Like Aeropostale, Small Firms Must Discount

NEW YORK (TheStreet) -- Teen clothing retailer Aeropostale(ARO Quote) is one of the rare companies growing in this weak economy. How?

The New York-based company has posted record earnings growth, and sales through the month of July were up by double digits. It's a good bet the company's winning streak will continue through the back-to-school shopping blitz.

Aeropostale's winning formula of trendy-enough clothes at hard-to-beat prices is setting it apart from rivals American Eagle Outfitters(AEO Quote) and Abercrombie & Fitch(ANF Quote). The company's success offers lessons for small businesses trying to compete for critical back-to-school dollars.

This year, penny-pinching parents are making every dollar count. A recent National Retail Federation survey found that families of school-aged children plan to spend 7% less on supplies than they did last year. Respondents also said sales or coupons had influenced about half of their buying decisions.

Whether you're a small business or a big chain, the only way to grab new business these days is to compete aggressively on price and offer special deals, such as Aeropostale's recent "buy one get one free" T-shirt promotion. Shoppers need to feel they're getting a deal.

Aeropostale "is constantly in promotional mode," says Morningstar(MORN Quote) retail analyst Brady Lemos. The company's price points -- $10 for a T-shirt, $20 for a pair of girl's jeans -- resonate with budget-conscious shoppers.

The company's reputation as a low-priced option has paid off big time. In the second quarter of 2009, same-store sales jumped 12%. In contrast, same-store sales at American Eagle fell 10%.