PLAYING THE JUNIOR GAME
Byline: Vicki M. Young
NEW YORK — For many retailers — and the Wall Street analysts who keep an eye on them — the hot junior market is the name of the game.
But it’s not an easy game to play. Challenges abound: Teens are fickle, the pace is faster and retailers need to continuously turn their inventory.
Yet juniors is a market where companies seem to make money, or at least they think they can eventually — especially when marketing extends to the Internet.
How retailers are meeting those challenges, and the other issues they face, were some of the topics raised at a recent WWD Financial Forum. Participants included:
Janet Grove, chairman, Federated Merchandising Group, a division of Federated Department Stores Inc. FMG is responsible for private label across all divisions, except Bloomingdale’s and Stern’s. The group is charged with managing core vendor relationships and has in-house teams working to fine-tune current trends in the marketplace.
Marla Schaefer, vice chairman, Claire’s Stores Inc. Claire’s has different store divisions targeting the younger customer, and sells a wide assortment of hair accessories, cosmetics and costume jewelry. Its flagship operation is Claire’s Accessories. Another division is The Icing, which also sells accessories and includes apparel. Apparel up about 20 to 24 percent of The Icing’s merchandise mix.
Operating a total of more than 2,100 stores in the U.S., Canada, Caribbean, Japan and Europe, Claire’s in the first half ended July 31 posted sales of $356.7 million and net income of $34.1 million. Earnings included a pretax gain of $3.9 million from the sale of certain investments.
Richard Jaffe, senior vice president, retail analyst, soft lines, PaineWebber Inc.
Beth Kressley, vice president, brand development, Delia’s. Delia’s describes itself as a marketer to Generation Y — ages 10 to 24 — with a core group of catalogs and a network of stores operating under various formats. It opened its first full-price Delia’s store early this year and expects to have 12 in operation by the end of this fiscal year. It also has an Internet subsidiary and spun off 25 percent of it in an initial public offering this year. In the first half ended July 31, the firm posted sales of $75.2 million. Net earnings came to $18.8 million, including a $70.1 million pretax gain in the first quarter from the Internet IPO. In the second quarter, costs of developing the firm’s infrastructure were reflected in a $6.1 million loss.
Renny Gleeson, senior vice president, marketing, ITurf. The company, which went public earlier this year, is the Delia’s subsidiary that’s become a destination stop for teens online. ITurf is a network of web sites that provide commerce, community and content online.
The participants agreed that one reason why the junior market is hot is because that’s where the money is.
“The affluence within the teenage group is phenomenal,” Jaffe noted.
“The disposable income of teenagers between ages 13 and 19 has grown 100 percent in the last four years. They’re not paying rent, and they’re not buying cars, so its apparel, accessories and CDs that they’re spending [their money] on,” he said.
Schaefer noted that some teens have as much as $50 to $60 a week to spend as they wish.
“In our catalog business, we see that teens have access to their parents’ credit cards,” Kressley observed. She added that it didn’t appear that parents set any limitations on how much their kids can spend.
But while the participants agreed that teens have an appetite for spending, they couldn’t agree on a standard age group for the junior market. Based on the age range they gave, referring to the junior customer as a teen shopper could be a misnomer.
The age range of Delia’s customers, according to Kressley, is between 11 to 18, with the “bull’s eye at 14 to 16.”
Gleeson pointed out that ITurf has an even broader age spectrum, from 10 to 24, because of the company’s recent purchase of OnTap.com, an Internet college hub providing community, information and entertainment services.
But the age breakdown of Delia’s online shopper, he noted, is slightly older than the in-store buyer. ITurf has a site called Discount Domain that sells closeouts of Delia’s merchandise.
“Recent surveys indicate that the typical customer at Discount Domain tends to be older, around 19 to 21 years. A 16-year-old may say she’s outgrown Delia’s, but if the 19-to-21-year-olds are buying Delia’s, then it still has appeal,” Gleeson pointed out.
Because Claire’s sells accessories, its shoppers tend to start at the younger end of the age spectrum, from as young as eight, according to Schaefer.
“You might at Claire’s get an even younger customer in accessories that we couldn’t fit in our junior department yet. She’s going to the 7-16 [girls’] department. There’s a lot of young girls that would like to fit into [junior-sized] clothes that aren’t quite there yet. What’s happening in the kids’ and girls’ department, however, mirrors what’s been happening in juniors with the trends,” Grove pointed out.
At the other end of the spectrum, Grove noted, are some shoppers in their late 20s and 30s who prefer to shop in the juniors section.
“There is definitely [an older] customer in the junior department that likes the styling and the faster pace in merchandise [turnover], as well as the fit that works for [a certain body type.] I don’t think it’s just the department stores. I think it’s the specialty stores as well,” she said.
Grove added, “Federated doesn’t have any private label for juniors, even though we have INC and Charter Club for women’s apparel. What we see…is that there’s a lot of cross-shopping, not only between retailers, but also between age groups, probably a lot more than we think. It’s not just apparel, but shoes, handbags and accessories, too. I think the age range covers a very broad band.”
Kressley agreed, adding, “I think that the age range varies depending on where in the country you are, especially in our business, how fashion-forward that particular community and market is.”
Of course, the explosive growth of the junior market means more pressure for the different retailers. There’s plenty of competition, and not all retailers are profitable, but the participants said they were comfortable with their progress and where they are now in relation to current business plan goals.
Grove was particularly upbeat about the direction Federated is headed in. “We’ve had some pretty good success [in juniors], and what’s nice is it’s continuing,” she said.
“The junior market’s always been a very profitable area for us. We are profitable, and we want to maintain that. What we’re struggling with besides making sure that we’re sharp and inquisitive is updating the environment and [making sure we’re] doing right by the customers to give them a wonderful shopping experience,” she continued.
As for Claire’s, Schaefer was confident of her company’s ability to keep its customers happy.
“Anyone who sells a necklace or a hair accessory takes a dollar out of our cash register, and we consider that competition. But I think Claire’s is known as a place for our target market to go and shop. Obviously if she’s in a department store and gets a pant and a top, if she’s presented with a great accessory to go with it, she’s going to get it there. What we at Claire’s are trying to do is bring in what’s trendy and affordable for our target customer,” she said.
(Claire’s did stumble a bit on that account this fall, though. Last week, it announced that its third-quarter earnings would be below Wall Street expectations due to “merchandising errors which resulted in inventory shortages.” The company added, “New merchandise is flowing into the stores and will reach appropriate levels by the middle of October.”)
Over at ITurf , realizing a profit, like all newly public Internet companies, is more of a long-term goal. Gleeson pointed out that ITurf was making a profit just before it went public last April. The company isn’t making a profit now, but that, too, is in line with the company’s goals, he said. (The company reported a $1.8 million loss for the second quarter ended July 31 against a $24,000 loss last year, with revenue growing to $3 million from $760,000. For the half, ITurf had a $2 million net loss compared with a $77,000 net loss a year earlier. Revenue jumped to $5.6 million, an increase of nearly seven times last year’s $829,000. The company reported that its traffic grew 64 percent to 82 million page views in July, compared with 16 million last year.)
“We have our commerce component in place, and we’re hoping to expand that, but we have to spend money to do it,” Gleeson said. One way the company has been expanding its turf, or presence on the web, is by building its network of destination sites for kids, teens and college students. “For our long-term strategy, the investment has to be made [now] to make sure we’re executing on that goal properly and that we’re communicating [our] message clearly,” he pointed out.
The participants also said that they’re constantly working on improvements in store design to make sure they stay on the radar screens of teens. As the retailers noted, it means having the right magic mix of merchandise, fixtures and music.
“We’ve created some pretty exciting environments, [and] one of the projects we’re working on is updating our juniors area,” Grove said.
“The challenge,” analyst Jaffe observed, “is how to do that and have misses’ footwear next to juniors and not [have one] detract from the other.”
He noted that department stores have a challenging balancing act between making the junior space teen-friendly and still comfortable for all family members to shop in. “You can’t have loud teen music blasting and a decor that’s specifically 14 years old. Specialty stores have that advantage,” Jaffe pointed out.
Grove disagreed, countering that it is possible to create the right shopping environment for the teen shopper within a department store.
“Federated,” she disclosed, “has taken special care with our store directors and our visual folks to create an environment for the young person. We realize that certain elements within the juniors department are conducive for the young customer. Is it a fun area? A place to meet friends and hang out for awhile? Do we have the product? Not just ready-to-wear, but the other parts of the outfit for the customer, too?”
The constant flux of merchandise also contributes to the young environment, Grove indicated.
“The look of the department is based on changes in content and assortment. The total visual package changes once a quarter, but there are themes such as gift-giving that go on, which are tied into the whole store. In particular, where you have a very fast business like juniors, you might supplement those things,” she explained.
As for assortment, Grove noted, “It definitely helps when designers are going after the junior customer,” adding that designers give store buyers more merchandising options.
She also observed that what happens in the young men’s market can be a hint of what’s to come in juniors. Grove pointed out that the junior shopper often wants the styles that are trendy in the young men’s section.
With an average of 3,000 to 4,000 square feet of selling space per store, Delia’s makes every inch count by using modular furniture that can be quickly rearranged.
“Every couple of months, we change the theme throughout the stores so you get a very different-looking store when you come into it over time. Obviously, the merchandise is constantly shifting. But we’re not relying on just the merchandise to change the look of the store,” Kressley said.
Another retailing challenge for those targeting the junior market is the Internet.
“It doesn’t matter what it costs, you have to be there,” noted Jaffe.
He explained that the driving force for an Internet presence isn’t necessarily profitability, but marketing and building brand image.
According to Gleeson, companies have to assess the Internet.
“The Internet makes sense for some businesses and not for others,” Gleeson said. “If you are targeting the junior market, you need to seriously consider that a large portion of those people with money to spend are on the Internet. If you’re not there, the odds are very good your competitors are,” he pointed out.
Federated has a presence on the web through Macys.com, noted Grove. The site sells junior apparel, and Federated plans to increase the merchandise that’s available for sale.
At Claire’s, the company has used the site as a way to develop its brand. Claire’s has been heavily promoting its site, even putting its web address on all cash register receipts.
According to Schaefer, “We’ve been experimenting with sales on the web site in a quiet way. We know that if you can’t cope with the demands and you can’t deliver, you turn your customer off.”
Claire’s has about 12,000 to 15,000 stockkeeping units per store. With the inventory turning between eight and 10 times a year, the company regularly ships enormous quantities of product to over 2,000 stores. But retailing through the Internet means shipping just one or two pieces at a time, a completely different form of fulfillment skills for Claire’s.
Another issue is the company’s average price points of $5, the same as the cost of shipping an order.
“We’ve experimented by putting higher-ticket items, at least $10, for sale. We have an acne blemish cream for $10 and a basic Claire’s baseball jacket for $35. If you want to add in [a] low-ticket item, then it becomes cost-effective,” pointed out Schaefer.
She disclosed that right now, it doesn’t make sense for Claire’s to add pricier merchandise, such as 14-karat gold assortments or semiprecious stones, to its selections.
“The Claire’s shopper is a younger customer looking for costume jewelry. They’re looking for what’s fashionable and trendy,” Schaefer said. The Claire’s customer with $10 to spend, she added, wants to buy two things for $5 each and not just one item.
At Delia’s, however, the Internet plays a critical role in the company’s cross-promotion of its brand image.
“We have an aggregate circulation of 70 million catalogs across multiple sites, we do in-store promotions and we’re also looking to create other cross-promotions between retail stores and online space,” Gleeson stated.
“The synergies across [the] channels are supposed to facilitate the experience. Ideally, you’re creating the consummate multidimensional brand experience with a consistency of feel, whether you walk into the front of the store, receive the catalog or log onto the web site,” he continued.
Kressley added that the content presented has entertainment value that’s linked together. “We don’t necessarily view that the content has to be a direct linear linkage to selling merchandise. It’s more of what keeps it entertaining and what keeps [the customers] involved,” she said.
Vision and execution
And, finally, with the growing numbers of retailers linking their fortunes to the junior market, how do analysts go about evaluating their performance.
According to Jaffe, there are two keys in evaluating the teen retailer, vision and the ability to execute that vision consistently.
“Vision is hard to judge actively,” he disclosed. “Take cargo pants. Is it trendy? Is it dead? I don’t know, and I know the merchant doesn’t either,” he explained.
Execution, on the other hand, is quantifiable.
“How smart are they? How willing are they to give up a product and chase the next? How timely are their reports? How rational are their merchants analyzing those reports? Are all the things that they can control being done as well as they say? The methodology is whether they have the fashion, can react in a timely manner and continue to turn the inventory and get to the next look. The methodology is not whether spring 2000 is the year for judo pants and, if so, who has the best inventory,” explained Jaffe.
All those challenges are what makes the junior business an exciting one, according to Grove.
“You’re constantly testing and shopping,” Grove said. “There’s always something new, and you have to be quick to get out of what’s not selling and be jumping on what’s new. You can only do that by testing…so you’re always looking for new resources, new silhouettes and doing it much faster than in other businesses.”