Teen retailers gear up for back-to-school season

Aeropostale and American Eagle can expect a jump in spending on apparel and accessories this fall.

By Trefis Jul 27, 2012 12:05PM
trefisImage: Mother and daughter with shopping bags (© Big Cheese Photo/SuperStock)Apparel and accessories businesses are among the fastest growing segments this back-to-school season. 

According to a recent survey by the National Retail Federation (NRF), total spending on apparel and accessories is expected to jump over 30%, from $8.3 billion in 2011 to an expected $10.8 billion in 2012. The news comes as a positive signal for teen apparel retailers such as American Eagle Outfitters (AEO), Aeropostale (ARO), Gap Inc. (GPS), Abercrombie & Fitch (ANF), as back-to-school season holds immense importance for teen retailers, and is often regarded as a benchmark before the all important holiday season.

A dismal back-to-school season was the primary reason behind the downfall of most of the teen apparel retailers in 2011. While a number of varied factors impacted the apparel companies individually in 2011, a major common factor was a decline in consumer spending due to weak macro-economic conditions. Low consumer spending around the 2011 back-to-school season resulted in the apparel market becoming excessively promotional, which eventually took a toll on both the comparable sales and margins of teen apparel retailers.  

American Eagle Stores EBITDA Margin

As the latest survey from NRF suggests, teen retailers can expect to see a rise in total spending on apparel and accessories, which should reflect as an improvement in their store comps. Additionally, the survey also indicates a rise in average spending per buyer which can be looked upon as higher sales of full-priced merchandise, and hence better margins for the apparel retailers. Average spending per buyer is expected to rise by 12%, from $220.6 per buyer in 2011 to $246.1 per buyer in 2012.


American Eagle Internet & Catalog Orders EBITDA Margin

Another important indication from the survey is an expected substantial increase in direct business. Compared to 31.7% of the buyers who shopped online in 2011, 39.6% of the buyers are expected to shop online in 2012 back-to-school season. An increase in direct business will not just help teen retailers in increasing their sales but also result in improved margins as direct sales carry higher margins compared to that of retail sales.


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