitters, and Gap ended years ago, but the first two companies are still posting steady growth in a tough environment. I personally own shares of AEO, and I still believe it's a good long-term play based on its growth opportunities in lingerie, activewear, denim, and collegiate apparel.

As for Gap, CEO Art Peck believes that following fast fashion leader Zara's strategy of rotating products faster and using high-tech analytics to follow fashion trends could get it back on track. Unfortunately, the jury's still out on those efforts -- which might not yield visible improvements for years to come.