SANTA MONICA, Calif. — Teens have significantly slowed their spending.
That was the consensus among many of the 200 apparel manufacturers and retailers who confabbed with Wall Street analysts Jan. 14-15 at the fifth annual Integrated Corporate Relations (ICR) XChange conference here.
A drop in mall traffic and few new fashion trends to serve the increasingly tightfisted consumer also were among the chief concerns. But it was the once-impervious teen factor that clearly worried many attendees.
Retail executives and those who track their shopping patterns have blamed much of the sales shortfall on lack of newness and duplication of merchandise within the mall. This has casted dark shadows on chains such as Wet Seal, Charlotte Russe and Rampage that also are being undercut by cheaper stores like Forever 21 and Reference stepping into grab-market share.
Anecdotally, it confirms reports by research firm NPDFashionworld that teens’ overall expenditures this past back-to-school season dropped 20 percent from 2001, and clothing purchases declined some 23 percent. While they might be more resilient to economic downturns than adults, they are not entirely immune.
Charlotte Russe’s chief financial officer Daniel Carter blamed the deterioration of mall traffic for the 4 to 5 percent drop in the junior chain’s average retail transaction during the third and fourth quarters, or the last half of 2002. Steep discounting caused by the collapse of the prairie and bohemian looks contributed to six straight months of negative comp-store sales, he said.
For the first three weeks of January, the San Diego-based company had been able to turn sales around to positive low-teen levels by upping inventory levels 28 percent over prior-year levels. "For spring, the look is short skirts, shorts and capris in bright, Pucci-inspired colors and white," said chief operating officer Mark Hoffman, anticipating that the new looks will mean new interest in shopping.
Fashion faux pas can cost companies dearly on Wall Street, as Wet Seal can attest. It will take the Foothill Ranch, Calif.-based retailer a year-and-a-half to recover from its fashion missteps of holding on to the peasant look too long. The chain’s comp-store sales plunged 9.6 percent in the third quarter and 19.4 percent in December, and "sharply" lowered its profit expectations in the fourth quarter, according to cfo Bill Langsdorf. "We didn’t have the right goods," he said, noting February and March will continue to be difficult. "The looks were just too old."Analysts on the conference floor said price continues to be one of the most important factors in the much-talked-about "value equation," or what it takes to get customers in a store’s door.
But executives at PacSun, Quiksilver and Hot Topic said they suffered little downturn as a result of not taking a crowbar to their prices during the holidays, an act that could’ve deteriorated the perceived value of the brands. "That’s why we’re probably on more of an even keel because brand diversity, not price, is the driver to our stores," said Greg Weaver, chairman and chief executive officer of Anaheim-based PacSun.
Hot Topic president and ceo Betsy McLaughlin, based in the City of Industry, Calif., echoed the sentiment, noting product — not sales — at the plus-size, 27-unit Torrid division propels "customers to drive 300 miles to come to a Torrid store."
"I think serving a niche almost helps kids focus on buying less and on what’s important to them," said Bob McKnight, chairman and ceo of Quiksilver, noting that the surf company’s business in fiscal 2002 grew at a record pace, up 13.8 percent in sales and 34.2 percent in net income. McKnight continues to believe Quiksilver’s sister label, Roxy, which accounts for 40 percent of the Huntington Beach-based company’s $650 million annual sales, is one of Quiksilver’s most important growth vehicles and has the potential to overtake the 33-year-old men’s brand one day. Asked whether the company benefited from surf as the flavor of the moment in fashion, he responded: "Our game never changes. When it’s over with, we’ll still be focused on surf style."
Retailers and analysts leaned forward in their chairs as a trend panel comprised of about 20 teens from Malibu High School backed up the niche retailers’ view on price. "I’d buy something high quality with trend longevity that costs more," said one young man, eliciting approving nods from the rest of the group. The young women voiced their preferences for retro styles, such as Seventies-inspired ponchos and low-waisted, wide-leg pants. They singled out Puma and Volcom among their favorite brands.
Showing Wall Street growth is a sure way to keep up investor interest, companies put forward their best pitches to analysts.Laura Weil, cfo of American Eagle Outfitters, said that despite its 700 stores in the U.S., Los Angeles, where 5 percent of the chain’s target customers live, is an underserved market that should be filled by yearend. There are a total of 55 new stores planned, between 20 and 30 in urban locations, and another 60 in renovations. "Our new store economics are very strong and our best chance for new cash," Weil said.
Bebe Stores chairman and ceo Manny Mashouf took a bold position, stating that the Los Angeles-based, 178-unit chain is going back to its roots: suits. "We want to create a new niche that has never been done on a national basis," he said. Meanwhile, BebeSport, the fledgling activewear concept the retailer is currently testing in a handful of locations, has the potential to be a 500-unit chain and will pick up Bebe’s younger customer, he said. Of the 25 to 30 new stores to bow in 2003, about one-third will be BebeSport.
Finally, Mossimo is ready to spread its wings globally. Because of the Santa Monica-based company’s exclusive deal with Target’s 1,100 stores in the U.S. and Zellers’ 300 stores in Canada, cfo Manny Marrero said several times during his presentation that the brand is searching for international growth opportunities. In what was perhaps an attempt to spread the word to potential overseas partners, he said: "The balance of the world is still available," but he stopped short of spelling out the company’s aspirations.