Retail Price War: How Low Will It Go?

Retailers, specifically those in the teen space, continue to cut prices ahead of back-to-school rush.
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) -- Retail is becoming one big perpetual sale -- good news for back-to-school shoppers but worrisome for investors.

Indeed, banking on the return of the consumer, many retailers months ago began restocking depleted inventory. But the reprieve on consumer spending has been brief. And as shoppers retighten their wallets, retailers have been forced to markdown goods in order to make the sale.

As a result, teen retailers saw 4.4% decline in average retail prices to $25.21, according to a study conducted by Brean Murray -- which represents a 24% drop since prices peaked in November 2009 at $33.14.

Analyst Eric Beder analyzed prices in stores on July 12 and July 13 at 10 teen retailers, including

Abercrombie & Fitch

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American Eagle Outfitters

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Charlotte Russe


Forever 21

, Hollister,


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Old Navy,

Pacific Sunwear of California



Urban Outfitters

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Wet Seal


. He also observed six contemporary retailers including Arden B., Armani Exchange,





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, Guess by Marciano and



Abercrombie & Fitch had one of the biggest declines in average price, falling 18% to $40.50 over the past month -- a 42% plunge from its peak of $70.73 back in November 2009.

For the first time since the inception of Beder's pricing survey, Abercrombie & Fitch lost its place as the price leader among teen retailers, becoming cheaper than American Eagle, its own Hollister brand, Pacific Sunwear and Urban Outfitters. Beder does note, however, that some of the retailers he observed had already begun carrying full-priced fall merchandise when this study was conducted and Abercrombie was still selling clearance summer items.

While Abercrombie reported a 9% surge in same-store sales in June, topping Wall Street's estimates, Beder expects that its adjusted price strategy and higher promotional levels will have a severe impact on margins.

Old Navy cut prices by 10%, while Wet Seal remains the low-price leader.

Meanwhile, under the weight of excess inventory and a distressed economy, consumer prices may even collapse further.

Still, not every retailer is resorting to cheapening their merchandise in order to entice shoppers. While Aeropostale managed to be one of the few retailers to succeed amid the recession with its value strategy, the teen retailer actually increased prices by 13% during the month. "This confirms our belief that value players will continue to dominate the teen market," Beder wrote in a note.

Privately-held Forever 21 also inched up prices by 9% and Urban Outfitters replaced Abercrombie & Fitch as the most expensive teen retailer, with an average ticket price of $40.50.

Does this prove that shoppers will be willing to spend more, and at full-price, if they are presented with compelling, differentiated merchandise? Let's just say, it doesn't


the idea.

-- Written by Jeanine Poggi from New York


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