Op-Ed | Teenage Spending Habits Are at Odds With Investors’ Retail Wisdom

Teenage shopping habits are at odds with retail wisdom
By Shelly Banjo. Source: Bloomberg.

NEW YORK, United States — Teenagers tend to think they know best. When it comes to retail, they may have a point.

Research firm Piper Jaffray released its 33rd bi-annual “Taking Stock with Teens” survey on Monday, providing a helpful scorecard on which brands are hot — Adidas, Starbucks, and Amazon — and which are not — Ralph Lauren, Ebay and Under Armour.

Perhaps more telling, however, is how the report captures how these young consumers are making a mess of some long-held retail truths.

For one, teenagers are generally spending less on stuff. And no, it doesn’t have to do with the economy.

Retail sales and other economic indicators have marched together for decades, reflecting the idea that the more people were employed and the more money they made, the more they would spend on sneakers and jeans. Ditto for consumer confidence (if people felt good about the economy, they would spend more).

But these factors have decoupled.

Teen unemployment in March dropped to the lowest since February 2001, according to the US Bureau of Labor Statistics, while the percentage of teenagers surveyed by Piper Jaffray saying they thought the economy was getting better ticked higher for the first year since 2013. Yet spending by this group dropped by 2.4 percent in the April 2017 survey from a year ago.

In other words, just because teens have jobs, that doesn’t mean they want to spend their hard-earned money on clothing and shoes like they once did. This divergence is echoed in the curious split between so-called soft data, such as high consumer confidence numbers, and hard data, like flagging retail sales numbers.

More to the point, the fact that this split is already so ingrained in teenager’s habits doesn’t bode well for the future of the retail industry. Piper Jaffray’s survey suggests some of these depressed retailers have little recourse to find their way back into consumers’ consideration.

Teens’ rapid move away from department and specialty stores in favour of online retailers is dimming the outlook for bricks and mortar. More than 40 percent said Amazon was their preferred website, while Nike came in a distant second in votes for favourite online shopping destination, at 5 percent.

In addition, clothing fell to only 19 percent of teenager’s spending, down from 21 percent in the same period in 2014. A growing preference for experiences over things gave food a bigger share in their budgets, underscoring the long-term trend of meals and snacks taking a bite out of retail.

It’s perhaps no surprise that spending on fashion is down as Snapchat overtakes Facebook and Instagram as social platform du jour — more than 80 percent of teens surveyed by Piper Jaffray use Snapchat at least once per month, compared to 51 percent who use Facebook. If teens can just use filters and photo editing to change the way they look and impress their friends for free, then why would they have to shell out real money to buy clothes and shoes at real stores to show off?

Of course, some of these behaviours could be situational, suggesting teen spending habits could evolve as they group up. But it’s undeniable that this generation is spending less on clothing than their parents and could carry those frugal habits with them into adulthood. That could mean even lower customer traffic numbers and further declining sales at department stores and specialty retailers. Investors would be wise to listen to the youngsters.

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