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Teen Retailers in Turmoil

The strongest teen apparel retailers are positioned for market share gains.

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The teen apparel market has been highly fragmented and fiercely competitive for years. And now, these companies also face a dismal consumer spending environment and unfavorable teen demographic trends. Despite these challenges, our long-term outlook for the industry remains positive, because we believe the top companies will emerge in stronger competitive positions when macroeconomic conditions improve. In our opinion, the best-positioned firms are  Abercrombie & Fitch (ANF),  Aeropostale (ARO),  American Eagle (AEO), and  Zumiez (ZUMZ).

Contributing to our long-term optimism is our belief that the teen apparel category is more resilient than the overall apparel category. This is mostly because teens outgrow their clothes and make purchases within a shorter replenishment cycle. Furthermore, parents typically purchase a large portion of their teens' clothes, and we think they are more likely to cut back on their own expenses than their children's. Taking these factors into account, we consider most teen apparel spending to be necessary versus discretionary.

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Brady Lemos does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.