HUNTINGTON BEACH, Calif. — For fashion-driven teen retailers, it’s become all about the niche.
As apparel retailers struggle with the lack of a strong fashion trend, weak mall traffic and the increasing teen spending on electronics and cell phones, they’re looking for the secret to jump-start their businesses. The good news is that there is one — at least judging by the performances of a handful of the teen chains. The bad news is that replicating their success might not stem the downward trend in teen apparel spending.
American teens spent $20 billion on apparel in the 12 months ended Nov. 30, according to a new NPD Fashionworld study. That may sound like a bundle, but it’s actually 12 percent less than they consumed in the prior 12-month period — when the dollars they expended increased by 6 percent.
The worse news is that NPD expects a further decline of 7 percent in 2004.
“Teens still spend more on apparel than any other item, but they place less of a [symbolic] priority on it,” observed Marshal Cohen, senior industry analyst at Port Washington, N.Y.-based NPD Group. “It has become more important to them to have the right cell phone than the right pair of jeans, the right e-mail address versus the right pair of sneakers,” Cohen added in discussing the data he just finished compiling last week. “This is a change from two years ago.”
On the other hand, Rob Callender, senior trends manager at Teenage Research Unlimited, is forecasting spending by teens on apparel to increase in 2004. He said that over the past five years, teens are spending as much, if not more, on apparel, but are spending their money on less-expensive offerings and less on more-expensive items, such as name-brand clothing like Tommy Hilfiger.
“Teens used to be brand conscious, but they are now deciding, because of the previous downturn in the economy, to have three less-expensive outfits from Target [instead of] one expensive outfit” from somewhere else, Callender said. “Teens have decided the trade-off is worthwhile, as long as the perceived stylishness is there.”
His optimism stems from a 2003 survey in which 45 percent of teens said they would likely spend more money in 2004 than they did in 2003, and another 34 percent of the participants said they expected to spend about the same as they did last year.But the top priority for “most kids” this year, said Tina Wells, chief executive officer of Erial, N.J.-based Buzz Marketing Group, is a “technology upgrade.” Apple’s iPod is the number one brand with 13- to 19-year-olds; Sony portable DVD players are number two, Wells reported. “For the first time, teens said they did a lot of their holiday shopping at Best Buy instead of an apparel store like Wet Seal,” she added.
Furthermore, sources said, there are no new must-have teen apparel styles. “The only new things [of any sort] teenage girls are mentioning are ruffled skirts and ‘revealing fashion,’” said Irma Zandl, ceo of The Zandl Group, a teen marketing specialist based here.
One bright spot that could provide a boost to teen spending is a resurgence of the feminine, girlie type of fashion that may not dominate her closet, said Elizabeth Pierce, a specialty retailing analyst with Sanders Morris Harris. She predicts PacSun, Hot Topic and Urban Outfitters to have the most potential in 2004, while Abercrombie & Fitch and American Eagle Outfitters will continue to suffer from a lack of product newness.
Overall, teens are spending $49 a week, on average, or $196 a month, Cohen said, with about 38 percent of that monthly budget, or roughly $74, being allocated to apparel purchases. In the past three months, about 40 percent of teens bought apparel for themselves, while half of the country’s teenagers were on the receiving end of apparel their parents bought, based on NPD Fashionworld’s new findings. Teen spending on entertainment ranks a close second to apparel. Shoes and sneakers place third, followed by music, cell phone fees and monthly charges for Internet connections.
In addition, fewer teens are shopping at regional malls, which typically feature several teen specialty chains, said C. Britt Beemer, chairman at Charleston, S.C.-based America’s Research Group. Some locales, particularly the suburbs of major metropolitan areas such as New York, Chicago and Atlanta, have seen a 20 percent declines in the number of teens shopping regional malls. “The growth of town centers has had a much bigger impact than I expected,” Beemer allowed. “They are often anchored by a 20-screen cinema; they have restaurants — it gives teens a lot more spending options.”Teens are getting about half their discretionary income from their parents and are providing the balance themselves, NPD found. Like adults, they increasingly buying clothes at a discount, sources noted, which helps explain why a number of specialty chains targeting teens are struggling, including Wet Seal, American Eagle and Rampage. Too, teens are appropriating approximately 20 percent of their monthly discretionary dollars, or $40, to cell phone and Internet bills, Cohen said, pointing out the dent this is putting in their monthly apparel budgets.
“The minute you think you have figured teens out,” Cohen said, “you’re in trouble.”
Teen retail executives agreed, saying that consumers are increasingly wary and hard to predict. Executives from American Eagle Outfitters, Charlotte Russe Holdings Inc. and Wet Seal Inc., speaking at a two-day ICR XChange Leisure and Lifestyle Conference last month, painted an economic climate very different from that outlined by those at more successful, niche-driven chains like Hot Topic and PacSun.
American Eagle Outfitters’ chief financial officer, Laura Weil, admitted the company’s eye was off the ball in 2003 by focusing on the older half of its 15-to-25 target customer base. The mistake cost the company a decrease in comp store sales of 7.1 percent for the 11 months ended Jan. 3. Total sales for the Warrendale, Penn.-based retailer rose 3.4 percent to $1.43 billion in the same period.
“We had higher markdowns and suffered an increase in air freight costs,” said Weil. “But these are things we did to ourselves.”
Aside from skewing younger in 2004, the chain also is planning to pare down its design team. “There are too many chefs in the kitchen,” she said.
Weil also discussed this year’s plan to accelerate the life of an item by not marking down the price too soon, and by reducing the chain’s average of 10 to 12 floor sets per delivery down to six, in order to take pressure off the design team.
Mark Hoffman, ceo of Charlotte Russe Holdings Inc., which operates the Charlotte Russe and Rampage stores, said the company’s number one goal is to return to positive comp sales from last year’s decline of 10.1 percent. He pointed to a difficult sales environment in the junior category, weak mall traffic, low consumer confidence and an absence of strong fashion trends as primary reasons for the company’s weak financials.For the fiscal year ended Sept. 27, 2003, sales rose 12 percent to $456.6 million but net income fell 51 percent to $11 million. “In 2004, we need to better execute our fashion content and test-and-reorder strategy,” he said.
Rampage, according to the ceo, is the brand that needs the most fixing because it has been too close in fashion-focus to Charlotte Russe. He did not say how he planned to differentiate the two brands. Meanwhile, Charlotte Russe is due for a store update, he said, but did not elaborate on plans, except to say that a new store prototype will begin testing next Monday in Texas.
Hoffman is undertaking an aggressive expansion by adding 50 new Charlotte Russe stores and 50 new Rampage stores in 2004 to add to the current count of 361 stores. The goal is to ultimately reach 700 stores, he said.
Despite battling one of Wet Seal Inc.’s toughest years in 2003 — company executives said they expect a wider loss than Wall Street had expected in the fourth quarter, as December comp store sales fell 7.3 percent because of higher markdowns on slower-moving inventory — ceo Peter Whitford remains upbeat. He said he is focused on new leadership, a new Los Angeles-based design team and returning store operations and marketing to the respective presidents of Wet Seal, Contempo Casuals and Arden B. divisions.
Whitford also called for a reduction in vendor base, new international sourcing and rebuilding morale at the beleaguered company. Aside from management upheavals, which started with the sudden firing of ceo Kathy Bronstein last year, analysts have pointed to Wet Seal’s overassortment of clothes and indistinct style, as well as shirts that were too tight and skirts that were too short for girls to wear to school.
As reported, the company, which operates 621 stores under the Wet Seal, Contempo Casuals, Arden B. and Zutopia brand names, said it would sell or close all 31 Zutopia stores, exiting the preteen fashion market to focus on its main teen and junior sportswear markets.
But while executives of Wet Seal, Charlotte Russe and American Eagle highlighted their turnaround strategies, officials from Aeropostale, Chico’s, Hot Topic and PacSun talked of the buying strength of young teens ages 11 to 20, Baby Boomers, rockers, surf and skate kids and hip-hop afficionados.Julian R. Geiger, chairman and ceo of Aeropostale Inc., which serves the 11- to 20-year-old age range, touted the New York-based retailer’s potential to grow from its current chain of 460 stores to a 900-unit portfolio in increments of 95 stores a year, or in roughly five years. He noted sales per square foot have doubled to $487 in 2003 from $382 in 1999. Total net sales for the five-week period ended Jan. 3 increased 28.9 percent to $150.9 million; while comp store sales increased 5.7 percent for the month.
“Listening to our customer has worked well,” he said. “We act very quickly and give them what they want — not impose what we think they want.” He also singled out underpenetrated markets in the U.S., including California, Texas and Florida. In California, Geiger called for 10 more stores in the state within the next few years.
Chico’s cfo and chief operating officer, Charles Kleman, touted same-store sales increases at or above 11 percent and a 45 percent or more increase in net income in 21 out of the past 23 quarters. The figures emboldened the Fort Myers, Fla.-based moderate retailer to acquire the White House/Black Market chain last year and to test by August a new intimate apparel store concept called Soma.
“We believe that Soma has the potential for as many stores as Chico’s, or 550 to 650 stores,” he said. Chico’s and White House/Black Market currently operate 547 stores and will add 85 to 90 more units in 2004. Together, the chain could total 1,000 units, said Kleman. New fashion and the 35-and-up demographic’s inherent strength has been driving comps, said Kleman. “You’ll find something new at Chico’s every day and we mean that.”
“We’ve been very blessed with some great business for the past five years,” said Betsey McLaughlin, president and ceo of City of Industry, Calif.-based, music-influenced chain Hot Topic. Surprisingly, the weak men’s business drove revenues in the fourth quarter, prompting the company to raise its outlook for the period ending Feb 1. “Women’s was a little soft,” admitted McLaughlin.December comp store sales rose 10.1 percent, while sales during the five weeks ending Jan. 3 rose 32 percent to $115.7 million. McLaughlin forecast a 20 percent increase in total square footagein 2004, which includes 80 new Hot Topic stores and 25 plus-size Torrid units. She reiterated the philosophy the chain is famous for: “It all starts with the culture. There is constant communication and flow of ideas with our customers. We do not know better than our customers do.”
Finally, PacSun expects to surpass $1 billion in sales in 2004. “Our business is very strong and our inventories are very clean,” said Greg Weaver, chairman and ceo of the Anaheim, Calif.-based Pacific Sunwear of California Inc., parent of PacSun and urban concept Demo. At PacSun, the company has shifted its focus from “guys” to “girls” — women’s wear now accounts for 48 percent of the business, while men’s wear remains 52 percent of the mix — and the change has resulted in a significant improvement in business.
PacSun wowed Wall Street with a comp increase of 13.2 percent in the 11 months to Jan. 3, and total sales were up 22.8 percent to $985.8 million. For the quarter ended Nov. 1, 2003, it reported a 54 percent jump in net income to $269.2 million on sales that rose 23.3 percent to $281.3 million. “Girls shop more than guys, make higher unit purchases and are more responsive to accessories,” said Weaver. Girls are also the driver behind hip-hop chain Demo, prompting a redesign of the urban concept to include a “lighter, more female and friendly” atmosphere, said Weaver. PacSun’s plan is to operate 1,400 stores by 2007, including 1,000 PacSun stores and 400 Demo stores.
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