Are Retailers Poised For A 2014 Comeback?

• by Aaron Paquette , Columnist, January 2, 2014

Last year, retail took a beating from high teen unemployment. But, if recent trends continue, 2014 could be much more promising for brands that market to teens. 

The most significant sign is better conditions for teen employment. Over the last five years, teens have borne the brunt of the recession. Employers didn’t want to take a chance on workers with no experience when they could hire overqualified employees for the same cost. However, the general unemployment rate recently decreased to seven percent, and the Federal Reserve expects it to dip to as low as 6.3% in 2014 and 5.8% in 2015. As the labor market stabilizes, workers with more experience will take higher-paying jobs, opening the doors for teens to take on entry-level positions. 

In tandem with better employment prospects, the increase in minimum wage in Washington, D.C., and California might trickle up. Congressional Democrats, with support from President Obama, want to raise the national minimum wage from $7.25 to $10.10. Getting the proposal through the Republican-controlled House will be challenging, but national polls show majority support for the bill. Public pressure might force Congressional Republicans to reconsider, especially when half in their own party supports the increase.

While an increase in labor costs could result in employers using more automation (such as touch-screens to order fast food), it won’t happen immediately. In the meantime, employers will need to hire teens at the legislated higher wage. 

In addition to the increase in minimum wage, teens might also get some reprieve from student debt, which is starting to moderate. Colleges have gotten the message that students and their parents are rebelling against high tuition fees. Now that state budgets are stronger, state-funded schools are starting to hold down their tuition increases. These changes will reduce older teens’ debt burden and put extra money in their pockets.

With higher employment, increased pay and stable tuition costs, teens will have higher discretionary income for clothes, video games, electronics, movies and dining. If your brand markets to teens, these economic trends spell good news but also suggest a need to re-evaluate your strategy and tactics. As the teen economy recovers, here are a few tips to consider: 

• Rely less on discounts. With more earnings to spend, teens won’t bargain-hunt as much. Retailers’ reliance on deep discounting will decrease as branding, innovation and customer service become more crucial. 

• Figure out why teens switch brands. Don’t be surprised to see teens switching brands as they earn more money. Luxury brands could regain their cachet. For example, teens might migrate away from “fast fashion” retailers like H&M and Forever 21, and back to the likes of Aeropostale. Similarly, we might see a shift from fast-food restaurants to more upscale quick-serve restaurants like Chipotle and Panera Bread. Consumer insights will help predict the factors that will drive brand switching among teens. 

• Identify opportunities for brand extensions and new products. In the same way that Apple successfully expanded its iPhone line with the higher-end 5S (with its prestigious gold case) and the 5C (the lower-priced line with the brightly colored plastic shell), it might be a good time to launch brand extensions. As their income rises, teens will be less loss-adverse, encouraging them to try new products, a new clothing line, or take a chance on their movie choices. Companies should identify unmet needs since brand extensions can help energize sales with new designs, features or more upscale branding. 

Of course, just because the economy gets better doesn’t mean teens will automatically flock to your brand. Retailers should use this time to engage teens to validate their hunches on the impact of the economic macro and micro trends. Ad testing, for example, will help brands optimize their marketing and communication messages at this time. If these trends materialize, 2014 might indeed be a very “happy new year” for teens and their parents—but also to marketers who pay attention to the attitudes and needs of these young people.