How Fickle Teens Flummox Retailers

Apparel retailers catering to the 8- to 18-year-old crowd, such as Abercrombie and Aéropostale, are being squeezed from two directions

by Pallavi Gogoi

Retailers Abercrombie & Fitch (ANF), American Eagle Outfitters (AEO), and Aéropostale (ARO) are hot teenage shopping destinations. But the latest sales numbers from these retailers, reported Aug. 9, might indicate cooler days ahead, as department stores lure back the fickle 8- to 18-year-old shoppers with trendy offerings and niche specialty stores filled with denim and skateboarding gear increase their take of teens' disposable income.

Many of the well-known teen retailers posted poor July sales compared to a year ago. Abercrombie's sales at stores open for a year or more fell 4%, worse than the 0.7% analysts expected; American Eagle same-store sales fell 6%, compared with a 2.9% estimate; Wet Seal (WTSLA) suffered a 7.2% decline, when analysts expected a 5% fall; and Pacific Sunwear (PSUN) had a 4.6% slide, when analysts anticipated a 3.2% gain. Aéropostale's same-store sales decreased 11.9%, while analysts had expected a 1% increase.

Many of these retailers blamed the tax holiday shifts in Texas and Florida as a major factor. "We were adversely affected by a shift in tax-free holiday into fiscal August from July," says Mike Kramer, chief financial officer at Abercrombie. However, Deborah Weinswig, a retail analyst at Citigroup (C), says that among the 17 states that have back-to-school tax holidays, most of them have already had theirs.

Back to Cool

Department stores, on the other hand, are doing better. J.C. Penney (JCP) posted a 10.8% increase in July for comparable-store sales, and Nordstrom (JWN), a 9.4% gain. "Department stores have gotten their act together and are offering specialized products at competitive prices," says Patricia Pao, founder of retail consultant the Pao Principle. "Kids are rediscovering one-stop shopping, especially if there's variety, sales, and service."

Indeed, J.C. Penney has heavily targeted this segment this year with heavy back-to-school offerings. "We are pleased with the early results with back-to-school…in juniors, we saw strong demand for five-pocket denim and babydoll blouses and shorts," says Ed Merritt, manager of investor relations at J.C. Penney.

Retailers know teens are the hardest consumers to please because they are so fickle. And yet, in the last few years, teens and tweens (children between the ages of 8 and 12) have been one of the fastest-growing segments of shoppers, whether in toys, jewelry, or fashion. New store concepts including Justice, owned by Tween Brands (TWB), and Abercrombie's Hollister, which targets 14- to 18-year-olds, were launched within this last decade.

Following Trends

Still, teens are starting to snub the well-known specialty retailers for even more unique stores such as Buckle (BKE), which is known for its denim, and Zumiez (ZUMZ), which has built a name for itself with apparel and accessories related to skateboarding and snowboarding. "The major players have been very good at defining their unique look and portraying a certain lifestyle," says Mary Brett Whitfield, senior vice-president and apparel analyst at TNS Retail Forward, a retail research firm. "But trends change and teens look more narrowly for stores that resonate with them."