Retail's Teen Angst Deepens With Failed Abercrombie & Fitch Deal

(Bloomberg) -- The retail industry’s trouble in attracting teen shoppers is shaping up to be more than just a passing phase.

Abercrombie & Fitch Co.’s announcement Monday that it failed to reach a deal with potential acquirers sent the stock spiraling. It also dragged down the shares of other chains that target young apparel shoppers -- another blow for retailers such as Express Inc. and Urban Outfitters Inc., whose shares have lost more than a third of their value this year. Even American Eagle Outfitters Inc., regarded as a bright spot in the industry, has gotten pummeled.

The rout is the latest example of the industry’s inability to come up with a winning formula to counteract the slowdown of shopper traffic at brick-and-mortar stores. Few strategic options -- from strategic takeovers to renewed focus on internet sales -- seem to be reversing a broader sales decline.

And predicting teen behavior is as hard as ever.

“They’re not loyal -- they’re fickle, they shop anywhere,” said Poonam Goyal, an analyst for Bloomberg Intelligence. “Traditionally, if you shopped at Urban Outfitters, then 90 percent of your wardrobe was Urban Outfitters. I don’t think any millennial’s wardrobe is 90 percent anything.”

With no deal in the offing, Abercrombie will have to go it alone, struggling to restore its image against the backdrop of broader industry woes.

‘Aggressive Action’

To reach new customers, the company is taking a cue from American Eagle by reviving its intimates brand. It’s also adding products to storefront windows while dialing back music volume and aroma use. Its namesake Abercrombie chain is going after older customers and playing up its heritage with a throwback logo, while the Hollister brand targets teen shoppers.

Chairman Arthur Martinez on Monday promised “sound, aggressive action” to turn the company around and add value for shareholders. As proof, the retailer pointed to solid same-store sales at its Hollister brand and said it’s following through on measures “to position the Abercrombie brand for revitalized performance.”

So far, success has been elusive. The chain has posted falling revenue for four straight years and a recent rebound in Hollister sales hasn’t yet been enough to offset the overall decline.

A few doors down at the mall, Urban Outfitters is also suffering. The chain said in June that second-quarter comparable sales are declining in the high single digits -- more than the 2.5 percent drop analysts expected, according to Consensus Metrix. It’s moving to counteract falling revenue by pivoting to online sales and expanding home and lifestyle product lines, but the shift won’t be easy.

Express is also forecasting a drop in second-quarter same-store sales, citing declining foot traffic.

Lone Standout

Teen apparel’s standout would seem to be American Eagle, which has had success with denim products and its Aerie intimates, especially its bralettes. That’s helped generate positive comparable sales for nine quarters -- a feat that Abercrombie would love replicate. But the growth hasn’t been enough to please investors, who have pushed down American Eagle’s shares 26 percent this year.

In May, Express and American Eagle were said to be discussing a takeover of Abercrombie -- news that fueled gains for a short time.

Abercrombie’s shares came crashing back down on Monday, when they plunged as much as 22 percent, to $9.51 in New York, the biggest intraday decline in more than 5 years. The stock had advanced 1 percent his year prior to the announcement.

Abercrombie and many of its peers are struggling to keep up with fast-fashion shops such as Hennes & Mauritz AB and Inditex SA, Bloomberg’s Goyal said.

“The traditional teen retailers, they can’t move as fast as those guys,” she said. “Speed is their biggest headwind, and I don’t see a way for them to develop speed that can match these rivals.”

To contact the reporter on this story: Lindsey Rupp in New York at lrupp2@bloomberg.net.

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Jonathan Roeder