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Adult concerns are pinching teen spending

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Bloomberg News / July 3, 2008

NEW YORK - The financial pressures on adults are finally catching up with American teenagers. Since summer jobs dried up, gasoline prices topped $4 a gallon, and parents ran out of spare cash, teens have had to cool it on spending for clothes.

"I've had to cut down on a bunch of stuff because I don't like spending my own money," said Haley McClelland, 14, of Waldwick, N.J., who was shopping at the Paramus Park mall. She said her parents are "more careful" about what they give her.

Teens like Haley are among the last American consumers to cut back. Even as adults trimmed purchases, kids managed to prop up revenue for Abercrombie & Fitch Co. and American Eagle Outfitters Inc. because of handouts from parents and part-time jobs, said Adrienne Tennant, an analyst at Friedman, Billings, Ramsey & Co. in Arlington, Va.

Spending by 13- to 17-year-olds is important because in at least the past two years it has been rising faster than total apparel sales. The adolescent demographic accounted for $27 billion, or 14 percent, of the $192.7 billion of clothing purchases in the 12 months through April, according to market-research firm NPD Group Inc.

At the same time, teen spending in the period rose just 2.9 percent, after a 12 percent gain between May 2006 and April 2007.

"There is absolutely a slowdown in teen spending," said Holly Guthrie, an analyst at Janney Montgomery Scott LLC in Philadelphia.

Retailers dependent on that group are feeling the pinch. First-quarter net income at American Eagle plunged 44 percent because of discounting, and the retailer may post its first annual profit drop in five years. Same-store sales have fallen for the past two quarters. At Gap Inc.'s Old Navy chain, sales in May were off 25 percent from a year earlier. Abercrombie's same-store sales dropped in five of the past six quarters.

"While we believe the teen customer has slightly more discretionary income than their parents, they're still impacted by the sluggish economy," Zumiez Inc. chief executive Richard Brooks said May 22.

Zumiez's 309 stores selling skateboarding and beach clothes, such as $39.95 Billabong bikini bottoms, are geared to 12- to 24-year-olds. In May, the retailer reported its first quarterly profit drop since going public in 2005.

Looking forward, US teen spring fashion budgets may be reaching the lowest level in seven years, based on results of a survey of 5,000 youngsters by Piper Jaffray Cos. in Minneapolis.

Teenagers said in April they would spend $1,183 on fashion this year, 19 percent less than last year and down 23 percent from 2006, according to survey authors Jeffrey Klinefelter and Neely Tamminga, Piper's retail analysts.

Michael Niemira, chief economist at the International Council of Shopping Centers, projects about a 2 percent drop in purchases at teen clothing stores through January 2009, the biggest in at least four years, following last year's 0.5 percent decrease. They already fell 1.2 percent this year through May, though that's still better than the 5.8 percent decline at all specialty apparel chains, he said.

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