(Bloomberg) Where young consumers with spare cash once thronged the likes of Abercrombie & Fitch Co. (ANF) and American Eagle Outfitters Inc. (AEO) for clothing that telegraphed their identities, the new generation is poorer, shuns logos and socializes more on the Internet than at the mall. They're also increasingly global fashion citizens, mixing garments from brands across the world that are now accessible from their smartphones.
The changing shopping patterns in what Piper Jaffray Cos. estimates is a $30 billion market are providing fertile ground for upstarts such as Brandy Melville USA, which relies more on Instagram followers than television ads. They're also causing a drain from the established chains that have been slow to turn away from their expansive stores and uniform, all-American style that worked so well for so long.
"Everything gets old," Allen Adamson, a managing director at Landor Associates, a San Francisco-based brand consulting firm, said in an interview. "They stayed on their game, but the market shifted."
Abercrombie, American Eagle and Aeropostale Inc. (ARO) all are projected to have sales declines in the year ending in January after gains in the previous year. The chains' shares also are lagging other retailers in 2013, with Abercrombie, American Eagle and Aeropostale all down more than 20 percent through Nov. 8, while the Standard & Poor's 500 Retailing Index gained 36 percent.
One reason is that teens have less money. The unemployment rate among 16- to 19-year-olds was 22.2 percent in October, the most recent month for which U.S. Labor Department data is available. The rate has stayed above 20 percent since May 2009. Parents aren't as able to help out, and shoppers of all income levels are pulling back on unnecessary items.
"Parents are being more value-oriented," Jahnia Sandford, a Columbus, Ohio-based apparel analyst at Kantar Retail, said in a phone interview. "If you have limited income, you're not going to Abercrombie and Hollister and spending $40 on a pair of denim."
The teens who do have money are spending it differently. About 60 percent of millennial shoppers use smartphones, according to Pew Research Center. That means they can compare prices without entering or leaving a mall, where the traditional teen chains have most of their stores.
Those phones, loaded with Facebook Inc.'s social network and its Instagram photo-blogging app, provide them a gateway to a world of fashion trends. The Internet allows shoppers to be pickier, comparing prices and customizing the size, color and design of much of what they purchase.
Teens and young adults now post photos with the tag "outfit of the day," or OOTD, or send pictures of potential purchases to friends for immediate feedback. Others post "haul" videos on Google Inc.'s (GOOG) YouTube site to highlight the items they've just purchased. About 60 percent of millennials post videos, images and blog entries online, compared to 29 percent for people of other age groups, according to Boston Consulting Group data.
Nadine Arabi, a 21-year-old senior at State University of New York at New Paltz, sees outfits and styles she likes on websites and social media, then shops for individual pieces to create her own look.
"Fashion is so accessible to everyone because stores like H&M and Forever 21 are more accessible," she said while browsing the racks at an Hennes & Mauritz AB (HMB) store in New York. "More people are wearing trendy clothes, so there's more pressure to be fashionable."
One retailer that's taking advantage of those trends is JackThreads, an online merchant that offers deals on more than 500 "street and contemporary" brands with products ranging from apparel and accessories to gadgets.
For young women, Los Angeles-based Brandy Melville provides a similar, boutique draw. The retailer, which has 16 U.S. locations compared with more than 900 for New Albany, Ohio-based Abercrombie, has more followers on Instagram than all of Abercrombie's brands combined.
Brandy Melville also is noteworthy for how its approach to fashion differs from the big teen chains. The company, via its stores and website, sells fast-fashion inspired crop tops, flowing skirts and high-waisted shorts, in contrast to the denim and tight-fitting button-down shirts that are staples at the major chains. The clothing displays no brand name, and the only text to be found is on T-shirts with movie and song quotes that often include profanity.
"I don't like wearing brands that advertise their logo on me," Jennifer Kurtz, a 25-year-old health-care consultant, said while browsing a Brandy Melville store in New York's SoHo neighborhood. "It's better for people to be like, 'I wonder what you're wearing.'"