NEW YORK — Teen retail executives are crossing their fingers hoping for a passing grade this back-to-school season, as the student body, and their parents, appear increasingly reluctant to spend.
Many retailers report a slowdown in early b-t-s sales and mall traffic and, just three weeks into August, some are already slashing prices. But with school days starting later in the year for some and a cooling trend in the air in many locales, they’re hopeful that the season will finish better than it started.
After receiving accolades for their ability to utilize inventory discipline to produce decent second-quarter results, retailers are now under pressure to produce top-line growth for additional profits in the third quarter. Working in their favor are the generally weak sales comparisons from the back half of 2001.
"I am cautiously optimistic for b-t-s, but there are still clouds over the economy that could come in and ruin the party," Steve Skinner, a partner at Accenture’s retail industry group, said.
According to Michael Wood at Teen Research Unlimited, four out of five teens polled this spring said they expect to spend as much or more than they did in 2001. In 2001, teens spent $172 billion, a third of it on apparel, versus $153 billion in 2000.
Apparel’s back-to-school dollar volume is likely to increase 3 to 4 percent over year-ago levels, according to Marshal Cohen, co-president of Port Washington, N.Y.-based market researcher NPDFashionworld, who made that estimate based on current market trends and business during the first five months of the year.
"Retailers will be conscious of maintaining or beating last year’s sales, even at the expense of profits," Cohen projected. "So, if sales are sluggish, as they were in July, then we may see promotions begin very early on. This year’s back-to-school sales will be an important indicator of how well the apparel industry will do for the rest of the year."
Already, a number of retailers — including Gap, American Eagle Outfitters, Wet Seal, Gadzooks and Hot Topic —warned in their July sales and second-quarter-earnings calls that b-t-s sales have trended below expectations. Pacific Sunwear of California and Urban Outfitters are among the few who said sales in August are running ahead of expectations.Falling short of its customary double-digit growth, Hot Topic, the purveyor of music-oriented apparel and accessories based in City of Industry, Calif., said Wednesday it earned $4.34 million, or 13 cents a diluted share, for the second quarter ended Aug. 3, on par with analysts’ lowered average estimates, and 1.5 percent higher than earnings of $4.28 million, or 13 cents, reported in the year-ago quarter. Sales rose 28.5 percent to $92.5 million from $71.4 million. Same-store sales rose 0.6 percent in the period.
On Aug. 1, the chain guided earnings downward and said that, based on early b-t-s sales in July and difficult August sales comparisons from last year, sales in August 2002 may not meet previous expectations. Last year, comparable-store sales were up 9.7 percent in August.
Earlier this week, The Buckle Inc. said its second-quarter net income grew 4.1 percent to $4.1 million, or 19 cents a diluted share as sales gained 6.3 percent, to $83.5 million, and comps ticked up 1.3 percent.
"I think it was an OK quarter," Eliot Laurence, an analyst with Jeffries & Co., said of the results. "What we’re seeing is a late back-to-school shopping season, and hopefully when back-to-school gets going they’ll do better."
Broadlines retailers have noted softness in their apparel sales in explaining weekly sales results that have fallen short of their own expectations. In its weekly sales call Monday, a Wal-Mart spokeswoman said, "Consumable products continued to drive sales. Back-to-school is off to a slow start as warm weather has affected apparel sales."
While teens have historically been more immune to financial downturns than their parents, this year’s contraction in the equity markets might have parents feeling less generous and shopping with a greater eye to value. Additionally, teens have had a hard time finding jobs this summer so are more inclined to make purchases closer to need.
Elizabeth Pierce, a retail analyst with Wedbush Morgan Securities, explained that there is little urgency in teens’ shopping habits because of a surplus of competition both inside and outside the mall: "If you do not find an item, you can always go elsewhere. Teens tend to wait to see what others are wearing, and, with plenty of supply, they are not compelled to buy now."Dana Telsey, an analyst at Bear, Stearns, said, "The b-t-s season started off very sloppy and retailers in the month of August have begun to react. Promotions are plentiful and, if you need jeans, you can choose your discount, even if a merchant tried to set a trend and have a new look to sell at full price."
Gap’s chief financial officer Heidi Kunz said last week that August sales so far were slightly behind projections despite new marketing and merchandising initiatives. All brands are responding in the second half of the month with strategic promotional events to drive business, including $10-off coupon on jeans, Gap’s bread-and-butter product.
"Heavy promotions are probably an indication retailers feel they need to cut prices to attract customers," Kimberly Greenberger, a retail analyst at Lehman Brothers, said.
American Eagle also said last week that early August sales were below expectations, resulting in promotions on key fall items like corduroys and Western-style shirts, as well as mainstays like denim and twill jackets.
Hot, hazy, humid weather and a later start to the school year in Texas have also been cited for teens’ apparent apathy about autumn apparel. Dana Cohen, a retail analyst at Banc of America Securities, said, "While the first two weeks of August were slow, there is some sense that in the markets that went back to school earlier, business was better. That will hopefully translate into some pickup."
Still, the analyst said there is ground to be made up and no certainty that it can be. Whether the problem is that cash is tighter or stores are too similar, junior sportswear vendors are reminding themselves that there’s still time and opportunity remaining.
"Many kids go to school first and see what the others are wearing and then they go shopping," said Jay Gorman, vice president at the New York-based Dollhouse and Jou Jou.
Richard Clareman, president of Self Esteem, pointed out, "There is a teen recession going on here too. There are many girls who didn’t get their jobs this year because stores weren’t hiring. Also, their babysitting positions are getting lighter because parents are getting laid off and not going out as much."But there are those companies who blame the slow selling on the weather. Are teens really looking for sweaters in 90 degree heat?
"It’s been warm all over the country," said Mark Hoftman, vice president of sales at ILU. "Also, chains are overloading their stores with denim and oversaturating the market with too many jeans. Anything that is non-denim that we are shipping has been doing really well, and buyers are telling me that girls look at the stores and say, ‘I already have so many pairs of jeans.’"
Alden Halpern, president at Tyte, said, "Kids these days are getting smarter and smarter. They are shopping and seeing things looking the same. They need to see what’s new and fresh. Wet Seal is merchandised so well, but kids are seeing the same looking items in other stores for cheaper prices.
"This is an industry of overreaction, and this was a slow-starting season," he said. "Kids are smart and they know that if it doesn’t sell right away that it will go on sale. We shouldn’t be so fast to put things on sale. They are shoppers who look for clothes to wear now. They will shop when it’s time. They are buy-now, wear-now shoppers."
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