Fickle teens are leading to insecurity in the executive ranks of youth retailers, who’ve seen a series of management shake-ups as the sector attempts to get back into growth mode after a weak, highly promotional 2010.
Since the start of the year Hot Topic Inc. and The Wet Seal Inc. have appointed new chief executive officers and American Eagle Outfitters Inc. has revealed plans to do so, while Mindy Meads stepped down as co-ceo of Aéropostale Inc. in December, leaving the role of sole ceo to Thomas Johnson.
All are in the process of turning around their respective brands and trying to get a handle on shifting teen fashion preferences and tightening spending tendencies. And all have struggled with top-line challenges. PacSun, Hot Topic and American Eagle had respective comparable-store sales declines of 8 percent, 5.3 percent and 1 percent in fiscal 2010. Aéropostale, an industry overachiever with a 10 percent comp gain in 2009, saw its increase dwindle to 1 percent last year. Wet Seal reports results for the fourth quarter and year on Thursday.
“As business shows some indication of getting better, companies seem to be more ready to make the executive changes that they expect will generate their share of the increase in business in this environment,” said John Jonas, president and ceo of executive search firm The Jonas Group. “The need for someone to ‘get’ how to approach online and international business is also key now. As always, having great leadership is necessary for success in the super competitive retail sector.”
But there’s something specific about the teen sector that has sparked the ceo mass exodus, according to analysts.
“Ceo movement is a direct correlation to performance,” said Susquehanna specialty retail analyst Thomas Filandro. “Clearly, there’s a lack of differentiation within the sector…. There’s not a dominant enough trend in the teen sector, and as a result, it’s more of a dog-eat-dog world.”
Gone are the days of relying on basics and “heavily logoed” T-shirts and hoodies. “Kids are somewhat de-logoizing,” he said. “It’s more difficult to differentiate without logos.”
With their low-priced, trendy apparel, competitors like H&M, Zara and Forever 21 have left many staple teen retailers flat-footed, he said, pointing to American Eagle, which this month announced the retirement of ceo James O’Donnell. The ceo, who’d been with the firm for 11 years, was set to resign in 2013 and will remain until his successor is in place.
“The Eagle lost sight of who its target market and customer are,” he said. “They have been extraordinarily disappointing…the merchandise on the floor, the messaging and their marketing are inconsistent with their brand DNA.”
In order to turn around the brand, American Eagle should look for a ceo with a “merchandising or design background, as product seems to be what they are struggling with,” noted Wedbush Securities analyst Betty Chen.
Chen suggested former Aéropostale co-ceo Meads or current Charlotte Russe head honcho Jenny Ming.
What many of these companies have in common is the need for a “fresh perspective” to expedite a turnaround, she said, pointing to Hot Topic, which Monday appointed director and former Gymboree ceo Lisa Harper to succeed Betsy McLaughlin as ceo. McLaughlin resigned after 11 years in HT’s top spot.
It’s now been 20 months since Gary Schoenfeld joined PacSun as president and ceo, snagging a spot that had been occupied for three years by Sally Frame Kasaks, the former Ann Taylor and Abercrombie & Fitch executive. Kasaks, a PacSun director, was initially appointed interim ceo, but the interim was removed after she’d been on the job a year.
Under Schoenfeld, PacSun’s struggles have continued. Last week, it reported a smaller fourth-quarter loss but fell short of analysts’ sales and earnings estimates.
Sitting out the ceo dramas of recent months — although not exempt from occasional rumors of a possible takeover — is Abercrombie & Fitch, led by chairman and ceo Michael Jeffries and coming off a year in which it posted a 7 percent comp gain after a 23 percent decline in 2009. Abercrombie generally is viewed as having held the line on fashion leadership while becoming far more competitive in its pricing.
Prior to hiring its new ceo Susan McGalla in January, Wet Seal has battled to balance price and compelling fashions.
This balancing act, however, is symptomatic of the times, as retailers who have fared best have opted to buy shallow and test different merchandise.
“If you are offering commoditized product, you will get beat,” Susquehanna’s Filandro said, pointing to chains like Victoria’s Secret, Express, Buckle Inc. and Zumiez Inc. “These companies are creating innovation and newness. They are reading and reacting to what consumers are looking for and they are winning.”