Remember when the profligate spending of youngsters boosted the fortunes of many retail stocks? There was a time when investors could thank heavens for mall rats. Well, the times, they are a-changing.
Retail companies that have traditionally appealed to relatively youthful shoppers may strip some value from many investors' portfolios given changing tastes and spending habits.
Bloomberg recently reported an interesting trend among individuals ages 18 to 34: clothing swaps. Yes, that's right, these youngsters may be called millennials, but in one way they're way old-fashioned these days: They're engaging in the primitive barter system.
Here's how the old-fashioned can become newfangled, though. Online services are helping them arrange their apparel trades. Sites like Swapstyle.com, Meetup.com, Evite, and Etsy help enable this behavior on a far wider scale than would have been possible for our more primitive forebears.
In late 2010, I pointed out that baby-boomer-focused stocks such as Talbots
Many apparel stocks could find the squeeze in the opposite demographic direction now. Baby boomers may have their share of difficult economic realities to face right now, but millennials do, too. America's young people are weighted down by student loan debt and an extremely challenging jobs market.
Young people's new frugality certainly isn't a bad thing for their personal balance sheets or overall economic well-being, but it could greatly impact those of us who are invested in apparel retailers. It's time to think long and hard about which of these stocks are the best investments, and which ones to avoid like last year's jeans that nobody would even take in the swap meet.
Comparison-shop for retail stocks
I've got a laundry list of bearish thoughts about Abercrombie & Fitch
On the other hand, Buckle's
Unlike Abercrombie, which choked badly in 2008 and 2009, Buckle has years of impressive sales and earnings growth under its belt. Paying 13 times forward earnings for well-managed Buckle is wiser than paying 12 times forward earnings for Abercrombie given the macro climate.
Interesting times continue
Regardless, even years beyond retail's annus horribilis, we still live in "interesting times." Changes in consumer behavior like this trend toward youthful bartering instead of buying brand new illustrate such fascinating and unexpected outcomes loud and clear.
Let's not ignore the signs. Many apparel retail stocks could not only find themselves out of fashion, but they could strip investors' portfolios of value. Shop around carefully, and go for high-quality stocks at all costs.
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