It’s August, and time for parents and teens to venture out to the mall in quest of everything from the hottest new electronic gadgets to a new wardrobe. But as a new special report on back-to-school shopping shows, the benefits are likely to be spread unevenly amongst retailers.
The last time that employment among teenagers was at today’s low levels was all the way back in 1964, when the Beatles made their first appearance in the United States. That means that today’s teenagers have to depend more on their parents – many of whom may have only hazy memories of Beatlemania themselves – to finance all the purchases they need to make ahead of a new school season this fall. In an uncertain economic environment and against the backdrop of high unemployment rates, those parents will have to budget carefully in order to get everything on the list, from notepads, pens and books to clothing.
But it isn’t just their parents’ quest for value and bargains that retailers will have to contend with this season, but the attitudes of the teens themselves, who have been through two recessions and purchases has forced parents to budget carefully – and that’s not the only headwind that retailers catering to the teen market will have to battle. Back-to-back recessions have altered the shopping habits of teenagers themselves, who have found it difficult to find summer jobs and who may have watched their parents struggle and sacrifice in recent years. Since the back-to-school season is a predictable event, parents are likely to have budgeted for it, but charming teens themselves into opening up their wallets is likely to require more effort, especially for those retailers trying to convince them to spend $100 for a “must have” pair of distressed denim jeans, the kind of purchase from which many parents are likely to recoil even in the best of times.
Certainly, the teen retailing universe isn’t going into this back-to-school season – the second most important of the year for retailers – in an ebullient mood. The Same Store Sales Teen Index hit its recent peak during the first quarter of 2012; since then, it has recorded its largest decline since 2008. Some analysts believe that the decline may be explained by the fact that more back-to-school shopping took place earlier in the summer than usual; retailers, they note, discounted their remaining stock in July and so are entering the peak season with lean inventories.
Despite all the headwinds in the shape of the economy and bargain hunting by wary consumers, some retailers are expected to earn an A+ this back-to-school season. JW Nordstrom (JWN.N) is among them: the luxury retailer is expected to generate a third-quarter jump in same-store sales of 7.2%, the largest in our retail universe. Parents favor department stores that enable them to nab everything they need and return rapidly to their cars parked nearby, without having to navigate the rest of the mall. (Saks also is expected to earn top grades during the back-to-school shopping season.) Among teen-specific retailers, Zumiez (ZUMZ.O) boasts the strongest third-quarter SSS forecast, of 5.5%, with its active lifestyle fashions striking a chord with teens themselves. Other winners include several footwear stores, including Finish Line (FINL.O) and Foot Locker, and discounter Family Dollar (FDO.N), which became a staple during the recession as college students shopped for affordable new furniture for their dorm rooms.
Other retailers are expected to flunk the back-to-school sales test. Those likely to earn only an F include department store JC Penney (JCP.N), which analysts forecast will report the weakest third-quarter SSS, posting a decline of about 10.5%. It remains to be seen whether the retailer’s promise to offer free haircuts to kids whose parents shop there will be enough to change its outlook. Abercrombie & Fitch (ANF.N) leads the laggards sitting at the back of the classroom among teen apparel retailers; analysts expect it to report an 8.3% decline in same-store sales for the quarter, following by Wet Seal (WTSLA.O), with a forecast 4.7% decline. Fickle teens have spent less time and money in its stores, and in those of former teen favorite Aeorpostale (ARO.N) of late, appearing to shun them in favor of Old Navy, which tends to be the strongest division of the Gap (GPS.N) during the back-to-school shopping months. Aeropostale’s second-quarter SSS fell short of estimates and lowered its Q2 earnings estimate as a result. Best Buy also is likely to struggle; with analysts projecting it will post a 2.4% decline in same store sales.
For more insight into these and other specific retailers, and to gauge the impact of the back-to-school season on third-quarter earnings from retailers, please see the full report on the impact of this important shopping season here. In it, we spell out which retailers are most likely to post results that exceed current guidance or analysts’ estimates.
Technology is emerging as a key driver of back-to-school sales for retailers. Some are posting ads in their stores encouraging teens to sign up for texts that contain instant discount codes, and to download store apps with special offers. That’s a savvy move, although the extent to which it counteracts more cautious consumer behavior remains to be seen.
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