NEW YORK — Teen girls aspiring to update their wardrobes as often as their Hollywood idols have led the past year’s rebound in the specialty apparel market.
But even as the sector’s sales and earnings are going gangbusters — in contrast with 2003’s mixed results — the competitive landscape is beginning to change. Teens are finding new ways to get more value out of their money, and competition from unconventional opponents, such as electronics retailers like Best Buy Co., has heated up. Heading into the important holiday season, these aspects stand to slightly crimp the recent momentum that specialty retail has enjoyed following this summer’s lull in back-to-school shopping.
The overarching reason specialty retail has seen such a positive run since last year is due to the improved fashion cycle. The teen preference for skate and surf apparel that ruled in late 2003 evolved in early 2004 to include a renewed interest in preppy looks, which has benefited a slew of retailers, including Abercrombie & Fitch Co., American Eagle Outfitters Inc., Aeropostale Inc., Urban Outfitters Inc., J. Crew and Pacific Sunwear of California Inc. Ralph Lauren moved aggressively into the sector this fall with the launch of its Rugby concept, aimed squarely at the preppy market.
As Howard Tubin, an analyst at Cathay Financial, pointed out, what helped most teen retailers regain their share of the specialty space is that they each committed themselves to a specific place in teens’ hearts. Abercrombie, for example, stayed true to its high-end classic preppy looks; American Eagle returned to classic preppy at moderate prices, and Pacific Sunwear, as well as Abercrombie’s Hollister division, remained typical West Coast surf and skate apparel shops.
“It’s easy to say the [teen apparel] space is crowded. But if you look at the niche being created at each one, they’re all slightly different,” said Tubin. “As long as they’re not all going after the exact same customer…there’s room for everybody.”
In all, teen girls spent $5.7 billion on sportswear in the year ended Aug. 31, according to Cambridge, Mass.-based STS Market Research. That’s a 10 percent increase from the year-earlier period, and makes up 14 percent of overall sportswear spending by consumers over 13 years old.
Related Articles
You May Also Like
“Right now, unequivocally, the teen girls are spending the most money per person,” said Art Spar, chief executive officer of STS, in a recent interview.
Yet while teen-girl consumption levels have been concentrated in the specialty apparel market for the better part of a year, spending by the group has also begun to morph into a free-for-all. That is, specialty retailers still capture the majority of the teen girl’s apparel dollar — with 47 percent of teen sportswear dollars spent there in the year ended Aug. 31 — but department stores and off-price retailers are also now vying for market share, research from both STS and the New York-based research firm Zandl Group shows. Sportswear spending at off-price retailers, such as TJX Cos., is up 16 percent from last year, while at department stores such as J.C. Penney Co., sportswear spending by teen girls has risen 13 percent, STS said.
Thanks to the rise of the preppy trend, overall volume spending by teen girls on skirts and dresses increased the most in the last year, up 22 percent, STS said. And American Eagle was one of the biggest retailers to benefit. The company’s same-store sales — sales at stores open at least a year — have risen 16.6 percent since Jan. 1, including staggering comp advances of over 20 percent in each of the last four months.
Like other specialty retailers last year, Warrendale, Pa.-based American Eagle had offered merchandise that was too fashion-forward for back-to-school, Tubin said, subsequently alienating its core consumer. “They tried to have an urban feel…it just didn’t work,” he said, and instead led to a same-store sales decline of 6.4 percent in the first nine months of fiscal 2003.
“And so this year [American Eagle] came back in a big way to go after its core customer,” who likes hooded sweatshirts and screen T-shirts, Tubin said. As a result, the company reported on Nov. 11 that earnings in the third quarter more than tripled to $58 million from $18.1 million in the same quarter of 2003.
Meanwhile, Wall Street analysts had speculated early in 2004 that the rise of the preppy trend would eventually lessen teen interest in Pacific Sunwear’s skate and surf apparel, which, at the time, was going great guns among its teen fans. But market share for the Anaheim, Calif.-based company has not been depleted. With same-stores sales up 8.4 percent year to date — on top of a 13.7 percent comp gain in the first nine months of fiscal 2003 — the company recently reported a third-quarter net income rise of 30.1 percent, to $31.9 million.
In fact, Pacific Sunwear’s hip-hop brand, D.e.m.o., has seen an explosion in the past year in its girl’s business. In the latest third quarter, same-store sales in the D.e.m.o. girl’s unit surged 17 percent, while comps in the PacSun girl’s business increased 8.5 percent.
Other types of retailers have also benefited from spending by teen girls in the last year. Federated Department Stores Inc., parent company of Bloomingdale’s, for example, has seen sales in its jeans department jump in response to the teen craving for premium jeans. Comps at Federated are up 3.7 percent year-to-date, compared with a 0.9 percent decrease in the first nine months of fiscal 2003.
“These 12-year-olds who used to buy $48 dollar jeans are now buying jeans that are over $100, and they don’t even think about it,” said Jeanne Sottile, vice president and divisional merchandise manager of contemporary fashions at Bloomingdale’s. Seven For All Mankind, Citizens of Humanity, Earnest Sewn and Sass & Bide are some of the current in-demand jeans lines, Sottile said.
Of course, not all teen retailers are red hot right now. Foothill Ranch, Calif.-based Wet Seal Inc. is sitting dangerously close to bankruptcy after an attempt to turn around the business failed in June. On Nov. 9, Wet Seal’s chief executive stepped down, but that same day, the company announced a new deal to raise $40 million in the hopes of staying out of bankruptcy.
And Dallas-based Gadzooks Inc. is in the process of emerging from bankruptcy protection. The company has seen success from a switch to an all-junior shop and has reported positive double-digit comp gains in each of the past four months.
Analysts say what trips up specialty retailers’ sales the most is staying on top of fashion trends, which isn’t altogether surprising given the inherently fickle nature of teens. “Getting teen design right on an ongoing basis is very difficult, primarily because teens are more likely to take their style cues from the entertainment world than from the runway. Watching MTV music videos, for example, is probably more directional than taking in the fashion shows,” said Irma Zandl, president of the Zandl Group.
So how then do retailers stay on top of changing trends? As Robert Glick, president of the specialty retail chain DOTS, explained, the key is knowing that teen girls want to see something new in stores roughly every two weeks. But that’s a two-step process retailers can easily muck up.
New York-based DOTS, which runs 330 stores nationwide, uses trend and fashion services, combined with shopping in Europe, Los Angeles and New York to keep tabs on what customers crave. Beyond finding the right fashions, though, getting the merchandise in stores is a battle unto itself.
American Eagle’s chief marketing officer Michael Leedy said at a preview of the company’s spring merchandise here in mid-October that the retailer defines trends by sending merchants to college campuses, shopping malls and music festivals to look at what young people are wearing. The company also uses focus groups to test new merchandise.
But one of Leedy’s most successful — and nontraditional — ways of staying in touch with customer expectations is by developing relationships with teens he meets while traveling. Leedy frequently asks for phone numbers and sends new friends American Eagle merchandise, such as T-shirts or sunglasses.
“My assistant thinks I’m nuts,” he said.
Several holiday research reports say consumers are poised to spend the same amount or more than last year on holiday purchases. Further, a projected decrease in markdowns could mean good news for earnings and margins because retailers have learned that consumers are likely to wait until the last minute to buy gifts. Still, there is concern that an increase in gift-certificate purchases could impact apparel sales.
One of the biggest opportunities for retailers this upcoming holiday season is to provide younger consumes with trend-right “must-haves,” said Spar of STS, which is in fact a strategy May Department Stores recommitted itself to last week.
Retailers also must keep in mind that teen girls are increasingly shopping across channels — something they are sure to do during the holidays — in part because they are more pressed for time or are looking for different types of merchandise.
They have also become less afraid of peer responses to buying the same Aeropostale shirt at Marshall’s for 40 percent less.
In fact, noted Tubin: “Paying less is en vogue.”