Value Line is regarded as the best independent research available. More than just recommendations, Value Line provides the rationale behind its picks for greater understanding.
- Don D., California
Retailers Target Younger Audience
It is no surprise that teenagers and young adults have been the target markets of choice for many clothing retailers in recent years. After all, teens have been one of the fastest-growing populations in the U.S., and have made up the second-largest age group after the baby-boomers according to statistical data. And what better way to expand a clothing brand than to grow with the customer into the next phase of life of young adulthood? While this strategy seemed to have worked during the years when the economy was thriving, from the late 90’s to well into the new millennium, chasing after these markets has been challenging these days. The recent downturn has been a game-changer of sorts. Since the recession hit in late 2007, sagging sales have prompted many retailers to reach out to a much younger crowd—babies and tweens (kids under 13). And it appears an increasing number of retailers are looking to tap into this potentially lucrative market, with the aim of building brand awareness at an earlier age.
Indeed, with the economy limping along and unemployment on the rise, even teens and young adults (20s-30s) have been feeling the pinch. To put things into perspective, joblessness among adolescents has soared of late; it clocked in at over 26% just last month. Young adults haven’t been spared either. So, it’s no wonder that this group, too, has tightened the pursestrings.
Yet, despite the economic malaise, parent shoppers have been perhaps the least compelled to cut back on spending. When it comes to their kids, parents are often more inclined to make financial sacrifices, preferring to forgo shopping for themselves and instead put their children’s needs first. Industry data confirms this, with sales for children’s clothing rising at a faster clip than overall apparel sales.
Teens and young adults also tend to be among the most fickle of shoppers, as their buying habits are largely dictated by the latest styles and trends. Tastes and preferences of these groups can change very quickly, making fashion hits or misses virtually instant. Image is typically of top priority, so a fashion faux pas in the merchandise mix can spell disaster for a retailer and, in some cases, lead to the complete failure of a brand.
Several teen clothing retailers have fallen prey to this in recent years, including Aeropostale (ARO), which shuttered its Jimmy Z chain, geared for the 18-25 year-old customer, in 2009. The RUEHL segment unveiled a few years ago by Abercrombie & Fitch (ANF) had a similar fate, as it proved unpopular with the post-college-aged crowd in their twenties and thirties. American Eagle Outfitters (AEO) also pulled the plug on its Martin + Osa brand, which had a tough time getting older shoppers into its stores.
For youngsters, however, the fashion scene isn’t just about making a statement. To a larger degree, shopping for kids is borne out of necessity. Indeed, children require clothing as they grow older and change size, which means repeat visits by parent shoppers is a given. That’s clearly an advantage for established teen retailers targeting the younger market.
Of course, for a retailer to be successful in the kids and tween space, its concept must first strike the right cord with parents. Once that occurs, brand awareness should strengthen with children as they grow older. This is what Aeropostale is likely banking on. The apparel maker, whose core brand is otherwise known for its highly popular, value-priced casualwear targeting the teen to 20 year-old demographic, recently unveiled its P.S. from Aeropostale chain, aimed at kids ages 7 to 12. So far, the kiddie segment has been a hit.
Similarly, American Eagle Outfitters hopes to have greater success this time around with its newly introduced 77kids concept, which focuses on babies and children. Dress Barn (DBRN) recently got in the game, too, by acquiring Tween Brands, which operates the Justice chain, targeted to girls ages 7 to 14. In the meantime, Abercrombie & Fitch’s kidswear division, abercrombie, is proving to be a nice complement to its core adult and teen divisions.
Miniaturizing popular adult fads is helping some retailers with established children’s concepts stay ahead. And parent shoppers don’t seem to mind paying big bucks to have their tots don the latest fashions. Take The Gap Inc. (GPS). Its skinny jeans for adults have been a winner. With that in mind, the retailer recently rolled out baby and kids versions of the slim pants at its babyGap and GapKids stores. The fashion appears to be getting thumbs up from parents. The Gap also recently introduced a new trend called jeggings—a combination of jeans and leggings—for children. A baby style of the hybrid pants should make its debut soon.
Although reaching out to a younger audience can be a boon to profits, there are risks involved. Competition is perhaps the biggest hurdle facing a retailer seeking to enter the kids and tween markets. As more merchants join in, the space is bound to get saturated. Not having trend-right fashions in place at a reasonable price can be problematic as well, pushing shoppers away from a retailer outlet. Comfort is another factor that shouldn’t be overlooked, as poorly designed children’s apparel can be a turn off to parents and result in lost business.
In general, retailers that provide a balance of value and comfort, while still staying fairly current with styles, are most likely to prosper in the kids and tween space. Aeropostale tops our list of favorite stocks here that should continue to perform well in the next few years. Dress Barn seems well positioned to keep climbing, too, while shares of American Eagle could get a much-needed boost, if its new kids concept takes off.
At the time of this writing, the author did not have positions in any of the companies mentioned.