Electronics, int'l 'fast-fashion' rivals squeeze top US teen chains

Large fashion chains in the US have fallen out of fashion with fickle teen shoppers and aren't likely to win back their business anytime soon.

Abercrombie & Fitch Co, Aeropostale Inc and American Eagle Outfitters Inc, known as the "3As," have long been popular for their cool basics like jeans, hoodies and t-shirts. But young shoppers are now less interested in their logo-centric clothes and more eager to shop for electronics or go to low-cost, fast-fashion chains like Zara, Forever 21 and H&M that offer greater variety more quickly.

"The teen retailers seem to be not in style or in vogue at this point in time for their target consumers," said Bryan Keane, portfolio manager of the Alpine Global Consumer Growth Fund. "That usually does not turn around quickly,"

American Eagle on Wednesday gave a weak forecast for the fall, sending its shares to their lowest levels in a year and a half.

Aeropostale earlier this month said comparable sales fell 15 percent last quarter, and Wall Street analysts expect earnings per share to fall by more than two-thirds this year.

Abercrombie reported a 10 percent drop in same-store sales on Thursday, far worse than expected, and forecast a similar drop this quarter.

One of the big problems the 3As face is a narrower clientele than that of H&M and Gap Inc, which draw shoppers of all ages.

"This team [young shoppers] wants to be fashionable but they don't want to spend a lot of money, and fast fashion works very well for that," said Eric Beder, a Brean Capital analyst, who has a "sell" recommendation on Aeropostale.

The result has been constant pressure to discount.

"We believe youth spending has likely diverted to other categories," Abercrombie CEO Mike Jeffries told analysts on a conference call.

Aeropostale and American Eagle did not return messages seeking comment.

Spending more on gadgets, less on clothes

The competition has only grown more intense as US government statistics show young shoppers have gradually directed more of their spending toward electronics and less on clothes.

GameStop Corp, the world's largest retailer of video game products, posted results on Thursday that beat Wall Street estimates, thanks to higher mobile and digital game sales.

At the same time, teens are facing lower employment levels this year, according to Challenger, Gray & Christmas, and their parents are grappling with higher payroll taxes, gasoline prices and a slow job recovery.

On top of all that, the three chains are facing an ever more crowded field as international "fast-fashion" rivals are aggressively expanding in the United States.

H&M, a Swedish retailer, said its US sales rose 10 percent in the first half of 2013, and it just launched a US e-commerce site. It has 269 US stores, after opening 40 last year.

Uniqlo, owned by Japan's Fast Retailing, is opening six more US stores this fall with a goal of having 200 by 2020.

US sales at Zara, owned by Spain's Inditex S.A., more than tripled between 2007 and 2012, according to Euromonitor International.

US rivals are also stealing market share from the 3A's. Forever 21 Inc's sales rose 82 percent in the period 2007-2012.

These new chains are bringing new products, such as Uniqlo long johns that warm up on touch, making it risky to offer the same-old, same-old.

"There isn't a lot of innovative clothing out there for anyone, and there are plenty of other places to buy clothes if you want," said Wendy Liebmann, CEO of WSL Strategic Retail.

Aeropostale is moving away from its logo business and adding more expensive, fashionable items. But KeyBanc analyst Ed Yruma said in a note last week the move is a "tacit acknowledgement that the targeted teen customer base may have moved elsewhere."

Last year, many apparel chains got a boost from the bright-color jeans craze. But this year, analysts say there is no such must-have to bring teens into the stores.

"Sometimes, you have something unique that everyone has to have," said Jessica Bemer, an analyst with Snow Capital Management. "But the look is going to be very similar this year to last year." — Reuters