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Teens Skip $50 Jeans in Squeeze of $4 Gas, Summer-Job Shortage
By Lauren Coleman-Lochner and Heather Burke
July 2 (Bloomberg) -- The financial pressures of adults are finally catching up with American teenagers. Since summer jobs dried up, gasoline prices topped $4 a gallon and parents ran out of spare cash, teens have had to cool it on spending for clothes.
``I've had to cut down on a bunch of stuff because I don't like spending my own money,'' said 14-year-old Haley McClelland from Waldwick, New Jersey, who was shopping at the nearby Paramus Park mall. She said her parents are ``more careful'' about what they give her.
Teens like Haley are among the last American consumers to cut back. Even as adults trimmed purchases, the kids managed to prop up revenue for Abercrombie & Fitch Co. and American Eagle Outfitters Inc. because of handouts from parents and part-time jobs, said Adrienne Tennant, an analyst at Friedman, Billings, Ramsey & Co. in Arlington, Virginia.
Spending by 13- to 17-year-olds is important because in at least the past two years it has been rising faster than total apparel sales. The adolescent demographic accounted for $27 billion, or 14 percent, of the $192.7 billion of clothing purchases in the 12 months through April, according to market- research firm NPD Group Inc.
At the same time, teen spending in the period rose just 2.9 percent, after a 12 percent gain between May 2006 and April 2007.
``There is absolutely a slowdown in teen spending,'' said Holly Guthrie, an analyst at Janney Montgomery Scott LLC in Philadelphia.
Pain for Retailers
Retailers dependent on that group are feeling the pinch. First-quarter net income at American Eagle plunged 44 percent because of discounting, and the retailer may post its first annual profit drop in five years. Same-store sales have fallen for the past two quarters. At Gap Inc.'s Old Navy chain, sales in May were off 25 percent from a year earlier. Abercrombie's same- store sales dropped in five of the past six quarters.
``While we believe the teen customer has slightly more discretionary income than their parents, they're still impacted by the sluggish economy,'' Zumiez Inc. Chief Executive Officer Richard Brooks said on a May 22 earnings call.
Zumiez's 309 stores selling skateboarding and beach clothes, such as $39.95 Billabong bikini bottoms, are geared to 12- to-24- year-olds. In May, the retailer reported its first quarterly profit drop since going public in 2005.
More Declines Ahead
Looking forward, U.S. teen spring fashion budgets may be reaching the lowest level in seven years, based on results of a survey of 5,000 youngsters by Piper Jaffray Cos. in Minneapolis.
Teenagers said in April they would spend $1,183 on fashion this year, 19 percent less than last year and down 23 percent from 2006, according to survey authors Jeffrey Klinefelter and Neely Tamminga, Piper's retail analysts.
``Teen spending may contract further this year,'' said Britt Beemer, chairman of America's Research Group in Charleston, South Carolina. ``It likely wouldn't go to minus 10, but it could do a negative 2 or negative 3 percent.''
Michael Niemira, chief economist at the International Council of Shopping Centers, projects about a 2 percent drop in purchases at teen clothing stores through January 2009, the biggest in at least four years, following last year's 0.5 percent decrease. They already fell 1.2 percent this year through May, though that's still better than the 5.8 percent decline at all specialty apparel chains, he said.
Gas and Joblessness
``Gas is the main thing right now,'' said Pete McCullough, a 19-year-old from Oradell, New Jersey, who can't afford the designer clothing he favors. ``Just coming to the mall costs $4.'' McCullough said he earns what he spends, juggling school with construction work.
Add to that the biggest jump in joblessness among youths in at least 60 years, according to the U.S. Labor Department. Unemployment among those between the ages of 16 and 19 soared to 18.7 percent in May from 15.4 percent in April, the government said. It was the biggest one-month increase since Labor began collecting statistics in 1948. Overall unemployment is 5.5 percent.
The portion of teens with jobs this summer may fall to 34.2 percent from last year's record low of 34.4 percent, according to a forecast from Joseph McLaughlin of Northeastern University's Center for Labor Market Studies. In the summer of 2000, when the economy was humming, 45 percent of teens had jobs.
Parents reluctant to pay for nice-to-have wardrobe additions, such as $49.50 Abercrombie jeans, are also cutting into sales. Hurt by sliding home values and rising food and energy costs, parents said they would spend 28 percent less on their teens this year, Piper Jaffray's survey showed. Klinefelter estimates that heads of middle-income households provide as much as half of teen spending money.
Specialty Merchants
Specialty clothing merchants known for value pricing, such as Aeropostale Inc., may fare better, said Linda Tsai, an analyst at MKM Partners LLC in New York. The New York-based chain posted a 27 percent first-quarter profit increase on a 22 percent sales gain.
With prices 20 percent to 30 percent cheaper than American Eagle's, Aeropostale has improved the quality and fashion of its clothes, said Christine Chen, a retail analyst at Needham & Co. in San Francisco.
``Kids tend to react more to product; parents tend to react more to promotion,'' said Aeropostale CEO Julian Geiger in a June 19 interview. ``We've found a wonderful balance between having teenagers love our merchandise and having mom love our prices.''
By Lauren Coleman-Lochner and Heather Burke
July 2 (Bloomberg) -- The financial pressures of adults are finally catching up with American teenagers. Since summer jobs dried up, gasoline prices topped $4 a gallon and parents ran out of spare cash, teens have had to cool it on spending for clothes.
``I've had to cut down on a bunch of stuff because I don't like spending my own money,'' said 14-year-old Haley McClelland from Waldwick, New Jersey, who was shopping at the nearby Paramus Park mall. She said her parents are ``more careful'' about what they give her.
Teens like Haley are among the last American consumers to cut back. Even as adults trimmed purchases, the kids managed to prop up revenue for Abercrombie & Fitch Co. and American Eagle Outfitters Inc. because of handouts from parents and part-time jobs, said Adrienne Tennant, an analyst at Friedman, Billings, Ramsey & Co. in Arlington, Virginia.
Spending by 13- to 17-year-olds is important because in at least the past two years it has been rising faster than total apparel sales. The adolescent demographic accounted for $27 billion, or 14 percent, of the $192.7 billion of clothing purchases in the 12 months through April, according to market- research firm NPD Group Inc.
At the same time, teen spending in the period rose just 2.9 percent, after a 12 percent gain between May 2006 and April 2007.
``There is absolutely a slowdown in teen spending,'' said Holly Guthrie, an analyst at Janney Montgomery Scott LLC in Philadelphia.
Pain for Retailers
Retailers dependent on that group are feeling the pinch. First-quarter net income at American Eagle plunged 44 percent because of discounting, and the retailer may post its first annual profit drop in five years. Same-store sales have fallen for the past two quarters. At Gap Inc.'s Old Navy chain, sales in May were off 25 percent from a year earlier. Abercrombie's same- store sales dropped in five of the past six quarters.
``While we believe the teen customer has slightly more discretionary income than their parents, they're still impacted by the sluggish economy,'' Zumiez Inc. Chief Executive Officer Richard Brooks said on a May 22 earnings call.
Zumiez's 309 stores selling skateboarding and beach clothes, such as $39.95 Billabong bikini bottoms, are geared to 12- to-24- year-olds. In May, the retailer reported its first quarterly profit drop since going public in 2005.
More Declines Ahead
Looking forward, U.S. teen spring fashion budgets may be reaching the lowest level in seven years, based on results of a survey of 5,000 youngsters by Piper Jaffray Cos. in Minneapolis.
Teenagers said in April they would spend $1,183 on fashion this year, 19 percent less than last year and down 23 percent from 2006, according to survey authors Jeffrey Klinefelter and Neely Tamminga, Piper's retail analysts.
``Teen spending may contract further this year,'' said Britt Beemer, chairman of America's Research Group in Charleston, South Carolina. ``It likely wouldn't go to minus 10, but it could do a negative 2 or negative 3 percent.''
Michael Niemira, chief economist at the International Council of Shopping Centers, projects about a 2 percent drop in purchases at teen clothing stores through January 2009, the biggest in at least four years, following last year's 0.5 percent decrease. They already fell 1.2 percent this year through May, though that's still better than the 5.8 percent decline at all specialty apparel chains, he said.
Gas and Joblessness
``Gas is the main thing right now,'' said Pete McCullough, a 19-year-old from Oradell, New Jersey, who can't afford the designer clothing he favors. ``Just coming to the mall costs $4.'' McCullough said he earns what he spends, juggling school with construction work.
Add to that the biggest jump in joblessness among youths in at least 60 years, according to the U.S. Labor Department. Unemployment among those between the ages of 16 and 19 soared to 18.7 percent in May from 15.4 percent in April, the government said. It was the biggest one-month increase since Labor began collecting statistics in 1948. Overall unemployment is 5.5 percent.
The portion of teens with jobs this summer may fall to 34.2 percent from last year's record low of 34.4 percent, according to a forecast from Joseph McLaughlin of Northeastern University's Center for Labor Market Studies. In the summer of 2000, when the economy was humming, 45 percent of teens had jobs.
Parents reluctant to pay for nice-to-have wardrobe additions, such as $49.50 Abercrombie jeans, are also cutting into sales. Hurt by sliding home values and rising food and energy costs, parents said they would spend 28 percent less on their teens this year, Piper Jaffray's survey showed. Klinefelter estimates that heads of middle-income households provide as much as half of teen spending money.
Specialty Merchants
Specialty clothing merchants known for value pricing, such as Aeropostale Inc., may fare better, said Linda Tsai, an analyst at MKM Partners LLC in New York. The New York-based chain posted a 27 percent first-quarter profit increase on a 22 percent sales gain.
With prices 20 percent to 30 percent cheaper than American Eagle's, Aeropostale has improved the quality and fashion of its clothes, said Christine Chen, a retail analyst at Needham & Co. in San Francisco.
``Kids tend to react more to product; parents tend to react more to promotion,'' said Aeropostale CEO Julian Geiger in a June 19 interview. ``We've found a wonderful balance between having teenagers love our merchandise and having mom love our prices.''
