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?