The major specialty chains collectively known as teen retail– iconic denim-based brands such as Abercrombie & Fitch and American Eagle Outfitters, and surf- and skate-inspired merchants like PacSun and Zumiez– have posted their second quarter earnings.
The results aren’t anything to post on the fridge, however. Total sales for the group, which also includes American Apparel, Aeropostale, dELiA*s, Buckle and Tilly’s, fell by 3.7% in the second fiscal quarter of the year and were down by 3.5% for the first half. Compared to total specialty retail, where sales were up 1 percent in the quarter and almost 2 percent for the first two quarters of this year, the teen players clearly have some remedial work ahead of them.
dELiA*s sales fell by 22 percent in the three months ended August 3, the most of any apparel retailer reporting results so far, while Aeropostale’s revenues were off by 13 percent in the quarter. Abercrombie and American Eagle also saw sales decline, by 6 percent and 2 percent, respectively, while American Apparel and Tilly’s had flat revenues in the period. The only store to posts increases were Buckle, up 1.4%, and Zumiez, where sales rose an impressive 11.9% in the period, helped by both new store openings and organic growth.
Comparable sales, or sales at stores open at least one year, were down by a whopping 6.2% for the teen group, compared to a 1 percent decline for all apparel specialty stores. dELlA*s suffered the worst comparable store sales decline, down a staggering 17.7%. Aeropostale’s drop was 13 percent, almost double the rates of decline at Abercrombie, American Eagle, American Apparel and Tilly’s. Buckle and PacSun had flat comps in the second quarter. Only Zumiez turned in a comp sales increase, up 3.4%, which exceeded its own forecast, thanks to strong sales of accessories, hard goods like skateboards, and its eclectic multi-brand collection of juniors and young men’s apparel.
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For the first half of this year, gross margin as a percent of sales fell at every one of these companies compared to the same period last year. The drop ranged from a 30-basis-point decline at Buckle to a 330-basis-point plunge at Aeropostale. The intensively competitive environment has made profitability increasingly elusive. For the third quarter, teen retailers turned in a collective loss of $71 million – 60 percent more red ink than last year.
Probably the most sobering news of all, however, is that few of these merchants are saying they expect a dramatic improvement in the back half of the year. Aeropostale, arguably the most promotional of them all, forecasts a low-digit comp sales decline for the third quarter. Others are being very guarded with respect to fiscal year earnings forecasts. With the all-important back-to-school season now behind them, they seem to be taking a wait-and-see approach.
Why have so many of these brands fallen out of favor with their target consumers?
One of the most obvious reasons is that competition has heated to the boiling point. Teens have more shopping options than ever, starting with fast fashion superstores like Forever 21 and H&M, and ending with the dozens of e-commerce sites sprouting up every day.
Judy Galloway, managing partner of marketing research firm G-Group, said teens are increasingly attracted to young independent brands headed up by entrepreneurs not much older than they are. “These brands understand the desired ‘look’ and cultural code of the current younger generation, and are supported by a brand community fueled by social media affiliation,” she said.
Kit Yarrow, consumer psychologist and author of Decoding the New Consumer Mind, says teens are misunderstood by most of the retailers who are trying to cater to them. “There’s a big difference between reacting to results of a survey and truly understanding a generation.” When asked what makes the current crop of teens different from their older cohorts, Yarrow said, “Prior generations wanted to fit in. They sought conformity to feel secure. What I’m observing and hearing from teens today is a need to stand out. The ‘accessory’ that every teen is looking for is whatever gets them noticed.”
According to Yarrow, teens are looking for unique products that will attract attention and help them express their individuality. They are increasingly eschewing “follow the crowd” logos for more personalized, “I’m an individual” eclectic looks, some of which they create themselves by purchasing basic tees, jeans and other garments and embellishing them. They’re getting their trend info from friends, Instagram, Pinterest and bloggers, not from fashion magazines or the mall-based brands they now feel are old hat.
Once upon a time, apparel was one of the biggest expense items for teen consumers. Today, their budgets are stretched across many competing categories like electronics, video games, smart phones, accessories and beauty products. Brands from Apple to Starbucks to music-streaming service Spotify, are all clamoring for a share of the teen wallet. “Teens are reserving their disposable income for experiences such as concerts or new technology rather than the latest fashion,” Galloway said.
So what’s a beleaguered teen merchant to do? Pack up his backpack and transfer out of the district? Not at all. These retailers have proven that they’re resilient, and almost all are going back to the drawing board in search of new brand, product and marketing strategies. Abercrombie & Fitch has replaced seven of its 12 board members, and is considering removing the logo from its products. Aeropostale has just brought back founder Julian Geiger to replace its CEO, presumably trying to get back to its roots. American Apparel moved in the opposite direction, ousting its founder so it can move the business in a new direction while retaining its unique DNA. And American Eagle, in the midst of a turnaround, has closed its children’s division and reportedly seen positive results from its product line overhaul. All are trying to evolve into omnichannel retailers and shorten product lead times to be more responsive to consumer needs. Some are even borrowing from the Zumiez’s strategy of offering brands beyond their store’s private label.
Will all these brands survive and ultimately thrive in their current form? Probably not. And although it’s tempting to try to predict who the survivors will be, it’s premature to count anyone out, since the word of teens is a rapidly-evolving one in which change is inevitable.