teen shoppers

Abercrombie: Still struggling through its awkward phase

February 26, 2014: 1:26 PM ET

Teens' penchant for fast fashion and bargain hunting is working against Abercrombie.

140226131339-abercrombie-store-620xa

FORTUNE -- Abercrombie & Fitch CEO Mike Jeffries opened his earnings conference call on Wednesday with mention of the "challenging retail environment, particularly in the teen space."

The retailer's fourth quarter performance certainly reflects that sentiment. Though it beat analyst estimates and its stock is up, the retailer's profits shrank by 58% to $66.1 million from $157.2 million during the same quarter the previous year. Net sales fell 12% to $1.3 billion, and same-store sales shrank 8%.

The poor earnings are just the latest chapter in Abercrombie's (ANF) long tumble from its 1990s-era halcyon days, when teens shopped in real, live stores and wanted to cover themselves with suggestive graphics and moose logos.

MORE: It's still a lot cheaper to buy than rent

There's one major factor to blame for Abercrombie's slide, and it's the same culprit that's causing an upheaval in retail everywhere. No drum roll needed, it's the Internet.

It used to be that fashion trends would start out in Europe, make their way to America's coasts, and then infiltrate the Midwest over the course of several years. "Now a kid in Ames, Iowa can buy the same product at the same time as a kid who lives in Astor Place in New York," says Eric Beder, managing director at Brean Capital.

Trends crop up -- and flame out -- faster. Traditional stores, which can take up to six months to produce new products, have a hard time responding. In the teen space, where trends evolve even more quickly, retailers like Abercrombie have been caught flat-flooted.

Into this space have stepped so-called fast fashion retailers like Zara, H&M, and Forever 21, whose products are cheaper and less durable and therefore faster to produce, says David McGoldrick, a U.S. analyst for Euromonitor International. Abercrombie has always used its clothing's quality as a selling point, but that doesn't woo customers the way it used to. Who needs a sweater that will last 10 years when you're just going to buy a new one three months later? Jeffries acknowledged these shortcomings on Wednesday, saying the company would work on decreasing its lead times and planned to "reengineer" some of its products.

"We're not seeing pricing power for retailers. It used to be that if it was the right product, price was irrelevant," says Beder. "That's no longer the case."

Teens' recent penchant for bargain hunting is also working against Abercrombie. A Piper Jaffray biannual survey in October 2013 showed that teen spending on fashion had declined compared to the previous year, and that shopping trips were down nearly 25%. Teens are trying to get the most out of the money that they do spend: Approximately 71% of teen girls and 57% of teen boys shop at off-price stores (think T.J. Maxx or Marshall's) and 52% and 45%, respectively, indicated it is popular to do so.

MORE: Declining America? Fuhgeddaboudit!

A social shift is also at play. The recent recession seems to have made teens more socially conscious. Researchers at San Diego State University and University of California, Los Angeles found that high school seniors' concern for others declined significantly between the mid-1970s and the mid-2000s, and then climbed during the 2008-2010 recession. Teens are turning down the heat at home to help the environment, they're more willing to use bikes or mass transit instead of cars, and -- to Abercrombie's dismay -- they're no longer interested in advertising their brand allegiance or wearing t-shirts that proclaim "More boyfriends than T.S." (T.S. stands for singer Taylor Swift, obviously.)

"Teens are not as logo-driven," says Beder. "They don't want to be billboards for companies any more." Just look at the success of Urban Outfitters, whose hipster, logoless duds are a hit with the 18-and-under crowd. "This is a social change. These things come in five- or six-year cycles. In better economic times, teens may want to show off logos again, but as of right now, teen [retail] players have to adjust."

Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.