September 16, 2008
Teen Market Not Recession Proof
It’s been a bit of retailing wisdom in the past that parents will cut back on purchasing for themselves before they curtail buying for their kids during economic downturns. While it may still be true that parents put themselves last when it comes to discretionary spending, there is evidence that spending on clothing and other products for teens is sliding also.
According to research by WSL Strategic Retail, the high cost of fuel and food has led to spending cutbacks. Fifty-six percent of teens said they are spending less on goods overall while nearly half said they’re using more of their own money because Mom and Dad are saying no to buying things.
A report on the Knowledge@Wharton (K@W) website claims that even though kids are spending less, they are still extremely fashion conscious. That puts greater pressure on retailers to offer merchandise that is seen as cool and affordable.
Aéropostale is among the retailers that have found a way to strike the balance teens are looking for, while Abercrombie & Fitch has struggled, according to the K@W article.
Erin Armendinger, managing director of Wharton’s Jay H. Baker Retailing Initiative, said, “Abercrombie has thumbed its nose at price reductions when other retailers are saying, ‘We understand that you need to spend less.’ That’s a risky strategy.”
A&F saw its profits and share price take a hit during the second quarter. Still, A&F CEO Mike Jefferies raised the prospect of the chain raising prices in the future. In August, Mr. Jefferies told investors on a conference call, “We do not compete on price or promotion regardless of macroeconomic conditions, although it may be both easy and tempting to drive short-term sales with pricing and promotional efforts.”
Aéropostale has managed to make gains despite the inflationary environment and stiff competition for teen dollars from other specialty chains, discounters and department stores.
“Aéropostale has gotten better about its product offering and what’s playing with teens,” said Ms. Armendinger. “It’s not just about being cheap; the clothes have to be something they want to buy.”
Discussion Questions: Is the teen retailing market protected more from economic downturns than businesses catering to adults? What is your take on the paths currently being taken by Abercrombie & Fitch and Aéropostale? Should A&F, in particular, be modifying its positioning and offer more price reductions?
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While I haven’t seen any in depth studies breaking down all of the possible segments, and comparing them to trends, the end result will be, at least by what I see, that Teen retailers will enjoy an increase in sales one or two sales cycles before the Adult market in the respective stores. The plus factor here is that teens, as a whole, are still growing as humans. Both in height and girth, sometimes too much so. They have no choice but to buy newer clothing. Adults are pretty much set and can suffer long periods with no wardrobe changes.
I think the key factor will be the greed vs. need issue that every child struggles with as they grow into young adults. Teens need to look cool. There is no way around it. But when budget takes precedence over the implied need, most people realize that this need is actually greed. Because of that, my feeling is that the slowest to recover sales-wise will be the licensed product categories. A younger teen girl may need that Hannah Montana blouse or bag, but Mom sees that a look alike bargain on another rack will fit the bill just fine. The same holds true with any other product category. The name on the product doesn’t hold the same weight as it once did.
In today’s tightening economy, discount is king, and unless the big name niche providers play the game, they will have a harder time turning things around.
Since the 1980s, the teen segments have enjoyed year after year of increased spending, lavishly and lovingly provided by parents as well as from the income from teen part time jobs in the service industries.
That is, until now. The combined impacts of decreased home values, sub prime lending, rising inflation (food and energy, and a depressed stock market have led or are leading to lower levels of disposable income for almost all Americans. This may be the first time since the 1970s that conditions may be ripe for a significant slow down in teen segment expenditures.
The teen retail market is certainly not immune to the economic downturn. Teens have less discretionary income (like the rest of us) if their allowances are affected by the high cost of gas or if they are having a tougher time securing a part-time job.
Bottom line is that the teen apparel business is suffering from the same angst as the rest of the apparel business: It falls into the “nice to have” category instead of the “need to buy” category, like food and fuel.
The lack of any driving trend in this marketplace doesn’t help, either…there is usually room for discretionary dollars when there is something compelling to buy.
The teen retail market is protected more from economic slumps, but when we hit a bad slump, as we are currently experiencing, even teens will cut back. Many teens, particularly those of driving age, feel the effects of high gasoline prices, see their parents cut back and are cutting back themselves. This presents retailers with a choice. They can accommodate the current economic conditions by offering stylish goods at reduced prices or they can hold the line on pricing and ride out the storm.
A&F has chosen to do the latter. If they can maintain their sense of style, teens should return to their stores after the economic downturn. But, the longer the downturn continues, and the more teens become accustomed to getting stylish clothes for less money, the harder it will be for A&F to win back their loyalty.
The teen market is slightly more insulated to the economic downturn than the adult market when it comes to fashion spending. Parents will find ways to “fashionize” their teens even in tough economic times. That said, tough economic times call for all family members to accept the reality of budgeting for everything from teen fashion to food, gas, etc.
A&F is standing by their retailing positioning of non discounting during the economic downturn, so while I applaud their firm branding position, you have to expect more of the same in sales declines until /”IF” our economy turns around. Some retailers adjust for the economy but lose their clearly defined brand position in the process. Maybe A&F should consider more online specials like “limited edition” features bought online only, to build a broader base to help offset in store declines, and stay true to their retail store brand positioning of non discounting.
Les Wexner is famous for saying to his merchants, “if you have the right fashion, the economy doesn’t matter.” I believe that. And I believe that notion is the only solace teen retailers can take; if they’ve ‘got it right’ for the upcoming quarter (because it’s too hard to predict past that right now), they’re going to do well…if not, then they won’t.
So, as always, ultimately, the customer will be the judge of their fate.
Teen retailers have the toughest job of all trying to balance on a razor’s edge…it’s brutal to fight with teens over money when they have yet to mature enough to realize that who you are is really not at all defined by what you wear.
That said, any retailer who isn’t paying close attention to the new shopping patterns and why their shoppers are buying where they are should take a few weeks and really get in the stores and listen to the teens and their parents. Price cutbacks are actually a nice surprise and they signal that retailers “get it.” We all have to take some hits to keep the retail economy stable as we ride out this long term economic shift.
“The time has come” the Walrus said,
“to deal with some new realities.
Family money is rapidly tightening up
so we’ll reduce a few teen banalities.”
“The concession to less teen spending
results from the growing recession,
But Aeropostale focuses on what teens
can still buy not to fiscal compression.”
Still discretionary bucks are becoming fewer
And teen attitudes seem to be sobering and newer.
The Golden Goose is no longer easy and loose
And teenagers are getting a kick in the caboose.
Meanwhile, the CEO of ol’ A&F stands backs and observes.
My experience is that trend-conscious teens and women remain very determined to get a hold of the same hot items during a downturn–premium denim, A&F, Juicy Couture, and the bag of the moment, for example–they simply get more creative about acquiring them for less.
In 2001 the terrorism/economic freakout played right into eBay’s growth, and I’d be curious to know how many teens (and/or their parents) are turning there. I’ve noticed that A&F items are often featured prominently on eBay’s home page, and they’re not being served up because I have a history of looking for them….
The teen market is a fickle, faddish market, that is price sensitive. Despite everything that we hear, teens have a limited income and a short attention/demand span. This translates into faddish purchasing behavior, and companies trying to determine what is “cool” or the next fad, in order to appeal to teens. Endeavors to do this are expensive and difficult to implement, to say the least. This is why some companies are often successful with this segment for a year and then not successful the next. Either way, their demand will change as we go into the next recession, and their spending will reflect this change.
No market segment, no audience, no niche, no group, is invulnerable. Money troubles = spending cuts. Groceries and prescription drugs are less vulnerable (food stamps, Medicaid, and Medicare subsidize grocers and druggists), but ultimately no one is completely untouched by economic trouble.
Everyone is affected by the economy, especially when it goes sour. Yes, teens will always want more of the best things. But if the parents are maxed out on their credit cards and the kids are getting fewer hours at the minimum wage jobs where they work, reality settles in. A&F might have the brand name that kids want, but instead of buying three pairs of their jeans, they will likely buy one pair and make due with something less expensive from another retailer.
If Mr. Jefferies wants to maintain the high end image with high prices, he should at least consider loyalty programs or other programs that would reward and retain their most loyal customers. If not, I think I’ll look into shorting their stock. Wishful thinking and overconfidence in your product won’t improve sales in a bad economy.
The critical question is how the economic environment is affecting different segments of the population, and how permanent these changes in behavior (or attitude) will become. Teenagers, even more so than adults, use clothing as an expression of who they are or what persona they would like to project. This associative psychological pattern, I believe, will continue to exist after the economy rebounds. But share shifting may occur as experimentation leads to changes in how consumers perceive value and relate to brands. This is what A&F should be a bit nervous about. As a former brand manager, I applaud their attempt to protect their brand, but there are may creative ways to defend your franchise and hold brand equity without relying solely on discounting.
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While I haven’t seen any in depth studies breaking down all of the possible segments, and comparing them to trends, the end result will be, at least by what I see, that Teen retailers will enjoy an increase in sales one or two sales cycles before the Adult market in the respective stores. The plus factor here is that teens, as a whole, are still growing as humans. Both in height and girth, sometimes too much so. They have no choice but to buy newer clothing. Adults are pretty much set and can suffer long periods with no wardrobe changes.
I think the key factor will be the greed vs. need issue that every child struggles with as they grow into young adults. Teens need to look cool. There is no way around it. But when budget takes precedence over the implied need, most people realize that this need is actually greed. Because of that, my feeling is that the slowest to recover sales-wise will be the licensed product categories. A younger teen girl may need that Hannah Montana blouse or bag, but Mom sees that a look alike bargain on another rack will fit the bill just fine. The same holds true with any other product category. The name on the product doesn’t hold the same weight as it once did.
In today’s tightening economy, discount is king, and unless the big name niche providers play the game, they will have a harder time turning things around.
Since the 1980s, the teen segments have enjoyed year after year of increased spending, lavishly and lovingly provided by parents as well as from the income from teen part time jobs in the service industries.
That is, until now. The combined impacts of decreased home values, sub prime lending, rising inflation (food and energy, and a depressed stock market have led or are leading to lower levels of disposable income for almost all Americans. This may be the first time since the 1970s that conditions may be ripe for a significant slow down in teen segment expenditures.
The teen retail market is certainly not immune to the economic downturn. Teens have less discretionary income (like the rest of us) if their allowances are affected by the high cost of gas or if they are having a tougher time securing a part-time job.
Bottom line is that the teen apparel business is suffering from the same angst as the rest of the apparel business: It falls into the “nice to have” category instead of the “need to buy” category, like food and fuel.
The lack of any driving trend in this marketplace doesn’t help, either…there is usually room for discretionary dollars when there is something compelling to buy.
The teen retail market is protected more from economic slumps, but when we hit a bad slump, as we are currently experiencing, even teens will cut back. Many teens, particularly those of driving age, feel the effects of high gasoline prices, see their parents cut back and are cutting back themselves. This presents retailers with a choice. They can accommodate the current economic conditions by offering stylish goods at reduced prices or they can hold the line on pricing and ride out the storm.
A&F has chosen to do the latter. If they can maintain their sense of style, teens should return to their stores after the economic downturn. But, the longer the downturn continues, and the more teens become accustomed to getting stylish clothes for less money, the harder it will be for A&F to win back their loyalty.
The teen market is slightly more insulated to the economic downturn than the adult market when it comes to fashion spending. Parents will find ways to “fashionize” their teens even in tough economic times. That said, tough economic times call for all family members to accept the reality of budgeting for everything from teen fashion to food, gas, etc.
A&F is standing by their retailing positioning of non discounting during the economic downturn, so while I applaud their firm branding position, you have to expect more of the same in sales declines until /”IF” our economy turns around. Some retailers adjust for the economy but lose their clearly defined brand position in the process. Maybe A&F should consider more online specials like “limited edition” features bought online only, to build a broader base to help offset in store declines, and stay true to their retail store brand positioning of non discounting.
Les Wexner is famous for saying to his merchants, “if you have the right fashion, the economy doesn’t matter.” I believe that. And I believe that notion is the only solace teen retailers can take; if they’ve ‘got it right’ for the upcoming quarter (because it’s too hard to predict past that right now), they’re going to do well…if not, then they won’t.
So, as always, ultimately, the customer will be the judge of their fate.
Teen retailers have the toughest job of all trying to balance on a razor’s edge…it’s brutal to fight with teens over money when they have yet to mature enough to realize that who you are is really not at all defined by what you wear.
That said, any retailer who isn’t paying close attention to the new shopping patterns and why their shoppers are buying where they are should take a few weeks and really get in the stores and listen to the teens and their parents. Price cutbacks are actually a nice surprise and they signal that retailers “get it.” We all have to take some hits to keep the retail economy stable as we ride out this long term economic shift.
“The time has come” the Walrus said,
“to deal with some new realities.
Family money is rapidly tightening up
so we’ll reduce a few teen banalities.”
“The concession to less teen spending
results from the growing recession,
But Aeropostale focuses on what teens
can still buy not to fiscal compression.”
Still discretionary bucks are becoming fewer
And teen attitudes seem to be sobering and newer.
The Golden Goose is no longer easy and loose
And teenagers are getting a kick in the caboose.
Meanwhile, the CEO of ol’ A&F stands backs and observes.
My experience is that trend-conscious teens and women remain very determined to get a hold of the same hot items during a downturn–premium denim, A&F, Juicy Couture, and the bag of the moment, for example–they simply get more creative about acquiring them for less.
In 2001 the terrorism/economic freakout played right into eBay’s growth, and I’d be curious to know how many teens (and/or their parents) are turning there. I’ve noticed that A&F items are often featured prominently on eBay’s home page, and they’re not being served up because I have a history of looking for them….
The teen market is a fickle, faddish market, that is price sensitive. Despite everything that we hear, teens have a limited income and a short attention/demand span. This translates into faddish purchasing behavior, and companies trying to determine what is “cool” or the next fad, in order to appeal to teens. Endeavors to do this are expensive and difficult to implement, to say the least. This is why some companies are often successful with this segment for a year and then not successful the next. Either way, their demand will change as we go into the next recession, and their spending will reflect this change.
No market segment, no audience, no niche, no group, is invulnerable. Money troubles = spending cuts. Groceries and prescription drugs are less vulnerable (food stamps, Medicaid, and Medicare subsidize grocers and druggists), but ultimately no one is completely untouched by economic trouble.
Everyone is affected by the economy, especially when it goes sour. Yes, teens will always want more of the best things. But if the parents are maxed out on their credit cards and the kids are getting fewer hours at the minimum wage jobs where they work, reality settles in. A&F might have the brand name that kids want, but instead of buying three pairs of their jeans, they will likely buy one pair and make due with something less expensive from another retailer.
If Mr. Jefferies wants to maintain the high end image with high prices, he should at least consider loyalty programs or other programs that would reward and retain their most loyal customers. If not, I think I’ll look into shorting their stock. Wishful thinking and overconfidence in your product won’t improve sales in a bad economy.
The critical question is how the economic environment is affecting different segments of the population, and how permanent these changes in behavior (or attitude) will become. Teenagers, even more so than adults, use clothing as an expression of who they are or what persona they would like to project. This associative psychological pattern, I believe, will continue to exist after the economy rebounds. But share shifting may occur as experimentation leads to changes in how consumers perceive value and relate to brands. This is what A&F should be a bit nervous about. As a former brand manager, I applaud their attempt to protect their brand, but there are may creative ways to defend your franchise and hold brand equity without relying solely on discounting.