Teenagers, those fashionable free spenders, are starting to feel the economy's pinch. They're cutting back on their purchases of low-rise jeans, long-sleeve tees and velour yoga pants.
A manager helps a shopper at d.e.m.o. in Taylor, Mich.    
By Robin Buckson, The Detroit News via GNS

As a result, some of the retailers that cater to them are facing a post-holiday meltdown. Chains such as Shopyop (shopyop.com) and Abercrombie & Fitch (abercrombie.com) are struggling to stay trendy and profitable at the same time.

Another one, Gadzooks (GADZ), on Tuesday filed for bankruptcy-court protection. Struggling to survive, the Dallas-based chain said it will reorganize and shrink from 410 stores to about 252 in coming weeks. Last summer, the retailer shed its clothes for guys to concentrate on girls and women ages 16 to 22. But sales declines continued, and in December the chain's sales were down 25% at stores open at least a year.

Overall teen apparel purchases dropped 12.5% to $19.9 billion for the year ended November 2003 compared with the same period in 2002, according to data from market information company NPD Group. Retail industry experts say cities and malls are bound to feel the pinch as more chains start shuttering stores and rethinking their youthful strategies.

Some teens — in line with overall shopping trends these days — are more concerned with good prices than high fashion.

"I look for bargains," said Michelle Cozzaglio, a 15-year-old Michigan resident who was shopping recently with friend Lauren Levko, 15.

And when they do spend, they look for value. Crystal Seitz and Michelle Dorris, 16-year-old Michigan residents, say they look for quality as well as style when they hit the mall. Their favorite stores are d.e.m.o., American Eagle (ae.com) and Aeropostale (ARO).

"Even though they are expensive, it's well worth it," said Seitz, who was checking out the $34 Baby Phat tees and $120 Rocawear two-piece sweat suit at d.e.m.o.

"Those other stores, the pants shrink and fall apart," Dorris said.

In recent surveys teens said they felt the clothing at discount chains such as Target (TGT) was styled better, as well as being a better buy, than outfits at the more expensive stores, said C. Britt Beemer, founder of America's Research Group, a market strategy firm.

Discounters such as Kmart say they work hard to catch a teen's eye. The chain regularly updates its popular Joe Boxer line to remain hip enough for young shoppers, spokeswoman Angela Hood said. That's why a Joe Boxer sheet set is known as a "Snooze Kit" or "Underwear for Your Bed." "It's got that youthful appeal — it's irreverent, fun and trendy," Hood said.

Abercrombie once led the teen market with its preppy style. Now, its dominance is slipping as teens move away from all-American looks toward more European-inspired designs. The chain's same-store sales, considered the best judge of a retailer's strength, have fallen 9% over the past year.

The stores that are thriving in the current teen environment are those that carry a variety of merchandise instead of concentrating on one trend or lifestyle, said Ken Nisch, chairman of JGA, a Southfield, Mich., retail design and brand strategy firm.

Hot Topic (HOTT), for example, stays in touch with its teen consumers through grass-roots marketing, customer feedback and studying chat rooms on the company's Web sites, Nisch said. JGA has worked extensively with Hot Topic, designing both its signature stores and those of its plus-size chain, Torrid.

"They're what's known as an early responder and an early rejecter," he said. "They're moving out of a trend when a lot of people are just thinking about getting into it."

Pacific Sunwear (PSUN)— called PacSun by its young patrons — hit a home run with its new urban clothing stores called d.e.m.o. Appealing to teens' love of hip-hop culture,d.e.m.o. is the company's fastest-growing concept with 110 stores and double-digit sales increases.