Julian Geiger, chairman and CEO of the New York-based retailer Aéropostale, said in an interview with PBS’s “Nightly Business Report” last April that retail firms like his which cater to teens are “definitely better insulated” from economic trends than others. “Parents tend to sacrifice [for] themselves before they sacrifice [for] their kids,” said Geiger.
While Aéropostale has had a bullish summer, with second-quarter net income rising 43% over the previous year, other teen-focused retailers, including The Gap and Abercrombie & Fitch, have suffered losses. Wharton experts and others suggest that teen retailers are competing intensely for attention in hard economic times, even as these new conditions are giving rise to a new landscape of winners and losers.
“Historically, people thought teen retailers would weather economic downturns better than retailers who market to broader or older segments,” says Erin Armendinger, managing director of Wharton’s Jay H. Baker Retailing Initiative. “I think this downturn has proved that wrong: The teen market is not recession proof.”
According to data collected in early August by WSL Strategic Retail, a Manhattan-based marketing consulting firm, 56% of teens are buying less in general, due to rising gas, fuel and food prices. In addition, almost half need to purchase more things with their own money, because their parents are more likely to say “no” when it comes to buying them something. Pointing out that Americans have even cut back in categories like prescription drugs, WSL senior retail consultant Shilpa Bharne Rosenberry adds, “At this time, I don’t think any category or demographic can be called ‘recession proof.'”
The National Retail Federation, a Washington, D.C.-based trade association, forecast in July that back-to-school sales would remain basically flat against last year’s figures, with an average family spending $594 compared to last year’s $564. The $30 increase is largely accounted for by families spending more this year on electronics, such as personal computers and cell phones, according to data on the Federation’s website.
Yet this year’s spending continues an upward trend in back-to-school spending, according to Federation data compiled by BIGresearch, a Worthington, Ohio-based research firm. Spending from 2002 to 2005 hovered around $450 per family. The rise over the last few years may be explained by the fact that “kids now need more stuff,” particularly in the area of technology, according to Stephen Hoch, director of the Baker Retailing Initiative. “It’s more expensive being a teen these days. The whole enchilada includes a cell phone and digital accoutrements,” he says. And just as cell phones and other electronic devices are famous for quietly sipping power and pushing home energy bills up, so they may also be adding to the costs of being a teen.
$90 versus $20 Jeans
Just because the economy has forced both teens and adults to be frugal, however, doesn’t mean that teens no longer care about how they look — as any parent of teens can attest. The recent trajectories of New Albany, Ohio-based Abercrombie and Aéropostale demonstrate the delicate new balance between price and style.
Abercrombie, which has ridden high on the teen hog for years, saw declines in second quarter profits and its stock price this year. While same-store sales at flagship Abercrombie shops rose slightly in the second quarter, sales declined at Abercrombie’s three secondary brands: Hollister, which targets teens; Ruehl, which targets 20-somethings, and Abercrombie Kids, which targets the parents of young children. “Abercrombie was hot, and now not so much,” says Robert Passikoff, founder and president of Brand Keys, a Manhattan-based brandand customer-loyalty consultancy.
This decline may be explained in large part by prices, says Armendinger of Wharton. “Abercrombie has thumbed its nose at price reductions when other retailers are saying, ‘We understand that you need to spend less.’ That’s a risky strategy.”
Through late August and at the beginning of September, Abercrombie’s website offered no back-to-school promotions; prices for girls’ jeans ranged around the $90 mark. Indeed, when Abercrombie CEO Mike Jefferies announced the second-quarter figures in a conference call with investors in August, he raised the possibility of price increases rather than price decreases. “We do not compete on price or promotion regardless of macroeconomic conditions, although it may be both easy and tempting to drive short-term sales with pricing and promotional efforts,” he said during the call, according to the Associated Press.
Aéropostale, on the other hand, has thrived even during a summer of high gas prices and other bad economic indicators. Formerly known as a runner-up to Abercrombie and as a place for teen style on the cheap, the retailer recently made a big push to distinguish the brand, including a recent make-over of the in-store experience. “Aéropostale has gotten better about its product offering and what’s playing with teens,” says Armendinger. “It’s not just about being cheap; the clothes have to be something they want to buy.” But price can be attractive, too: During the back-to-school season, Aéropostale’s website highlighted its 50%-off sale on jeans, which brought all girls’ jeans down to between $20 and $30.
Noting that some teens are unaffected by the economy and will continue to shop where they want, Armendinger says that to be popular, teen retailers must offer something unique and desirable. “If you’re differentiated, you’ll win,” she says, pointing to the example of Philadelphia-based, multiple-brand retailer Urban Outfitters, which reported in early August that its second-quarter earnings were up 79%. “Urban Outfitters has very little competition in terms of their store design and products — and guess what, they are doing very well.”
Where Your Parents Make You Shop
In spite of intense competition among specialty retailers, the bulk of back-to-school shopping takes place at discount stores and department stores. According to data from the National Retail Federation, 73% of consumers were expected to shop at discount stores, with 57% also shopping at department stores, and only 48% patronizing specialty clothing stores.
Discounters and department stores, then, aim to attract teens with style and attract parents with price, says Armendinger. “Even if your parents take you to shop at J.C. Penney or Kohl’s, you still want to be cool.”
Both the Plano, Tex.-based J.C. Penney and Menomonee Falls, Wisc.-based Kohl’s launched new online-focused and celebrity-driven initiatives this summer, an aggressive attempt to draw in and satisfy teen customers. J.C. Penney, for example, has four teen-focused brands, including Fabulosity, an apparel line from model and entertainment personality Kimora Lee Simmons. The brands are promoted through online contests, mobile promotions and TV ads focused around themes and images from John Hughes’ well-known 1985 “brat-pack” film, The Breakfast Club. Kohl’s, meanwhile, offers six lines of clothing tied to celebrities, including singers Lenny Kravitz and Avril Lavigne and actress Hayden Panettiere, all with the tag line, “Inspired by the Artists…worn by you,” while a Facebook-based online contest highlights the denim focus of all six lines.
According to Wharton’s Hoch, celebrity tie-ins are an attempt to offer teen shoppers apparel they can connect with. “Teens, even pre teens, are much more aware of different fashions and labels now because clothing is more individualistic, and there is a lot of social signaling going on.” While celebrity-designed lines were once only found at high-end retailers, they are “now ubiquitous,” he says, pointing to the Port Washington, New York-based retailer, Steve & Barry’s, which offered clothing items as cheap as $10 endorsed by stars like Sex and the City‘s Sarah Jessica Parker and tennis celebrity Venus Williams. Steve & Barry’s filed for bankruptcy in July 2008.
“You see the same thing with young children,” says Hoch. “It’s hard to sell a toy these days without a character on it. The vanilla version is not enough; there’s got to be some signal of who you are and what you like.”
The Digital Mall
While the National Retail Federation forecast that only about a quarter of back-to-school shoppers would be buying online, that number represents a 3% increase over 2007. Passikoff says research conducted by Brand Keys this summer predicted a much greater increase in online sales for back-to-school shopping, with 15% more people going online than last year, compared with an increase only 10% for discount stores and a decrease of 8% for specialty stores.
Clearly, foot traffic at stores still brings in the lion’s share of sales, but teen retailers also made new forays online this season. As the Wall Street Journal reported in late August, for example, companies including K. Swiss, Sears, J.C. Penney’s and Kohl’s are marketing through online social networks for teens. “It’s a way for retailers to create multiple touch points to reach shoppers,” says Rosenberry of WSL Strategic Retail. While hanging out at malls and shopping in person is still popular for teens, “smart retailers realize [having an online presence] is not just a nice thing to have; it’s a necessity to do business with teens, who have grown up online.”
In one such relationship, Kohl’s is advertising through the social network Stardoll.com, which is organized around its tag line of “fame, fashion, friends.” Stardoll members design their own paper-doll-style avatars, called a “MeDoll,” and can shop for brand-name fashions and furnishings for their avatars using virtual currency. According to the website, Stardoll currently has more than 20 million members. Shopping takes place at Starplaza, where Kohl’s offers clothes from two of its celebrity-created lines: Candies, currently featuring Panettiere, and Abbey Dawn, featuring Lavigne.
“The beauty of the Kohl’s brands is their relationships with celebrities,” says Matt Palmer, executive vice president and general manager of the Hollywood, Calif.-based Stardoll Entertainment. Both stars have their own MeDoll profiles, and members can send them gifts or messages or dress them up in clothes. “It’s a marriage made in heaven,” adds Palmer. “The brands get great interactivity, and the users get to play with the clothing of celebrities.”
The trick, of course, is to show that playing online with virtual paper-doll clothes can lead to real-world sales. In August, the magazine CosmoGirl began a partnership with the website NearbyNow.com, which allows CosmoGirl readers and website visitors to interact with the clothing and accessories they see in the magazine, either by clicking on a button to buy it immediately or to find out where the item is available in their local area.
For those visiting Stardoll, however, the real-world buying process remains in the background. According to Palmer, Stardoll is “wary” of introducing direct-buy options. “We see Stardoll as a fashion planning tool,” he says. “Kids want to check it out first. They can mix and match, show it to their parents and use it as a shopping guide.”
According to a case study from Hitwise, a New York-based online analysis firm, Kohl’s was the number-one recipient of online traffic from Stardoll in mid-August. In spite of these numbers, however, some remain skeptical of the ultimate impact. “It’s the trend of the month,” says Passikoff of Brand Keys. “Can you show a return on investment? I don’t think they can.”
But in an uncertain economic environment, says Wharton’s Hoch, it pays for companies to take an experimental approach. “It’s clear that [advertising through] traditional media is not going to cut it anymore. Discounters and department stores in particular spend massive amounts on print advertising and inserts. If they could, they would rather spend that money somewhere else.”
Adds Hoch, “They all know [teens] need to be [online], either for ordering or to see what’s available. Hopefully [this will] bring them into the stores.”