Gap Inc. (GPS), which drew legions of young adults in the 1990s with classic khakis and swing-dancing ads, is again banking on young, hip customers to resuscitate its sales. Too bad they’re broke now.
Weighed down by higher-than-average unemployment, student- loan debt and concerns that the economy will continue to struggle, Americans 18 to 34 years old are increasingly reluctant to shop, according to researcher WSL Strategic Retail.
That reluctance, while particularly troubling for Gap, is hurting sales at other clothing chains such as Urban Outfitters Inc. (URBN) and Aeropostale Inc. (ARO) as well, while a few, such as Hennes & Mauritz AB (HMB), are doing better. In a few years, it also may deprive higher-end retailers such as Nordstrom Inc. (JWN) of a new crop of customers looking to upgrade.
“There is a notion among retailers that young shoppers are more resilient and will come back sooner,” WSL Chief Executive Officer Wendy Liebmann said in a telephone interview. “The reality is that they don’t have money to spend, and retailers aren’t paying enough attention to this.”
Almost a quarter of 18- to 34-year-olds don’t make enough money to cover basic needs such as rent, car payments and food, WSL said. These shoppers don’t have much to spend and seek promotions instead of desirable brands, said Liebmann, who’s based in New York.
Advertisers, television networks and retailers have long chased the youth market, traditionally a group with the time and desire to stay current and fashionable. Companies tried to hook customers in their 20s, hoping to gain a loyal customer for decades to come, said Eric Beder, an analyst at Brean Murray Carret & Co. in New York.
That may no longer work for retailers, he said. College costs have soared, resulting in student-loan debt of about $867 billion in the fourth quarter of 2011, about 23 percent higher than credit card balances, according to the Federal Reserve Bank of New York.
In 2009, households led by those younger than 35 had 68 percent less wealth than such households in 1984, according to a November Pew Research Center report. The share of employed 18-to 24-year-olds was 54 percent, the lowest since the government began collecting data in 1948, according to a separate report from Pew released last month.
“This customer doesn’t pay up for product, and they might not turn into a 45- to 50-year-old who will,” Beder said in a telephone interview. “Retailers need to worry about how to build a relationship with this consumer.”
After boosting sales more than sevenfold during the 1990s, San Francisco-based Gap’s revenue has leveled off in recent years. Sales last year fell to $14.5 billion, down 11 percent from their peak in 2005. Gap’s shares declined 16 percent last year, while the Standard and Poor’s 500 Retailing Index advanced 2.9 percent. Though Gap shares had risen 37 percent this year as of yesterday’s close, the price is less than half the Feb. 3, 2000 peak.
Sales climbed 3 percent in February after falling 4 percent in the fourth quarter. The company has also announced several high-level appointments and said it is trying to improve assortments for women.
The company has released ads depicting real residents in young, hip enclaves like Austin, Texas, modeling its 1969 brand denim and brightly colored sweaters. Gap also started a collaboration with popular fashion blogs in which bloggers display the retailers’ colored jeans and striped sweaters as examples of fashionable looks.
“The age group Gap is marketing to, 18- to 34-year-olds, is only drawn in by sales and promotions,” Beder said. “Maybe they want to be wired and fashion-driven, but they’re not willing to pay for it.”
Edie Kissko, a spokeswoman for Gap, declined to comment.
It may take more than ads to get young adults back in stores, Beder said. Retailers including Gap, Urban Outfitters and Abercrombie & Fitch Co. (ANF) are offering “unprecedented” promotions and discounts, Beder said.
Express, the men’s and women’s clothing retailer, has connected with young shoppers through active promotions, selling items such as multicolored jeans and animal-print tops for half- off after an initial purchase, Beder said.
Other retailers “getting it right” are fashion companies with low, fixed prices such as H&M and Japanese T-shirt maker Uniqlo, Beder said.
“This shopper refuses to pay a premium,” Liebmann said.
The increasing frugality of young people also is disconcerting to the luxury market, because a 25-year-old who shops at Gap would traditionally shop at Tiffany & Co. (TIF), Nordstrom or Saks Inc. (SKS) decades later, said Pam Danziger, president of research firm Unity Marketing in Stevens, Pennsylvania.
“We now have young people who aspire to own more middle- class houses instead of mansions,” Danziger said in a telephone interview. “We have a group of people who are seeking only to live within their means.”
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