Difficult times are forecast for all teen retailers

Difficult times are forecast for all teen retailers

It's not so long ago that teens were something of a sweet spot on the retail landscape. 

Buoyed by a core customer who seemed immune to the housing downturn, credit crunch, job uncertainty and rising food and fuel costs, chains such as Abercrombie & Fitch, American Eagle Outfitters, Aeropostale, Buckle, PacSun, Wet Seal and Express seemed to be shrugging off the recession.

But all this has changed. Today's teens are not spending money like they used to. Not only do they get fewer bucks from their cash-strapped parents, but their earning capacity has fallen in line with a drop in hiring. They're also choosing to spend their money elsewhere.

Abercrombie & Fitch last week became the latest casualty of weak spending among younger consumers, revealing plans to shutter all of its standalone Gilly Hicks stores as it booked a 14% in third-quarter comparable sales - the eighth decline in the past nine quarters. It also warned of a tough holiday season.

The retailer also admitted it has been "disrupted" by fast fashion retailers like H&M and Forever 21, as well as pure-play e-commerce competitors such as Asos, whose on-trend, up-to-the-minute and styles contrast with A&F's more pricey yet basic lines.

Tough times ahead
Its concerns may indicate difficult times ahead for all teen retailers.

Ken Perkins, president at research firm Retail Metrics last week said in a note that teen apparel chains are expected to report an 8.2% decline in third quarter same store sales results, making this one of the weakest retail segments.

Among the challenges, he also identified competition from fast fashion chains that are increasing their footprint, as well as high teen unemployment and a very limited spending pie.

"This group has been among the most promotional throughout the back-to-school season and into the fall," he added.

Changes to teen shopping habits also come under the spotlight in Piper Jaffray's semi-annual 'Taking Stock with Teens' survey - the most recent of which suggests the sector has been hit by spending fatigue across key categories, specifically fashion-related items.

"The absence of a clear product catalyst is a key contributing factor to diminished spending," said Steph Wissink, co-director of research and senior research analyst.

The survey found that the fashion category accounts for about 39% of teen budgets, but spending has fallen by mid-single digits on both the prior year and prior season. Shopping frequency has also declined.

Footwear is outperforming apparel and accessories, Piper Jaffray said, with insights suggesting a growing preference for fashion athletic wear.

Wissink added that the survey suggested regular teen browsing on mobile devices, leading to less frequent shopping and engaging with brands in their own time.

"This dynamic alters the assumptions surrounding the square footage and retail inventory needed to service this target demographic," she said. "A period of rationalisation may be needed."

Millennial generation lure
While it looks obvious that the teen sector will remain under pressure, at least in the near term, the overlapping millennial generation aged between 13 and 30 is still proving a lure for many US retailers.

There are 80m millennials, and 53% of them are shopping in a typical week, according to information company The NPD Group.

Its research suggests that while they are internet-savvy, they are more likely to shop in brick-and-mortar stores than online. They also have the lowest conversion rate when it comes to shifting from browsing to purchasing, "because they are the most selective as well as the most economically challenged," explains Marshal Cohen, NPD's chief industry analyst.

They are also the most difficult to keep engaged, with retailers needing to focus on grabbing their attention both in and out of store.

Undeterred, US department store retailer Macy's launched its so-called millennial initiative in the autumn of last year, most recently expanding its line-up with the new Maison Jules and QMack brands.

It estimates spending by the millennial generation is around $65bn each year, with consumers keenly interested in trends, style and value.