The Secret Behind the Best Teen Brands

When your boss tells you that you're not making yourself stand out, we aren't usually excited. That's because, as adults, we don't get much out of being part of the pack. That's not true for teenagers, new studies have suggested. Instead, research has shown that teens get a bigger fun-boost -- that's a technical term -- from the brain's pleasure center when they're liked by others.

That basic biological point drives a lot of business, especially among apparel retailers. Companies chase each other to get the current hot trends on shelves as quickly as possible. Even companies that have a very clear design direction end up falling in line when major fashion shifts drive teenage shoppers to the mall.

The complex web of fashion
One of the most important things to remember is that the term "peer" is incredibly loose. Just as the peers that show up in the jury box may or may not resemble you, teens are selecting peers from an incredibly broad set. While the other kids at school make up the day-to-day social jury, there's an unseen jury sitting just out of reach.

Studies have shown that teens' fashion choices are also influenced by actors and the media. As much as magazines and models can have an impact on a teen's body image, they can also affect their views on fashion. The complexity of the peer pressure system means that retailers can't just sit back and wait for teens to line up around the block. Instead, they have to take new approaches to bringing in teen cash -- more on this in later.

Wait -- teens have cash?
When I was a young man, shopkeepers didn't get overly excited when I walked, penniless, into the store. Those days are gone. This year, back-to-school shoppers brought the credit card along, and the average family was looking at a back-to-school apparel bill around $350.

Once you throw in all the other supplies and electronics that send kids back to school, you're looking at a market that spends more than $70 billion. For contrast's sake, last year's Black Friday weekends brought in around $60 billion for retailers.

This year has been less successful for apparel retailers, with many companies offering weak outlooks for the end of the year. While parents and teens spent plenty last year, 2013 has been less successful. That's meant that the end of the year has seen a rash of bad earnings, and companies scrambling to get back into the trends.

Companies that are doing it well
Good retailers need to either set new trends or be good at chasing existing trends. Both plans can work well, but neither is easy to pull off. In setting trends, it's been a good year for aspirational brands. Companies such as VF (NYSE: VFC  ) have seen excellent success from the adoption of its North Face brand. The brand has worked its way into college campuses and onto celebrities, and even politicians have picked up on it. VF's outdoor division, which includes North Face, has seen revenue rise by 7.3% year to date. That's helped push the company's stock up 47% over the past 12 months, and set the company up for a strong run in 2014.

Instead of setting the trend, some companies are happy to chase what's popular. Urban Outfitters (NASDAQ: URBN  ) has had a good year of getting trendy items into stores. The company has increased its comparable-store sales, with especially strong gains in its Free People and Anthropologie brands.

While Urban Outfitters has proved itself a trend champion, other trend chasers haven't done so well. Abercrombie & Fitch (NYSE: ANF  ) has been hammered this year, with comparable sales dropping and margins shrinking. While the company used to be able to command top price based on its name alone, a shift in teen sentiment has pushed it down the brand strength list, forcing the company to discount its merchandise to make a sale.

The secret to teen retail
More important than anything else is that companies need to remain flexible. Whether setting a teen trend or chasing existing trends, companies need to be able to shift as the market shifts. That means keeping abreast of who's popular in teen culture and understanding what trends teens are trying to jump onboard with.

Companies such as VF and Urban Outfitters are succeeding because they've found a way to keep themselves on step ahead of their customers. Abercrombie, meanwhile, rested on its mid-2000s laurels, and now it's paying the price for its failure to innovate. If there's one rule in teen apparel retail, it's this: When in doubt, don't stand out. Companies that understand the delicate social and psychological balance that teens strike have a much better chance of success.

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