Breakout

Teen Angst: 3 Retailers Locked Out of the Holiday Cool Club

Jeff Macke
Breakout

Even a lousy merchant can hold itself together during the bulk of the year, but the long Thanksgiving weekend exposes the pretenders. Stores with weak operations start to look like flea markets. Pricing discipline falls by the wayside in a desperate attempt to grab market share and avoid taking a bunch of losing inventory into next year.

Companies can’t fake it when the hours get long and tempers short. In the attached clip Hitha Prabhakar runs through three retailers unravelling like a cheap sweater with three long weeks to go until Christmas.

1. Abercrombie & Fitch (ANF)

Shares of Abercrombie & Fitch have been beaten senseless in 2013 and for good reason.  CEO Mike Jeffries has lost the confidence of Wall Street by missing earnings multiple times, the company’s turnaround plan is something out of the stone ages, and its product seems wildly out of touch with the times.

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For the holidays Abercrombie is apparently going with a flat-out low price strategy in an attempt to clear merchandise.  Whether or not that’s going to be enough to save Jeffries’ job remains to be seen, but judging by the fact that the company is already offering 50% off regular merchandise there’s little hope in the near term for shareholders.

Related: Why Abercrombie & Fitch Is Losing its Teen Appeal

2.  Aeropostale (ARO)

Aeropostale illustrates the dangers of competing on price alone in specialty retail.  “The reason why they were doing so well a couple years ago during the recession was that they were promoting like crazy,” Prabhakar explains.  Now the merchandise has gotten tired.  The heavily logo’d look seen at Aeropostale and Abercrombie stores has fallen out of favor, and Abercrombie itself is undercutting the reductive Aeropostale look on price.

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The combination has left Aeropostale trying to go lower on price than a company selling goods at 50% discounts.  There isn’t a lot of profit left after those cuts.

3.  American Eagle Outfitters (AEO)

The last of the red hot teen apparel companies, American Eagle has been hit by the same stick that’s beating up Aeropostale and Abercrombie.  Teens are fickle and American Eagle is suddenly lame.

“They’re really getting killed by fast fashion retailers… product mix isn’t as snazzy as it used to be and the teens aren’t responding to it.”

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Prabhakar says it’s simply impossible for yesterday’s retailers to change strategies on the fly.  When icons like Lady Gaga are making fashion decisions that get knocked off in a matter of weeks, it makes the notion of selling logo hoodies and skinny jeans seem extremely tired.

The trick is staying ahead of the game on the companies destined for next year’s bargain bin.  It’s too early to say but it is worth noting that shares of Gap (GPS) are up nearly 20% so far in 2013, while the other 3 companies listed here are down about 25% and focusing on many of the same customers.

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