Wall Street Journal - Chasing Generation Y
Retailers Scramble to Serve A Glut of Twentysomethings; Cashmere, DJs, Celebrity Vibe
By STEPHANIE KANG
September 01, 2006; Wall Street Journal
Nearly two decades ago, toddlers wore babyGap's signature bodysuit. As teens, they sported ubiquitous T-shirts with Abercrombie & Fitch's name stitched across the front. Now that the oldest members of Generation Y are in their 20s and completing college or starting their first jobs, who is going to dress them?
The answer: Many of the same retailers who have catered to this group since they were children, growing up with them along the way. Apparel companies are getting ready for the glut of people in their 20s by opening new stores with merchandise that appeals to young adults. According to Philadelphia-based marketing consultancy Twentysomething Inc., there are 38 million young people between the ages of 11 and 19 in the U.S.
Orv Madden, chief executive officer of privately owned Metropark, a fashion chain that first opened in 2004 in Glendale, Calif., says he started thinking about new ways to sell apparel five years ago, after watching young consumers and asking himself, "where are all these folks going to go when they get tired of shopping in teenage land?"
He wasn't the only one asking that question and coming up with ideas. Abercrombie & Fitch Co. in 2004 started a new store, Ruehl No. 925, that is aimed at 20-to-35-year-olds. It now has 10 stores in cities like Tampa, Fla.; Columbus, Ohio; and San Diego. At the Manhattan store on Bleecker Street -- close to bars, cafes and smaller retail shops -- pricey leather handbags and paper-thin T-shirts are sold in a space with dark wood and assorted mirrors that feels like a cross between a New York brownstone and a swanky boutique hotel.
Jimmy'Z, owned by Aeropostale Inc., stocks studded denim and blazers with graphics on the back for 18-to-25-year-olds at prices that are significantly higher than at its flagship chain for teens. In designing its 14 stores -- in places like Riverside, Calif., Houston and St. Louis -- executives were inspired by the look of a contemporary California beach house, with lots of open space and light.
Teen-retail giant Pacific Sunwear of California Inc. says it is seeing success with its high-end footwear store for young adults, called One Thousand Steps. And American Eagle Outfitters will launch a new concept this fall called Martin + Osa, whose target customer ranges in age from 25 to 40 years old.
It remains to be seen whether these targeted customers will flock to the new chains. The niche is crowded, with retailers like Banana Republic, a division of Gap Inc., Urban Outfitters Inc. and Bebe Stores Inc., already successfully catering to young adults. And chasing the twentysomething market may not last because there's a smaller generation behind it: there are about 27.6 million 6-to-12-year-olds in the U.S., according to marketing consultancy Twentysomething.
Teen-oriented retailers are trying to figure out the clothing tastes of young adults who juggle a mix of casual and work clothes -- and how to get them to pay higher prices than they are used to. That can take some tinkering. Ruehl initially carried slightly dressier apparel at prices 30% higher than at Abercrombie. Ruehl now has shifted to more casual wear, aping more of the successful Abercrombie model and lowering prices to 12% higher than the flagship brand. (Although Ruehl's merchandise is made with more expensive fabrics like cashmere.) The company has said it spent $20 million to develop the new chain and expects to break even in 2007.
Sales at teen specialty shops more than tripled since 2000 to $11 billion last year, pushed by strong sales and rapid expansion by retail companies, according to Piper Jaffray analyst Jeff Klinefelter.
But that surge is slowing, in part because companies like surf and skate-influenced Pacific Sunwear are reaching their peak at nearly 1,000 locations. Mr. Klinefelter expects total square footage growth among teen retail chains to slow from 43% over the last five years to 13% in the next four years. That means teen apparel companies are following twentysomethings to continue the growth. "Retailers reluctant to reposition will risk deteriorating market share, sales and productivity," Mr. Klinefelter says.
In order to do so, teen retailers need to carve out a niche to lure customers. For its Jimmy'Z stores, Aeropostale executives wanted to stay away from the East Coast preppy style that infuses the original brand. They also spotted a trend -- customers who idolized young Hollywood actors and looked to celebrity magazines for fashion cues.
"We felt there was an opportunity in fashion, with the popularity of reality TV shows and the glamour of young Hollywood," says Aeropostale chief executive Julian Geiger.
So Jimmy'Z is stocked with embellished denim and blazers with graphics on the back that look similar to high-end labels but without the expensive pricetag.
Metropark, which now has 17 stores nationwide, is aiming for a hip atmosphere by booking well-known DJs like Zach Sciacca, who goes by "DJ Z-Trip," to play house music. For its part, Metropark dubs itself "part club, part street boutique." Each store has a DJ booth in front and a lounge area in back with sofas, a magazine rack and an array of energy drinks. The boutique sells more than 100 brands, including $219 Paige Premium Denim jeans and $149 hooded sweatshirts from the Obey Clothing label.
On a recent evening at the Metropark store at Southern California's Glendale Galleria, 28-year-old Tami Knepper bought a long-sleeve shirt from Harajuku Lovers, a label from pop artist Gwen Stefani that references the Tokyo neighborhood known for its counterculture fashion.
Ms. Knepper, who works at rival Urban Outfitters in nearby Studio City, says that she first popped into the store after seeing a DJ spin trance music in the front window. "I've walked by a million times and never gone in," she says. "It was something different," she says of the DJ.
Despite retailers' attempts to attract twentysomethings, some may be bringing in younger customers than their target.
Seventeen-year-old Cassondra Woodburn usually shops at Abercrombie & Fitch at Glendale Galleria to get her self-described "chill, casual and comfortable" look. But lately Ms. Woodburn has been spending more time at Metropark, where she walked out with a black halter dress and dangling gold necklace, both for only $49. "I like it here because it's different -- it's edgy," she says.