Metropark

US News - Fresh Brands for Big Spenders

Teen retail chains grow up with their customers by spinning off new stores

By Nisha Ramachandran

When Lauren Minardo goes shopping, she steers clear of stores like American Eagle Outfitters and Abercrombie & Fitch. With tank tops, novelty shirts, and distressed denim, such teen retail chains hold little appeal for the 27-year-old marketing associate in New York. "When I was 17, it didn't faze me to walk down the street with ripped jeans," says Minardo, who now sports a more polished look, dressing business casual for workdays and in more classy outfits at night. "But you need to be a bit more dignified when you're 27."

That sentiment hasn't been lost on teen retailers, who are now looking to grow up with their customers. Spinoffs aimed at 20-somethings are crowding the mall, with more to come. Among them: American Eagle, which will open Martin+Osa this fall, and One Thousand Steps, from Pacific Sunwear, which opened its doors earlier this year. These come hard on the heels of similar concepts, such as Jimmy'Z, from teen chain Aeropostale, Abercrombie & Fitch's Ruehl No. 925, and Ralph Lauren's Rugby chain.

Malled out. For retailers, the spinoffs offer a way to diversify and maintain a healthy bottom line. Says Dana Telsey, founder of the Telsey Advisory Group and a retail analyst: "2006 is absolutely the year for new concepts. Part of this is the search for growth." Telsey estimates that around 400 malls and 800 strip centers can support robust growth. Many teen retailers have already saturated these locations, leaving little opportunity for growth with existing stores. For example, Abercrombie & Fitch last week reported flat second-quarter, same-store sales overall, compared with a year earlier, but heady growth for the Ruehl brand.

Anaheim, Calif.-based Pacific Sunwear, best known for its surfer- and skater-inspired apparel, aims to grow its retail space by 10 percent a year. "Already having 1,100 stores," says CEO Seth Johnson, "it means that you have to have new businesses in the pipeline." To that end, the chain this year launched One Thousand Steps, a high-end shoe store. It is aimed at a customer who has graduated from college or is starting a first job.

Demographic changes are driving the interest in selling to 20-somethings. Straddling generations X and Y, those ages 20 to 34 are one of the population's fastest-growing segments. The group now makes up a little over 20 percent of the total population and is expected to grow almost 9 percent to nearly 66 million members by 2020. More important to retailers, the age group accounts for 27 percent of total apparel sales and 35 percent of spending in specialty stores.

Twenty-somethings are willing to spend. They were weaned not only on long periods of prosperity but on a culture that celebrated consumerism. Shows like MTV's My Super Sweet Sixteen and TLC's Trading Spaces have only encouraged the mentality to spend, spend, and spend. "They are the ones who grew up constantly buying new outfits," says Tim Bess, a market analyst for the Doneger Group, a fashion consultancy. "They want to look good and are out shopping every week to find a new outfit to go out for the weekend."

That's one reason Hot Topic founder Orv Madden launched Metropark, a high-end chain aimed at such shoppers. "There was no one out there really young and hip and who picked up where the teen stores left off," says Madden, who left Hot Topic in 2001 after expanding the chain nationwide. Metropark offers customers a selection of the latest and trendiest brands like Gwen Stefani's Harajuku Lovers line. Metropark's merchandise is high end, with items like jeans from premium denim company Rock & Republic retailing for upwards of $200. But Madden doesn't worry that the steep price tag will drive customers away. "This is a generation that wants to feel young and think young," he says. "And fashion is a huge part of that."