Teen-Apparel Chains Poised for Pain as Malls Lose Luster

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American Mall Decline
Shoppers walk through the Tower City Mall in Cleveland, Ohio, U.S. Teen-clothing chains have been hit especially hard by the drop in mall visitors, with younger shoppers looking instead to the Web for fashion inspiration. Photographer: Ty Wright/Bloomberg

The decline of the American mall is threatening to create more retail victims in 2015 as stores that count on enclosed shopping centers for foot traffic find they’re increasingly isolated from consumers.

Teen-clothing chains have been hit especially hard by the drop in mall visitors, with younger shoppers looking instead to the Web for fashion inspiration. And while an improving job market and lower gas prices have helped boost U.S. consumer spending, the rebound isn’t yet refilling mall parking lots.

The holiday season already saw two clothing chains -- Deb Shops and Delia’s Inc. -- file for bankruptcy, with the latter retailer announcing plans to shut down entirely. Wet Seal Inc. and Body Central Corp., meanwhile, have warned investors that their ability to keep operating is uncertain as cash supplies dwindle. It’s not just clothing merchants suffering either. RadioShack Corp., the almost-century-old electronics chain, has said its status as a going concern is in doubt.

“The big question is, how many malls are there going to be in five years?” Bradley Snyder, executive managing director for Tiger Capital Group, a Boston advisory firm. “It’s certainly a concern for landlords, with the entire sector being impacted.”

For apparel sellers, the challenges have been building for years. E-commerce sites and fast-fashion retailers such as Hennes & Mauritz AB are luring away customers. Households also are spending less on clothing and putting more of their budgets toward mobile-phone bills and other expenses.

C. Wonder

Higher-end stores aren’t immune either. C. Wonder, an upscale clothing and houseware chain with about a dozen U.S. stores, announced plans this week to shut down. Daniela Maron, a spokeswoman for the company, cited “the highly competitive nature of the current retail environment.” Chris Burch, the ex-husband of designer Tory Burch, had opened the first C. Wonder store in New York’s SoHo neighborhood in 2011. The shutdown was previously reported by BuzzFeed.

“If you’re an apparel maker, you’re swimming against the tide,” said Craig Johnson, president of Customer Growth Partners LLC, a New Canaan, Connecticut-based consulting firm.

Cache Inc. and Bebe Stores Inc. have both posted two straight years of deficits, and Aeropostale Inc. lost $141.8 million in its most recent fiscal year. After its losses piled up, Body Central’s cash shrank to just $4.5 million as of November. Wet Seal said last week that it has received a notice of default from a creditor, though it was granted a reprieve until later this month.

Tough Choices

Stores facing a cash crunch have a few options, none of them easy. They can slash costs, often by closing underperforming locations. They can try to shift more of their business online -- or encourage shoppers to order on the Web and pick up in stores. Or they can file for bankruptcy and try to reorganize.

The troubles could lead to thousands of store closings in the next year, according to Snyder. Already, chains are shuttering hundreds of locations as they try to cope with economic shifts.

Delia’s is closing 92 stores as part of its liquidation, while Aeropostale closes up to 240 locations of its main brand and all 125 of its P.S. children’s chain. Sears Holdings Corp. continues to shrink its store base as well, closing 235 locations in 2014. RadioShack operates more than 4,000 stores and is seeking to close as many as 1,100. If it files for bankruptcy protection, that number could multiply.

Low-Rated Malls

Most of the closings will be in malls, Snyder said. While malls with an “A” rating are thriving and can replace lost tenants, only about 30 percent are in that category, according to DJ Busch, an analyst at Green Street Advisors in Newport Beach, California. Overall sales growth will be sluggish at malls in the next few years, the firm predicts.

The teen-focused retailers known as the A’s -- American Eagle Outfitters Inc., Aeropostale and Abercrombie & Fitch Co. - - are paring back their locations. The companies plan to close 14 percent to 28 percent of their store bases in 2015, according to Bloomberg Intelligence analyst Jeffrey Langbaum.

Non-mall chains are adjusting too. Wal-Mart Stores Inc., the world’s largest retailer, is focusing on its smaller neighborhood stores and has scaled back its supercenter growth. Best Buy Co., the top chain focused on electronics, has closed big-box locations in favor of its smaller Best Buy Mobile locations.

Consumer Spending

There is certainly plenty of good news for the retail industry. The biggest job gains since 1999 and the lowest gasoline prices in five years helped push consumer spending to a better-than-expected 0.6 percent gain in November, according to the Commerce Department.

Still, consumers have shifted more of their spending away from clothing, toward categories such as consumer electronics. They’re also diverting more of their discretionary spending toward monthly costs such as mobile-phone bills, Johnson said.

In 2000, spending on clothing accounted for 5 percent of a typical U.S. household’s budget, Johnson said. It’s now about 2.8 percent, he said.

“In the last several years, apparel’s been a struggle,” said Brian Yarbrough, a retail analyst at Edward Jones & Co. in St. Louis. “Apparel’s had a tough time.”

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