Teen fashion retailers struggle to keep up

By: Mary Ann Azevedo

Teen apparel retailer Aeropostale’s 2016 bankruptcy filing wasn’t a surprise considering the company had been struggling for years.

About a month before the filing, Aeropostale’s shares were delisted from the New York Stock Exchange after sliding to a mere 15 cents, down dramatically from a peak of $32.24 in 2010.

The chain joined a slew of other teen-focused clothing stores – including Delia’s, Pacific Sunwear, Wet Seal and American Apparel – that in recent years have been forced to collectively close thousands of stores as they worked to reorganize in the face of declining sales.

Those that are still operating are working to stay fresh to teen consumers so that they too don’t have to go down the bankruptcy trail.

There are a variety of theories as to why this sector is taking such a hit. What comes up repeatedly is the popularity of social media and its impact on the shopping behavior of young consumers.

Marshal Cohen, chief industry analyst for The NPD Group Inc., says teens these days are generally not purchasing product at the same rate they used to.

“Their priorities are shifting,” he said. “It’s now more important to do things than buy things. It’s more important for them to document themselves doing things and collect memories than building a wardrobe.”

Kozyak Tropin & Throckmorton shareholder Corali Lopez-Castro agrees that social media and online shopping has had an impact on teens’ spending habits – but in another way. They are simply becoming more fickle.

She cites the advent of social networking and smartphones, and the fact that teens are typically early and avid adopters of new platforms and technologies. They are able to keep up with fads and trends more immediately, and many stores just can’t keep up.

“Brands can quickly fall from favor as others rise,” says Lopez-Castro, who has recently handled such a bankruptcy case. “Those that are struggling have not been able to keep up with changing trends as teens are becoming much more sophisticated consumers with their taste changing very quickly.”

Also, as more people opt to shop online and draw inspiration from fashion bloggers, there is a lack of foot traffic in traditional malls and shopping centers.

“Stores these days have to be able to address fashion trends more quickly to keep the consumer coming back again and again,” she says. “And their online presence has to be an inviting experience. Websites have to be young and fresh so that these teens want to go online and order the stuff they have. Girls are getting their looks from following fashion editors, models and bloggers. This is the new consumer.”

Tuna Amobi, research analyst at CFRA, believes the teen retail space has undergone a secular shift that is manifested in the way that consumers are purchasing.​

Competition from ecommerce giant Amazon and fast-fashion retailers such as H&M, Zara and Forever 21 have made the space a challenging one.​

“Five to seven years ago, teen apparel was geared toward logo-type wear and the cycles of merchandising were much longer,” Amobi says. “New entrants have provided a new way of merchandising and design that is much more fast-paced.”​

On top of that, he agrees with Cohen that teens in general are more pragmatic about where they spend their money.​

Many of these retailers, Amobi points out, were overburdened by debt. Investor efforts to resuscitate the companies were not successful.​

“They underestimated that trends would happen as fast as they were,” he says. “Meanwhile, surviving retailers have tried to adapt to these trends to varying degrees of success.”

Abercrombie, for example, tried to significantly streamline its operations and revamp its merchandising strategy to adapt to what the more successful companies are doing.

In general, surviving retailers are focused more on international growth in Asia and Europe.

“It’s clear that the U.S. market was oversaturated,” Amobi says. “Today there’s a lot more nimbleness.”

Cohen also cites a domino effect.

He believes that when one or two retailers in a space file bankruptcy, all of a sudden it’s seen as not such a bad thing to do if a store has been contemplating it.

“Some stores take advantage of timing,” Cohen says. “If you’re not the first, your stock doesn’t take as big of a hit and your credibility as a leader doesn’t look as negative. Misery loves company. So some companies take this opportunity to regroup and have it not be as painful as if they were doing it on their own.”

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