Meet the retail arbiters
April 8, 2008
If parents can hardly
predict how their teenagers will behave on a given day,
what chance do stuffy stockbrokers have? The odds
apparently are pretty good, assuming you ask the right
questions at the right time.
For the past seven years, retail analysts at Piper Jaffray in Minneapolis have been aiming to do just that.
Twice a year, the investment banking firm taps into spending preferences of teenagers across the country through a series of surveys and field trips to malls. The idea is to try to identify the companies best poised to grab the hearts and wallets of the coveted youth market, with its hunger for fashions and discretionary income.
"I don't really need the clothes, I want them," allows Stephanie Johnson, a junior at Apple Valley High School and one of about 5,000 teens who took part in Piper Jaffray's most recent survey, which was released Tuesday. "If I'm going somewhere special and I need something, I'll pay full price. But if I'm shopping with friends, I'll go through the sales racks first."
Johnson has plenty of company in seeking out sales. The latest "Taking Stock with Teens" survey found that teens, like adults, are feeling squeezed as prices at the pump and their favorite restaurants rise.
Total spending on fashion has dropped 20 percent since last year, according to the 15th semiannual survey.
But Piper Jaffray researchers describe it as a "discretionary recession," because while teens might be cutting back, survey director Jeff Klinefelter said they're still finding money for MP3 players, cell phones and other electronic gadgets that have become an important "lifestyle accessory."
"We're in a fashion recession," said Klinefelter, a Piper Jaffray analyst and senior consumer researcher who covers Target, Kohl's, J.C. Penney and a score of teen specialty retailers.
"I don't think we're quite to the point of inflection -- a change in the trend -- but we're swirling around the bottom. I suspect we're six to 12 months from seeing improvements" in spending.
Career day at the mall
On a recent Tuesday morning, about 50 students from Apple Valley High School and another 30 from Eagan High School fanned out across the Mall of America in Bloomington as part Piper Jaffray's field reporting.
They hit a dozen places they'd likely go anyway, including Aeropostale, the Gap, Abercrombie & Fitch, Hot Topic, Cache, New York & Co., PacSun, and Zumiez.
Armed with surveys and pens, the students wrote down how much things cost, what was on sale (winter garb or spring's newest plaid shorts), and whether old and tired items were stacking up. They gauged a store's ambiance, and whether sales people greeted them with a smile and an offer to help.
"At the Gap, they didn't give any greetings," said Kellan Srur, a senior at Apple Valley. "It was kind of a shock. At Abercrombie and Hollister, they have a tag line where they mention their new products, like cologne and stuff."
Senior Ali Larson, who shops "at least twice a week" and is considering a career in retail merchandising, led her cohorts through the mall with the proficiency of one who has traveled many miles there.
"Some of the shorts are too short," she said after completing the hour-and-a-half tour of stores. "But I like the bright pastel colors and plaids. There are a lot of cute dresses out there, too."
Piper Jaffray sold the idea to high schools in 2001 by turning it into a half-day career day and research field trip for students. Piper analysts visit schools and spend 45 minutes talking about how publicly traded businesses are analyzed and how the information gleaned from the students will be used to help make stock picks. Teachers liked the idea of getting kids thinking of retail jobs beyond the sales floor, where their earning potential is limited.
"It's a great hands-on experience for the kids," said Apple Valley teacher Mark Westad. The school has participated in the survey since its inception. "They can start to use their math skills, their marketing skills. It's good for them to see where their money goes, and what a stock market company does with this data."
Predicting Gap's decline
Piper Jaffray researchers typically visit about 20 schools from New York to southern California based on their demographics and socioeconomic profile. The recent survey includes about 670 of these kids, whose average household income is about $75,000. A national online survey through the student marketing group, DECA, or Delta Epsilon Chi, added results from another 4,500 teens whose household income is about $56,700.
"Trends are fairly consistent around the country," Klinefelter said. "It used to be the two coasts were influences and a year later the Midwest would catch on. Now, teens see the same thing on TV and online, and there aren't those geographical differences anymore."
Retail analysts routinely spend time visiting shops, walking the malls, and talking to shoppers and sales clerks. But Piper's survey is unusual in that it taps into teens every six months, collecting input from thousands of young people nationwide.
"It's not an accurate predictor of near-term sales results," Klinefelter said. "But it can help identify major changes in spending trends ... and whether a company is likely to gain market share in the next one or two seasons."
To wit: When the survey began in 2001, the Gap was the teens' No. 1 retail brand. Now, it's not even among the top 10 brands teenagers are thinking about, a decline reflected in the company's dwindling market share and flat stock price in recent years.
Macy's troubles also turned up in the latest survey. Parents of teens, who also are surveyed, no longer see the department store as their favorite spot to shop. The new winner: Kohl's.
Klinefelter said teens mirror the broader economy. In 2001, the last time Americans faced a recession, young people also started curbing their spending. By 2003, surveys in the spring and fall started showing "diminishing declines," just as the country was pulling out of its slump.
"We sensed that the economy was poised in the next six to 12 months to turn the economy around and grow," Klinefelter said of the 2003 results. "It was a very accurate assessment, and the start of a great recovery in the group."
Retailers trip over themselves trying to find ways to tap into the market of 20 million potential customers who are 15 to 19 years old. A little more than 40 percent of teens' spending goes into fashion-related items, according to Piper. What lures them in?
For senior Natalie Sindt, it's a simple formula: "If there's music playing and friendly people, you want to shop there."