August 21, 2007
Teen B-T-S Spending Coming Up Short
By Tom Ryan
While many retailers are blaming high gasoline prices and mortgage jitters for their recent sales woes, some market observers are wondering if some more serious fundamental challenges are creeping into the teen sector.
A host of traditionally macro-proof stores catering to teens posted lousy sales for July, traditionally an early indicator of back-to-school (B-T-S) spending. Same-store sales fell four percent at Abercrombie & Fitch,
six percent at American Eagle, 7.2 percent at Wet Seal, 4.6 percent at Pacific
Sunwear, 7.4 percent at Hot Topic and 11.9 percent at Aéropostale.
As expected, retailers brushed off the concerns. The tax holiday shifts in Texas and Florida were a major factor in the shortfalls. Stores also said a growing number of schools are starting classes later, delaying B-T-S purchasing. Teens usually wait to do some of their shopping until they see what their friends are wearing.
But John Morris, managing director of Wachovia Securities Morris, told The Post-Tribune that product was an issue. If there was a clear hot fashion trend, “teens wouldn’t need to wait,” he said.
Mr. Morris said many didn’t have to go to the mall since “a lot of fall trends are extensions of what worked in the spring and summer.” These include khaki shorts and baby doll tops in heavier fabrics.
A more serious issue would be if any fundamental weakness is underlying the shortfall. These include an increasing percentage of teens’ disposable dollars heading toward gadgets such as iPods and cell phones, and the recent success some department stores have had reaching teens. J.C. Penney posted a 10.8 percent July comp hike, and Nordstrom, a 9.4 percent gain.
“Department stores have gotten their act together and are offering specialized products at competitive prices,” Patricia Pao, founder of retail consultant the Pao Principle, told BusinessWeek. “Kids are rediscovering one-stop shopping, especially if there’s variety, sales, and service.”
A thornier issue would be if teens are now snubbing the well-known specialty retailers. With their massive expansion, merchants may be more challenged to avoid the ubiquitous looks seen at their competitors. Teens could be shifting to more niche retailers such as skate & surf chain Zumiez, which boasted a 9.7 percent July comp gain; and denim-specialist The Buckle, which chalked up a 7.6 percent gain, for more unique looks.
“The major players have been very good at defining their unique look and portraying a certain lifestyle,” Mary Brett Whitfield, senior vice-president and apparel analyst at TNS Retail Forward told BusinessWeek. “But trends change and teens look more narrowly for stores that resonate with them.”
But perhaps teen chains are just feeling broader market trends more so this year. Principal Irma Zandl of the Zandl Group, which tracks teenage culture trends, noted that today’s teens are very cognizant of how broader economic trends are affecting their parents.
Mr. Zandl told BusinessWeek, “If parents are stressed, it affects the whole family dynamic, and the housing market slump and high interest rates [are] washing over teens as well.”
Discussion Questions: What factors do you see as most important in explaining lower than expected July numbers for teen-focused chains? What challenges do you see facing these businesses moving ahead?
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In the past 6 months American Eagle sales grew 23% but inventories grew 33%. The sales increase in July was due to new store openings, since comps declined 6%. The stock is down 22% in 3 months. American Eagle, Abercrombie & Fitch and Aeropostale don’t run low-end stores. Everyone knows their prices are the highest. Everyone sees the lower-priced knockoffs at Wal-Mart, Target, Old Navy, etc. Maybe the lack of exciting new looks and economic weakness has wreaked some damage.
There may be several issues at play here, but it’s important to note that the chains targeting teen shoppers do tend to be cyclical along with the fashion cycle. One of the commentators pointed out that there is not a lot of newness driving early B-T-S sales; the hottest category in apparel may be dresses, which can transition from summer to early fall and will tend to cannibalize “normal” patterns of shopping for denim and matching tops.
Looking beyond the fashion cycle, the slowdown especially of mall-based junior apparel retailers has its parallel in the weak July sales of most moderate department store chains, with the exception of JCPenney. Macy’s, Dillard’s, Bon Ton Stores and others reported very tough numbers in July–which gives you the sense that overall mall traffic is down for the anchors and the specialty tenants. The overall level of economic anxiety driving these numbers will probably continue into the fall, regardless of when the change in weather starts to drive more B-T-S sales.
Teens’ disposable income is based, in large part, on the disposable income of their parents.
The percentage of teens choosing to enter the workforce has been declining, this affects disposable income. Coupling this with a few notable economic realities: 1)Rising Cost of Living; 2)The Housing Bubble; and 3)Zero personal savings rate, and you have most of what you need to know to explain why there may be less disposable income available to the nation’s teen retailers.
American’s historical savings rate has been in decline since the 1980s when it averaged around 10%. Today, the savings rate is near zero–we don’t save a penny! Our household debt has been increasing at a much faster rate than our disposable income and funded, in large part, by the dramatic increase in home values (the housing “Bubble”) over the last 10 years.
Americans have leveraged their future based upon inflated housing valuations and this bubble has been one of the leading contributors to our economic growth. Our consumption based economy depends upon the growth of disposable income. The fact that house prices/values have stabilized (not grown) are sufficient in themselves to impact consumer spending. House prices that do not rise deprive households of “new wealth” that may be available to them as disposable income.
Perhaps it has less to do with whether there is a clear hot fashion trend or department stores doing a better job of meeting teen needs, or even that other products such as iPhones and iPods are channeling the money away from these stores.
Maybe, as James Carville once said “It’s the economy, stupid!”
Teen fashion has always been a way for teen-agers to express themselves. With Facebook and MySpace now being the dominant place where teens express themselves, they no longer have to spend all of their money (I should say their parent’s money) on B-T-S clothes. Rather, they can now spend their money on their cell phone, media device, or even gas rather than on clothing.
To paraphrase James Carville, “It’s not the economy, stupid. It’s online sales.”
In total, B-T-S shopping is a $13 billion business and the amount of it now being done online is enormous. College-age buyers, teens and younger consumers are being presented with far more selection than brick and mortar could ever provide. They will click through pages for hours looking for just the right book bag, sneakers or jeans.
Visiting the mall or other retailers for B-T-S needs is not going to become obsolete since these visits are seen by younger consumers as social events. For retailers, it’s a highly lucrative two-month promotional event since sales usually start in late July. But you’re not going to make money selling filler paper and number two pencils. On the other hand,loss leaders bring shoppers into the store, but get them to purchase more profitable items while they’re there.
Let’s rewrite the headline. “Teen B-T-S Spending Coming Up Short…For Some”
Don is right on target, as well as Len regarding the online component.
The spend is still there, but more selective this year as discussed, for lack of a new makeover wave of must-have looks.
Where brick and mortar is about location, location, location and the shopping experience for teens duals as a social event, the online business is about presentation and selection, selection, selection, AND it’s often a social event as well.
Although niche marketer PacSun is off-trend, other niche marketers that are getting it right, like Zumiez & Swell.com, are seeing increases. Mass-selection online retailers like Zappos are on fire too with the added value of free shipping both ways.
Teens often like to wait to see what others are wearing at the beginning of the new school year before they commit to back to school purchases. Also, the teens in my circle of acquaintances know they get gift cards for Christmas and Hanukkah and wait to do much of their shopping on someone else’s dime later in the season. Thrift/resale store purchases are big with a lot of teens, too–not for the price as much as for the uniqueness and fun factor.
Specialty retailers have a difficult time sustaining a pattern of year-over-year comparative growth. Fashion cycles often preclude any single player from remaining “the” store of choice. Inevitably, whenever fashion fails to evolve quickly, a pattern of “sameness” evolves in specialty store retailing. As has been pointed out, we are seeing this occur. Lacking a driving, early trend, consumers shift to price as a dominant consideration in store of choice.
Financially, department stores benefit from a portfolio of products and categories which spread risk, and offer the ability to sustain comp growth. In particular, and with focus on the moderate department store segment, comp gains in teen apparel generally follow the year after large increases in specialty apparel store are seen. Teens tend to restock the closet substantially when trends make what is already there obsolete. This year’s fashions are interpretations and extensions of last year, allowing teens to add spice and remain “right” without a complete wardrobe reinvestment.
However, merchandise is only a part of the overall equation. Store environment is another essential aspect to sustaining comp gains as well as to generating them in the absence of macro fashion influences. Urban Outfitters had a strong second quarter, although it was against a weak result last year. A reason for this may be the extraordinary environment created in the Anthropology and Free Peoples formats, an environment which, to some extent, generates sufficient “buzz” to offset the lack of fashion “buzz.” Further support to this is the continued poor performance of PacSun, which is seeing comp decreases for the third year in a row. PacSun’s merchandise AND it’s store environment are off-trend. The combination of these creates sustainable losses.
American Eagle lacks store environment “buzz,” but has also avoided being completely off-trend in that area as well. Trend identification and interpretation for AE are strengths. Consequently, when fashion is evolving, AE outperforms the competition, and reaps high margins with early-adopter pricing. When fashion is stagnant, AE has a middle to lower middle of the group result, reflecting the still-high pricing without the early adopter status to legitimize.
Due to the fact that many schools are turning to uniforms, the creative flair of many school-bound kids and teens will be limited. Parents will be forced to limit the dollars for new fall wardrobes for their school-bound offspring.
Why is everyone so worried about *July* back-to-school sales? Many places don’t even begin classes until after Labor Day, so what’s the rush…?
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In the past 6 months American Eagle sales grew 23% but inventories grew 33%. The sales increase in July was due to new store openings, since comps declined 6%. The stock is down 22% in 3 months. American Eagle, Abercrombie & Fitch and Aeropostale don’t run low-end stores. Everyone knows their prices are the highest. Everyone sees the lower-priced knockoffs at Wal-Mart, Target, Old Navy, etc. Maybe the lack of exciting new looks and economic weakness has wreaked some damage.
There may be several issues at play here, but it’s important to note that the chains targeting teen shoppers do tend to be cyclical along with the fashion cycle. One of the commentators pointed out that there is not a lot of newness driving early B-T-S sales; the hottest category in apparel may be dresses, which can transition from summer to early fall and will tend to cannibalize “normal” patterns of shopping for denim and matching tops.
Looking beyond the fashion cycle, the slowdown especially of mall-based junior apparel retailers has its parallel in the weak July sales of most moderate department store chains, with the exception of JCPenney. Macy’s, Dillard’s, Bon Ton Stores and others reported very tough numbers in July–which gives you the sense that overall mall traffic is down for the anchors and the specialty tenants. The overall level of economic anxiety driving these numbers will probably continue into the fall, regardless of when the change in weather starts to drive more B-T-S sales.
Teens’ disposable income is based, in large part, on the disposable income of their parents.
The percentage of teens choosing to enter the workforce has been declining, this affects disposable income. Coupling this with a few notable economic realities: 1)Rising Cost of Living; 2)The Housing Bubble; and 3)Zero personal savings rate, and you have most of what you need to know to explain why there may be less disposable income available to the nation’s teen retailers.
American’s historical savings rate has been in decline since the 1980s when it averaged around 10%. Today, the savings rate is near zero–we don’t save a penny! Our household debt has been increasing at a much faster rate than our disposable income and funded, in large part, by the dramatic increase in home values (the housing “Bubble”) over the last 10 years.
Americans have leveraged their future based upon inflated housing valuations and this bubble has been one of the leading contributors to our economic growth. Our consumption based economy depends upon the growth of disposable income. The fact that house prices/values have stabilized (not grown) are sufficient in themselves to impact consumer spending. House prices that do not rise deprive households of “new wealth” that may be available to them as disposable income.
Perhaps it has less to do with whether there is a clear hot fashion trend or department stores doing a better job of meeting teen needs, or even that other products such as iPhones and iPods are channeling the money away from these stores.
Maybe, as James Carville once said “It’s the economy, stupid!”
Teen fashion has always been a way for teen-agers to express themselves. With Facebook and MySpace now being the dominant place where teens express themselves, they no longer have to spend all of their money (I should say their parent’s money) on B-T-S clothes. Rather, they can now spend their money on their cell phone, media device, or even gas rather than on clothing.
To paraphrase James Carville, “It’s not the economy, stupid. It’s online sales.”
In total, B-T-S shopping is a $13 billion business and the amount of it now being done online is enormous. College-age buyers, teens and younger consumers are being presented with far more selection than brick and mortar could ever provide. They will click through pages for hours looking for just the right book bag, sneakers or jeans.
Visiting the mall or other retailers for B-T-S needs is not going to become obsolete since these visits are seen by younger consumers as social events. For retailers, it’s a highly lucrative two-month promotional event since sales usually start in late July. But you’re not going to make money selling filler paper and number two pencils. On the other hand,loss leaders bring shoppers into the store, but get them to purchase more profitable items while they’re there.
Let’s rewrite the headline. “Teen B-T-S Spending Coming Up Short…For Some”
Don is right on target, as well as Len regarding the online component.
The spend is still there, but more selective this year as discussed, for lack of a new makeover wave of must-have looks.
Where brick and mortar is about location, location, location and the shopping experience for teens duals as a social event, the online business is about presentation and selection, selection, selection, AND it’s often a social event as well.
Although niche marketer PacSun is off-trend, other niche marketers that are getting it right, like Zumiez & Swell.com, are seeing increases. Mass-selection online retailers like Zappos are on fire too with the added value of free shipping both ways.
Teens often like to wait to see what others are wearing at the beginning of the new school year before they commit to back to school purchases. Also, the teens in my circle of acquaintances know they get gift cards for Christmas and Hanukkah and wait to do much of their shopping on someone else’s dime later in the season. Thrift/resale store purchases are big with a lot of teens, too–not for the price as much as for the uniqueness and fun factor.
Specialty retailers have a difficult time sustaining a pattern of year-over-year comparative growth. Fashion cycles often preclude any single player from remaining “the” store of choice. Inevitably, whenever fashion fails to evolve quickly, a pattern of “sameness” evolves in specialty store retailing. As has been pointed out, we are seeing this occur. Lacking a driving, early trend, consumers shift to price as a dominant consideration in store of choice.
Financially, department stores benefit from a portfolio of products and categories which spread risk, and offer the ability to sustain comp growth. In particular, and with focus on the moderate department store segment, comp gains in teen apparel generally follow the year after large increases in specialty apparel store are seen. Teens tend to restock the closet substantially when trends make what is already there obsolete. This year’s fashions are interpretations and extensions of last year, allowing teens to add spice and remain “right” without a complete wardrobe reinvestment.
However, merchandise is only a part of the overall equation. Store environment is another essential aspect to sustaining comp gains as well as to generating them in the absence of macro fashion influences. Urban Outfitters had a strong second quarter, although it was against a weak result last year. A reason for this may be the extraordinary environment created in the Anthropology and Free Peoples formats, an environment which, to some extent, generates sufficient “buzz” to offset the lack of fashion “buzz.” Further support to this is the continued poor performance of PacSun, which is seeing comp decreases for the third year in a row. PacSun’s merchandise AND it’s store environment are off-trend. The combination of these creates sustainable losses.
American Eagle lacks store environment “buzz,” but has also avoided being completely off-trend in that area as well. Trend identification and interpretation for AE are strengths. Consequently, when fashion is evolving, AE outperforms the competition, and reaps high margins with early-adopter pricing. When fashion is stagnant, AE has a middle to lower middle of the group result, reflecting the still-high pricing without the early adopter status to legitimize.
Due to the fact that many schools are turning to uniforms, the creative flair of many school-bound kids and teens will be limited. Parents will be forced to limit the dollars for new fall wardrobes for their school-bound offspring.
Why is everyone so worried about *July* back-to-school sales? Many places don’t even begin classes until after Labor Day, so what’s the rush…?