One of the big retail stories of 2013 was the failure of teen retailers, like Abercrombie & Fitch, Aéropostale and American Eagle (the three A's, if you will) to keep up with their fast fashion competitors. Value and sales have gone down for all three since 2012.
And while the preppy uniform look may still be out in 2014, there are still a few teen retailers that could turn things around this year. Jefferies analyst Randal Konik named Urban Outfitters and American Eagle his top two retail picks for the year in a new report. Konik upgraded both from holds to buys, arguing that, “For the specialty retail industry, it is our hope that an improving economy and a new fashion cycle in 2014 will reinvigorate consumer spending on apparel, accessories and jewelry once again as a non-compelling assortment in many cases sent consumer dollars elsewhere in 2013.”
For American Eagle specifically, Konik pointed to a robust e-commerce business and strong management team, which has recently made positive transformative changes, like getting rid of the AE Kids business.
For Urban Outfitters, he anticipates that success will stem from both Urban and Anthropologie performing well simultaneously, adding that "product offerings are getting stronger." He also points to both retailers' diverse product offering as an asset, which makes sense. While I rarely buy clothes from either, I love the home products from both. Plus, neither retailer appeals solely to teens.
The predictions are surprising when you consider all of the other, often cheaper, options teens have these days -- H&M, Zara, Forever21, etc. -- and the growing belief that they no longer want to look like they all shop at the same stores. “Kids nowadays don’t want to be boxed into one look — they want to mix, match and stand out,” Brian Sozzi, CEO of Belus Capital Advisors, told us late last year. Konik even stresses that success with teen customers will be critical in 2014. Bad news for Aeropostale and Abercrombie & Fitch, which he downgraded (the latter also recently made the controversial decision to keep on CEO Mike Jeffries).
The Jefferies report seems to have already made an impact on stocks. American Eagle shares rose 2.3 percent, while Urban rose 1.8 percent. Abercrombie and Aéropostale, however, continued to lag.