Teens on sale: US retailers' holiday challenge
By Alexandria Sage - Analysis
SAN FRANCISCO (Reuters) - Discounts on teen apparel are piling up quicker than unsold hoodies and plaid shirts this holiday season as the under-20 set show they are mature enough to wait for a bargain.
A Reuters walk-through this week of a suburban San Francisco mall with Kurt Salmon Associates retail strategist Monica Tang showed chains from Pacific Sunwear (PSUN.O) to American Eagle Outfitters (AEO.N) and Abercrombie & Fitch (ANF.N) resorting to steep promotions to attract shoppers.
Deals included "Buy one, get one for 50% off" specials at Pacific Sunwear and American Eagle; jeans marked down $20 (12 pounds) at Abercrombie & Fitch's Hollister chain and a $25 gift card with each $75 purchase, as well as Abercrombie & Fitch logo T-shirts, originally $30, now $16.90.
The discounts suggest big missteps on the part of these chains during the key holiday shopping season. While they may have cut inventory to counter weak demand, a homogenous array of merchandise is forcing them to beat each other on price to win teenage attention.
"If you're a teen and those are your staples, you're going to be wooed by a lot of retailers," said Tang of the hoodies, jeans and embellished T-shirts. "And if they're all selling the same thing, price is going to be a key motivator."
Moreover, with less money in their pockets, teens have to decide whether they want that new outfit, or a night out.
"We see more spending on entertainment, consumer electronics and iTunes ... all at the expense of apparel," said Lisa Walters, a principal with research and consulting firm Retail Eye Partners.
Dismal sales figures for November did not help investor sentiment on the overall sector.
Pacific Sunwear shares have shed 51 percent since a 2009 high in October. American Eagle shares are down 15.6 percent in the same period, Zumiez (ZUMZ.O) has fallen 28 percent since a September high and Abercrombie is down 15 percent from a 2009 high in November.
Many analysts saved their harshest words for Abercrombie & Fitch, with Brean Murray Carret analyst Eric Beder calling the company's 17 percent plunge in November same-store sales "jaw-droppingly bad."
The company's long-standing reluctance to be seen as a promotional retailer was evident at its store, where sale signage was more subtle: "It doesn't jump out at you," said Tang.
Still, some sweaters were marked down 50 percent and some logo T-shirts had been marked down twice.
Analysts cite too much emphasis on basic, casual clothing at the Abercrombie and Hollister chains, with not enough higher-style looks that might justify the higher prices.
They point to a few select retailers such as J Crew (JCG.N), Buckle (BKE.N) or Urban Outfitters' (URBN.O) Anthropologie -- none of which cater to teens -- whose unique merchandise has helped them stay above the pervading sales slump.
Despite the deep discounts and a healthy amount of noon-time traffic in the Stoneridge mall in Pleasanton, owned by Simon Property Group (SPG.N), the low traffic in teen stores was glaringly evident.
"Relative to the amount of mall traffic we're not seeing a lot of people in these teen stores," said Tang, who added that even though many students would be in school, their mothers should be in stores shopping for holiday gifts for their teens.
HIGH FASHION AESTHETIC
The most popular teen store at the mall was Forever 21 -- the privately-held retailer known for its knock-off fashions at very low prices -- with a mix of teens shopping for themselves and mothers perusing clothing racks.
Shopping with a friend was Michele Wolrab, 21, a college student who said she once shopped at American Eagle and Abercrombie, but now spends her money at Wet Seal (WTSLA.O) and Forever 21, due to their more up-to-the-minute styles.
"For how fashionable it is, I think the prices are really reasonable," said Wolrab, who added that American Eagle and Abercrombie are "really, really expensive and I don't feel they have as much selection."
On display at Forever 21 are styles with "high fashion aesthetic," as well as more basic looks, which helps the chain resonate for a wide array of budget-conscious teens, Tang said.
"The style and value equation is what's prepared them for the holiday season," she said. "Forever 21 resonates. You can't beat those price points."
Another outperformer this holiday season has been Aeropostale (ARO.N), which has posted robust same-store sales increases due to its low prices on colourful basics.
The visit to the chain, which was known for its planned promotions well before the downturn, revealed at least four empty racks of clothing, suggesting merchandise sold over the weekend had yet to be replaced.
Still, Aeropostale's relative strength has not spared it. Its shares are down 26 percent since a 2009 high in September and some analysts question whether it can live up to its holiday profit forecast.
(Reporting by Alexandria Sage; editing by Michele Gershberg and Andre Grenon)