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The Real Reason Teen Retailers Are in Trouble

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There's no question that many teen retailers are struggling for shoppers. Abercrombie & Fitch's (NYSE: ANF  ) sales were down 12% to $1.033 billion in the third quarter. Aeropostale  (NASDAQOTH: AROPQ  ) reported a 15% drop in sales after its earnings call. American Eagle Outfitters  (NYSE: AEO  ) saw transactions per store fall 3% in its second. And Wet Seal  (NASDAQOTH: WTSLQ  ) reported its eCommerce sales dropped 18.4% year-over-year.

And these retailers seem to be reciting from the same playbook for the reasons for their challenges. They blame their poor sales on "economic uncertainties," "an excessive promotional environment," "low mall traffic," or "weather." 

It's gotten so bad that now both Aeropostale and Abercrombie & Fitch are targets for take-over bids by private equity firms. 

Still, upon closer examination, the explanations given by these teen retailers fail to ring true. After all, teens aren't walking around naked. Some 15% of teens say they purchased clothes or shoes in the past week, according to C&R Research. Teens have the money to spend on apparel and accessories. They receive an average $13.30 weekly allowance, which is supplemented by an extra $17 given to them by their parents, per C&R Research. So teens are purchasing clothing, it's just not at the expected teen retailers. 

So where are they shopping?

So the question becomes, why are teens preferring one retailer to another? And the answer lies with the death of the mono-brand.

"They don't want to look [all] one way," says Tracy Gardner of the teen retailer Delia's  (NASDAQOTH: DLIAQ  ) . "They want to curate and experiment with fashion." 

The retailers winning with today's teens carry a variety of popular labels. Indeed, retailers, such as J. Crew, The Buckle, Macy's, Ross, and TJMaxx that carry several brands, have all reported strong quarterly earnings. "They want great brands that are popular, like Sperry and Converse," says Gardner. 

Teens don't want to wear the same label from head to toe, even if it's on-trend or extremely low-priced. They want to mix and match. This preference is  a sharp contrast to the early aughts  when it was cool for teens to purchase all of their clothing at one retailer. To wear Abercrombie from top to bottom represented the apex of cool.

Hence, these struggling teen retailers have two options.  They can add  additional brands to their assortments. To that end, teen retailer PacSun saw sales increase 3% to $213 million in part to a new exclusive collaboration with the Diamond Supply Co. and adding trendy brands, such as Neff, to their offerings.

Or teen retailers can wait it out. Teens are fickle. In another few months, it's likely to once again be cool to wear one brand.

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9/27/2016 4:01 PM
AEO $18.11 Up +0.25 +1.40%
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