American Eagle Outfitters Inc and Abercrombie & Fitch Co, long-time stalwarts in apparel, are struggling to appeal to their teen base as young women show a bigger appetite for fashion.
Teens, barraged by images of young celebrities in magazines and television shows like "Gossip Girl" featuring rich kids in designer threads, are craving more fashion in their wardrobes.
Many have thrown out the safe, relaxed preppy look that has dominated for over a decade for showy, up-to-the minute styles -- and some teen retailers aren't delivering. A weak U.S. economy means teens also want those styles to come cheap.
"Traditional teen retailers do run the danger with the girls of not having enough fashion," said Needham & Co analyst Christine Chen. "But it's a hard balance to walk between having enough fashion and being true to what you're all about."
Sales at both mall-based chains American Eagle and Abercrombie have suffered since last fall, a dramatic shift from their days as high-flyers in the sector.
This year, same-store sales, a key gauge of retail strength, were down in 10 out of the past 12 months at American Eagle, and 9 out of 12 at Abercrombie.
Compare that with rival Aeropostale Inc whose robust same-store sales rises reflect not only lower prices, but a workable balance of basics and more fashionable wear.
Also benefiting Aeropostale, analysts say, is a younger target audience, since younger teens and their mothers still gravitate to safer styles instead of fashion-forward looks.
Meanwhile, more fashion-based chains like H&M or Forever 21 are expanding and attracting new fans among older teens who hope to emulate the looks seen on European runways, but at much lower prices than American Eagle and Abercrombie.
According to a study by Goldman Sachs, some 65 percent of women aged 18 to 24 said they were shopping more at H&M and Forever 21 this year than last, at the expense of Abercrombie, American Eagle and Abercrombie's surf-inspired chain Hollister.
Shares of Abercrombie and American Eagle are down 45 percent and 25 percent, respectively, since January. Aeropostale shares, by contrast, have risen 25 percent.
"CHANGING STYLE PREFERENCES"
Balancing basic teen looks like jeans and T-shirts with more innovative styles is tricky. Too little fashion can bore, keeping customers away from stores, while too much -- whether ruffles, sequins or loud colors -- can alienate and intimidate.
And when your image is based on an aesthetic that runs counter to the hip and trendy looks seen on popular TV shows like "Gossip Girl" or "90210" -- beware.
That's the issue at American Eagle and Abercrombie -- whose logo is a moose -- both known for relaxed, unstudied looks that evoke more "New England preppie" than "downtown nightclub."
"We believe much of the weakness in girls' is symptomatic of changing style preferences among older teen girls ... away from classic looks towards more trendy, runway-influenced fashion carried by stores like Forever 21, H&M and Urban Outfitters," wrote Goldman Sachs analyst Michelle Tam recently.
Urban Outfitters' posted a 19 percent same-store sales rise at its namesake stores in its most recent quarter.
Still, dramatically reworking the Abercrombie and American Eagle brands isn't in the cards, Tam said, given the risk of alienating customers, the cyclical nature of fashion, and the fact that profit margins aren't too far off historical levels.
Operating profit margins at American Eagle, which has cut some prices and added promotions, are now in the low teens compared to their mid-teens historical average, Tam said.
American Eagle has begun to work more fashion into its assortment, with trendy ruffles now seen on blouses and graphic T-shirts with burnt-out detail.
"Some of the things are working, some not so much," said Chen of the current offerings.
Abercrombie, which staunchly opposes lowering prices and says it won't chase trends that don't fit in with its image, is expected by Wall Street to post an 18 percent operating margin this fiscal year, close to historical levels.
"The margins tend to hold up more but the sales erosion is sharper because you lose market share more quickly," Tam said.
Still, don't expect Abercrombie to tinker much with a well-known brand image that has been the driving force behind a lifestyle company with global expansion ambitions. The company will likely bide its time, changing little in its fashion DNA until trends shift back in its favor.
"It's disappointing because in recent years Abercrombie has really been the trendsetter of the three As (Abercrombie, Aeropostale and American Eagle)," Chen said.
