When Teens Stop Shopping, It's Time to Worry

The Mall Street financial crisis is here. Say goodbye to teenage crushes and summer loving. Say hello to the teenage cash crunch and summer toiling.

The time has come for less hanging out at the mall and more time working at the mall. That is, if you can even find any companies even hiring!

The ugly mishmash of high gas prices, a weak economy and a lack of summer employment opportunities has left once-carefree spenders rethinking their spending habits and must-have items.

Across the nation, teens and their parents are asking if they really need those jeans from Abercrombie & Fitch (ANF - commentary - Cramer's Take). Is that cute blouse from Guess (GES - commentary - Cramer's Take), a must have? Is another pair of surfer shorts from Pacific Sunwear (PSUN - commentary - Cramer's Take) mandatory?

Teens are the last demographic in America to lower spending, as demonstrated by the fact that teens continued to spend at a faster rate than the growth rate for total apparel sales over the past two years.

The last bastion of freewheeling spending is grinding to a halt. Now, thrift is not just a word to study for the SAT exam. The younger demographic is consuming less and getting the ultimate case study of Economics 101: their own lives.

Retail Dropouts

Piper Jaffray recently did an exhaustive survey of over 5,000 teenagers and their spending habits. The results don't bode well for profit growth for teen-centric retailers. Teen spending is expected to drop nearly 20% year over year, and the story with parents does not get any better. Surveyed parents signaled that they would reduce spending on their teens by average of 28% year over year. This is especially worrisome for investors, given that fashion represents the largest category of spending by teens. Over the past five years, retail fashion has accounted for 40% to 45% of aggregate teen spending.

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Patrick Schultz is a research associate at TheStreet.com. He has previously obtained securities licenses under the NASD's Series 7, Series 24, Series 52 and Series 63 exams and has worked in the financial markets on various trading desks in addition to trading for his own account. Schultz holds a bachelor's degree in applied economics from Cornell University.