Rocky Waters Ahead for Teen Retailers

Shares of a number of teen retailers fell Wednesday, after Abercrombie & Fitch Co. (NYSE: ANF) painted a bleak picture for the holidays. Teen retailers have been struggling with weaker spending by young consumers who are feeling the effects of the still difficult economy. They also are a notoriously fickle group, with limited money to spend on clothes and accessories. Abercrombie, specifically, reported a double-digit drop in sales last quarter and expects more of the same in the all-important holiday period.

The teen unemployment rate is at about 25%, which is more than three times the overall rate. They are not benefitting whatsoever from the economic recovery, because they don’t have a house that’s beginning to appreciate in value, nor do they have a stock portfolio that has more than doubled in the last few years. The young consumers do, however, have a ridiculous amount of student debt to look forward to in the coming years, when they enter college. When they finish college, they will likely have a tough labor market to contend with.

If Congress eventually raises the minimum wage, you can expect teen unemployment to remain high, because who’s going to pay a 16 year old, with no work experience, $10 an hour? Employers and the market will respond to economic incentives.

However, it is not just underemployed teens who shop at Abercrombie, Hollister, and American Eagle Outfitters (NYSE: AEO). Twenty-somethings also shop there. This group is facing a huge expense on the horizon in the form of insurance premiums. Thanks to the Affordable Care Act, the young consumers are going to be subsidizing the old folks for years to come. For example, the average 27-year old male should pay premiums that are 99% higher than he had previously.  

At Henssler Financial we believe you should Live Ready, which includes understanding how other segments of the market and economy may influence consumer spending. If you have questions regarding your investment strategy, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.

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