Terrified by Teen Retail

In large ways or small, teenagers often horrify us because they just don't do what we expect them to. Right now, these juvenile delinquents may be doing the last thing investors ever expected: not spending much money at the mall.

Gasp! How could it be possible? What's with these kids today? Do they hate America that much?

Teen angst
My Foolish colleague Todd Wenning and I took a trip to a local mall last Tuesday for a little recon. We figured that since school's out, surely we'd find some teens there, hanging out and maybe even buying stuff.

Instead, the mall was a ghost town. Most disconcerting, the mighty Abercrombie & Fitch (NYSE: ANF  ) was all but empty -- and entirely lacking actual teens -- despite its booming dance music.

Honestly, I was downright relieved to see a couple of warm-blooded, bona fide teenagers in American Eagle Outfitters (NYSE: AEO  ) . Todd also spotted a few genuine young people there, as well as in Aeropostale (NYSE: ARO  ) , and he was pleasantly surprised by foot traffic in long-struggling Gap (NYSE: GPS  ) and its Banana Republic unit.  

However, with the exception of a few outliers, including a packed GameStop (NYSE: GME  ) , the mall wasn't exactly teeming with spendthrift teens.

I intend to do a weekend check of a different local mall soon, to see whether teens are simply saving their mad shopping skills for Saturdays and Sundays. (I'd like to see how some of Urban Outfitters' (Nasdaq: URBN  ) stores seem to be doing, too, since I own a few shares of that stock.) However, I have a hunch a weekend trip might look strikingly similar.  

The kids are all right ... aren't they?
In recent years, teen retail spending has been fairly well-insulated against macroeconomic factors. Kids don't pay mortgages or rents, worry about feeding the entire family, or fret about the phone, cable, and electric bills. Most of their spending is blissfully discretionary and often motivated by the desire to impress and outdo their peers.

Unfortunately, our current economic climate may be pinching the wallets of young and old alike. It stands to reason that with the high cost of living (food and energy) and the housing market's pains, many parents don't have as much discretionary income to give their kids.

Are babysitting and lawnmowing the lucrative options they used to be? With consumers pinched by rising prices on everything from gas to food, "nesting" and do-it-yourself may be summertime themes this year. Mom and Dad's generosity is likely reaching some limits, too. I wonder how many window-washings, tree prunings, and dishwashings make up an iPhone or an Xbox 360 in this day and age.

Meanwhile, the summer job market this year doesn't look good for teens who want to pad their wallets. Only 34.2% of teens aged 16 and older seeking summer jobs are expected to land one. This makes sense. Retailers and restaurants don't need to be so staffed up when fewer consumers are willing to spend on luxuries.

And of course, increasing unemployment and second-job seekers will put more contenders into the pool -- older applicants are likely snapping up the types of jobs teens usually take for granted during the summer months.

Maybe the kids aren't all right.

This awkward phase will pass
We'll have to keep our eyes on those scary teens -- and teen retailers -- to see whether this is an ongoing trend, at least for the near term. It may be a long, hot summer indeed.

Even if teens are the unthinkable and ratcheting down their spending, things won't always be this tough. Teens may end up learning to save for what they want -- an excellent lesson in the long run. Meanwhile, the current pressures will make some formerly pricey stocks very affordable for long-term investors.

As crazy as it sounds, the kids may be choosing carefully when they shop these days. Investors should choose carefully, too, shopping around for high-quality retail stocks worth holding for the long term. For now, though, I'm sure many investors wish our biggest worry about teenagers was more conventional, like whether those darn kids are huffing something from under the sink. Maybe those were somehow simpler scary times.

Further fearful Foolishness:

American Eagle Outfitters, Gap, and GameStop are Motley Fool Stock Advisor recommendations. Gap has also been recommended by Motley Fool Inside Value.

Alyce Lomax owns shares of Urban Outfitters. Motley Fool also owns shares in American Eagle Outfitters. The Fool has a disclosure policy.   

Read/Post Comments (6) | Recommend This Article (5)

Comments from our Foolish Readers

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  • Report this Comment On June 27, 2008, at 4:03 PM, Fafar wrote:

    I made a recon trip to our mall in Central NJ last Wed with my 14-yo and her friend. We all noticed how empty the mall seemed. Abercrombie--mostly empty; American Eagle, dead; Aeropostale, a couple.

    But then, surprise, we found where everyone was: Forever21. Lots of shoppers and even with 3 people behind the counter there was a line for purchases. Actually I've noticed how packed F21 has been since Christmas.

    There were also a few shoppers in Wet Seal...more than in the 3 As.

    We did see one store that had the beginnings of Fall wear already! Long sleeves, sweaters, etc. "Are you kidding?" I thought. Then I heard a teen say "Fall clothes! I think I'm gonna vomit." as she was looking in th store's window.

    School just let out around here on the have no desire to even think about clothes for school in the Fall. If retailers want to drive sales, and not drive customers away, they'd better think hard about being so ahead of the season!


  • Report this Comment On June 27, 2008, at 4:34 PM, TMFLomax wrote:

    Hi Fafar -- thanks for these great observations from NJ! You know I forgot to mention it, but yeah, I did see a couple Forever 21 bags in the mall I visited too! It wasn't as closely on my radar since it's not publicly traded BUT that's definitely a good one to keep in mind since it does compete with the others.

    The 3 A's... I like that phrase. And yeah... I can think of nothing less appealing than sweaters on a humid summer day. Yuck.

    Thanks again for adding your own recon trip data! I hope more people will share some observations from their own experiences.



  • Report this Comment On June 27, 2008, at 9:24 PM, stapelbroek wrote:

    Don't know about you all, but we went to Fashion Valley in San Diego and the mall was reasonable on a Friday afternoon. And ANF was the busiest of any store we went in. That includes the check-out lines.

  • Report this Comment On June 27, 2008, at 9:28 PM, TMFLomax wrote:

    Oh good, some West Coast feedback. Interesting that the ANF there was bustling. Thanks for chiming in stapelbroek!


  • Report this Comment On June 29, 2008, at 5:30 PM, dhtang8 wrote:

    We have a number of malls out here that have rules against unsupervised teens. Could that be a factor for the low traffic at the teen stores? I would imagine shopping with parents would probably be less appealing and may certainly curtail some of the past discretionary spending!

  • Report this Comment On July 01, 2008, at 12:20 PM, TMFLomax wrote:

    Oh, interesting -- I've never heard of rules like that! I'll have to look into it, but as far as I know, we don't have rules like that here...

    But yes, I can certainly see how that might curtail some of that spending if rules like that were in place!


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