>Currently the fastest-growing segment of the population, with an estimated spending power of $155 billion, the teen sector could be way cool, retailers and investors say.
Among the major publicly held players are American Eagle Outfitters, Abercrombie & Fitch and Pacific Sunwear of California, all of which feature a preppy or sporty look. Farther out on the fashion fringe are Hot Topic, Gadzooks, Buckle, Delia's and Deb Shops.
And on the periphery is Too, operator of the Limited Too stores. It is the entry point for 7- and 8-year-olds being coaxed over the line from Barbie to body glitter. Too was spun off by The Limited in 1999.
"There are a lot of reasons to be looking at this space," said Jeffrey Klinefelter, an analyst at US Bancorp Piper Jaffray in Minneapolis.
Aside from the long-term demographics, Klinefelter said, there are some short-term considerations. Last year's weak results mean teen-specialty retailers should deliver strong comparative earnings this year.
The teen-apparel sector was nearly wiped out in the early 1990s by several major bankruptcies, including those of Merry-Go-Round, Edison Bros. and Petrie Stores. But out of the wreckage, a group of small, regional retailers rose to fill the void.
After 30 years in the teen business, Deb Shops suffered through three money-losing years in the 1990s. But it survived, relying on cash reserves, and its 270 stores around the nation are now catering to the children of the former teenagers who bought bell-bottoms when the company was young.
Like all retailing, the sector can be volatile. Add in the teen factor, and the highs and lows become hormonal.
"When you're hot, they are loyal. But their loyalty lasts only as long as what they're wearing today is cool," said Marvin Rounick, chief executive officer of Deb Shops.
Still, retailers in this sector hope to profit from teenagers' demographic strength as the fastest-growing age group.
Last year, the nation's teenagers spent $129.6 billion, up from $74.9 billion in 1995, according to the Rand Youth Poll.
Monthly spending by 13- to 17-year-olds who shop regularly was $381, and nearly half of that went to clothing, according to a survey by element, a New York youth-marketing firm.
Teens have money to spend, thanks to part-time jobs, savings, allowances and gift certificates.
But the major source of financing is the parental checkbook. Or, as Deb Shop's chief financial officer, Lewis Lyons, calls it: "The First National Bank of Dad."
Lyons said teen spending is sensitive to gasoline prices, but for the most part it is recession-proof.
Dorothy Lakner, a retail analyst with CIBC World Markets in New York, agreed. "Even as the economy is slowing down, teenagers are less likely to stop spending on clothing," she said. "It's very important to them while they are forming their identity during these years.
Many retailers in this sector create a "community" through a catalog or Web presence that includes editorial content and databases that go beyond the more traditional retail experience.
"Teenagers are probably more computer-savvy than their parents, and they took to this idea of seeking out a community online," Lakner said. "Teens are social. They want to be with other kids. The company that can deliver this 360-degree experience is in a strong position." |
