The Teen Retail Space Shakes Out
4. Teen retailers had a rough 2013, starting early in the year with the prolonged cold weather and continuing through the holiday season as customers chose to spend their meager discretionary funds on other items, like electronics. Several mall-based companies including Abercrombie & Fitch, American Eagle Outfitters (AEO) and Aeropostale (ARO) saw significant drops in sales.
But not all teen retailers are the same. Companies like H & M, Uniqlo and Forever 21 will continue to penetrate the U.S. teen market threatening the survival of Pac Sun (PSUN), Hot Topic, Wet Seal (WTSL), Express (EXPR) and others.
Why these three specifically?
The companies have "great sourcing that gives them pricing advantages, fast turnaround and great flow that reduces markdowns and creates continuing excitement and newness for the customer," says Michael Appel, president of Appel Associates. They also have "solid balance sheets with plenty of cash to fund rapid growth."
Wedbush managing director Gabriella Santaniello says teens and young adults remain "brand-phobic, resulting in a 'do-it-yourself' styling trend that is sweeping this age group," she writes in an email.
"We see this continuing in the New Year and will be watching companies like Urban Outfitters (URBN) who we believe are best positioned to benefit," Santaniello says.
A Macy's Prime?
5. Seeing the success of Amazon's (AMZN) two-day shipping subscription service, Amazon Prime, major retailers are likely eyeing the candy. (Amazon said in its most recently quarterly report that it had "millions of new Prime members" sign up for the service.)
Sterne Agee analyst Charles Grom thinks that a major omni-channel friendly retailer, such as Macy's (M) or Nordstrom (JWN), "will adopt an "Amazon Prime-like" free shipping program on its e-commerce platform," he writes in a Dec. 19 note. "Favorably, we think this would be an effective way to better engage customers, offer value, and increase loyalty, while also protecting share."
Written by Laurie Kulikowski in New York.