A Sea Change in Teenagers' Spending Habits

 
A Sea Change in Teenagers' Spending Habits

Information Overload

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Breaking news: Teenagers have stopped caring (as much) about brands and labels and are starting to shop based on savings and sales.

Who ever thought we'd see this day?

This week's New York Times contained the story of how the recession has turned teenage shoppers, one of the most powerful spending groups, into penny pinchers. This, of course, has hurt some of the higher-priced teen shops, like Abercrombie & Fitch, while others, like A&F's lower-priced sister Hollister, are benefiting from this change.

(Full disclosure: I worked at Abercrombie & Fitch in college for about a year. Yes, it's dark in the store. Yes, the music is loud. And yes, the perfume smell stays on your clothes for days. But the discount was excellent.)

According to the New York Times: "This spring, spending by teenagers, a closely studied but rarely understood segment of the population, is off by 14%, a direct reflection of the economy, according to a report this month by the investment bank Piper Jaffray."

And the evidence is more than statistical, " 'Labels are becoming less and less of a priority for people throughout my school,' said Chelsea Orcutt, a high school senior."

For years, teenagers seemed to be concerned with nothing but labels and brands, not even batting an eye at the cost of the $80 pair of ripped jeans they were sporting or the $30 graphic T-shirts they just had to have. But now, in the face of the worst recession in decades, the younger demographic is venturing beyond their favorite brands and shopping at stores promoting sales and savings.

Many stores have capitalized on this trend and are showcasing special discounts, savings and sales, but some have tried to protect their higher-end image ... and they have suffered.

Abercrombie is one such store and Wall Street analysts have blamed its strategy of not touting discounts for the store's current decline. According to the Times, "The company reported a 34% drop in sales for March at stores open at least a year, the worst performance of mall retailers that month. ... In the past, the chain has said it doesn't want to tarnish its image with big discounts, but the risk is that consumers may retain the habit of thriftiness even after the recession ends."

However, other stores have heard the message, loud and clear. One such store is Buckle, which was featured in Cabot Top Ten Report on April 6 when Editor Michael Cintolo wrote:

"Buckle, which was founded in the fashion capital of Kearney, Nebraska, in 1948, has turned into a real contender in the iffy business of selling clothes, shoes and accessories to young people. The product mix is the usual array of denims, pants, shirts and outerwear, but the company's management has a knack for keeping its 390 stores in 40 states profitable. Attention to personal service, free alterations, layaways and a frequent shopper program are nice to see, but ultimately, good management is the real story. The company's Q4 earnings report on March 11 was headlined by a 25% gain in earnings on a 21% rise in revenues, and the after-tax profit margin of 14.6% (huge for a retailer) was a new high. A 2.3% dividend is an added attraction. Good product mix, good execution, good company--that's the kind of combination that put Buckle into Cabot Top Ten Report. ... BKE had been a steady long-term performer, climbing along with earnings and paying a steady dividend."

Editor's Note: BKE might be a good investment if you want to capitalize on teenagers' penny-pinching trend, but it likely won't be discussed here again. It is being followed in Cabot Top Ten Report, however, and will be as long as it looks like a winning stock. To get the latest updates on it and other leaders, click the link below.

http://www.cabot.net/info/ctt/cttjb01.aspx?source=wc01

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Two weeks ago, I announced that we had entered the world of Twitter with a free report contest. The response was incredible--we doubled our Twitter followers in only a few days! And I want to thank everyone who signed up and is now reading our tweets. I announced the winners of the contest (who were all chosen at random) on Twitter, but I'll announce them here, too (by their Twitter names): DohaMan, vamato1886, Lisa_Sage, erahmr and paulgoggin. Congrats to the winners and thanks to everyone who entered!

When I announced the Twitter contest, I received a comment on our blog, The Iconoclast Investor, that I wanted to share with you:

Dear Elyse,

Now twitter--you are putting out too much extraneous information in too many places. Cabot used to be about stock picking and very good stock picking, I might add. Now there are nine different newsletters, plus CWA and the blog. I spend six hours a day watching the stock market, researching charts and trying to keep up with all the email updates from Cabot. I hate to not read anything Cabot writes because I might miss some really important info, but I wish info could be sent out on just one venue. I don't even know what Twitter is except that it is like MySpace or Facebook, which I don't use either. Enough of my rant.

Have a really great day,

Rod

I responded to Rod right away, and I want to share the response with you:

Good morning Rod,

Thanks for your comment. I completely sympathize with your remark about feeling overwhelmed by the sheer volume of information available today. As far as Cabot reaching outside its traditional channels, we're trying to connect with our readers in as many ways as we can. One way is to explore new technology and social media, especially as our readers express a desire for us to participate in these channels. I hope this helps. Thanks again for your insights.

Elyse

I'm sure other readers have noted Cabot's expansion outside the traditional newsletter format, while some have been happy about the changes, others are no doubt feeling similar to Rod. But I can assure you that no matter what medium Cabot is reaching you in, whether it be in a newsletter, on our Web site, our blog or our Twitter account, you can always expect the same high-quality information and standards that we have applied to our investment advice for nearly four decades.

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In case you didn't get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, I have links below to each issue.

Cabot Wealth Advisory 4/20/09 - $116 Billion in the Stimulus is Rallying Green Stocks

On Monday, Brendan Coffey wrote about the progress that has been made since the first Earth Day was held, such as the creation of the Environmental Protection Agency. Brendan also wrote about how the $166 billion in the economic stimulus package that will be going toward Green enterprises will boost stocks in the sector. Brendan closed by giving his pick for one of the top stocks for 2009. Featured stock: Tetra Tech (TTEK).

http://www.cabot.net/Issues/CWA/Archives/2009/04/Green-Stimulus.aspx

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Cabot Wealth Advisory 4/21/09 - The Rarest Security on Earth Carries an Average 17.2% Dividend Yield

On Tuesday, we heard from Carla Pasternak, editor of StreetAuthority's High-Yield Investing, who explained a rare security (there are only eight of them in the world) that combines a stock and a bond. Carla wrote about how these securities can carry astronomical dividend yields and have been bulwarks of stability amid the market turmoil of the last few months. These securities have delivered impressive total returns (including dividends) of +9% so far this year, well ahead of the broader market loss of -12%, as measured by the S&P 500 index.

http://www.cabot.net/Issues/CWA/Archives/2009/04/Rare-Security.aspx

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On Friday, Paul Goodwin wrote about the do-it-yourself method to growth stock selection, the same strategy he uses to find stocks for Cabot China & Emerging Markets Report. Paul gave you a few bits of stock market trivia and finished by writing about a very promising, and delicious, stock. Featured stock: Chipotle Mexican Grill (CMG).

http://www.cabot.net/Issues/CWA/Archives/2009/04/Finding-Great-Growth-Stocks.aspx

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Until next time,

Elyse Andrews
Editor of Cabot Wealth Advisory

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Stock Picks

Loews Corp.

This undervalued stock has strong future earnings growth expectations.

Biogen

Biogen is the market-share leader in treating multiple sclerosis.

Weibo

One of Paul Godwin’s favorite stocks in his Cabot Emerging Markets Investor portfolio.

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