Teens cut spending to lowest level since 2011: Piper Sandler

On Wednesday, Piper Sandler released the results of its 39th semi-annual “Taking Stock With Teens” survey, which highlights discretionary spending trends and brand preferences. Analyst Erinn Murphy joins The Final Round to discuss the firm’s findings.

Video Transcript

MYLES UDLAND: Switching gears back to the US and the state of the consumer, specifically the teenage consumer, we're joined now by Erinn Murphy with Piper Sandler for that firm's latest twice annual teen survey. And Erinn, you guys always roll this out. We like to see the brands that kind of rise to the top.

But I want to just start with the first chart you guys have in here, which is 47% of teens, of respondents to your survey, noted that the economy is getting worse. That's the highest we've seen in nine years. And I think it's really a big change of how younger consumers are looking at their prospects. Because we have seen relative optimism, I think, among not only teens, but all consumers over the last several years.

ERINN SANDLER: Yeah, well, thanks for having me on. I mean, I think one of the really interesting findings-- and I think you hit the nail on the head-- was that we actually did this survey, which we've done for 19 and 1/2 years, during a period of time where people were adjusting to a new normal.

So we started our survey February 17th. We closed the survey on the 27th of March. And so a lot of the teens that responded and almost 50% of the teens that responded out of 5,200, they were responding from home. They had already transitioned to home school online modules. So I think that they were-- you know, there's definitely kind of an absorption or a reflection, I should say, of what we're seeing in the economy.

I mean, I think the last time you pointed it out back in 2011 was the last time teens were saying the economy was, quote, "getting worse." With over 50% of teens back then today, 47% say it is getting worse. If you looked back just one year, that number was only at 28%. So there were a lot of different sound bites throughout the survey that definitely cast a bit of a shadow around spending, as well as kind of concerns around the economy, and clearly, coronavirus in and of itself.

JEN ROGERS: I want to talk about some of the big tech names that are in there, your Netflix, Amazon, Facebook by way of Instagram. So in this time of behavioral shift, there has been a lot of ink spilled on whether or not this is going to be good for big tech, that they're just going to be able to get bigger here and use their position of strength. Do you see that represented at all in the teen survey already? Because I mean, those big companies seem to be doing incredibly well with teens still.

ERINN SANDLER: Yeah, so I've got to be careful. None of those stocks we cover, or I cover-- specifically, I cover the apparel and footwear. But in terms of what we're hearing about those brands and kind of their behavior from the teen survey, I mean, Netflix was the number one platform cited as kind of the most used or high-- you know, where teens are getting their content from. YouTube, number two.

I mean, clearly, there is a lot of time being spent outside of school. Most schools-- we did a live panel today with teens, and they were saying their school day has been shortened, even though it's all online. And so they do have more time to fill in the gaps, whether it's consuming content or whether it's even doing daily activities. But you know, Netflix for sure gained back into that number one spot, YouTube number two.

The other thing I think is interesting, just from a technology perspective, is how these teens are engaging in social media. And I think, you know, what we saw in this survey was the most frequented was Instagram followed by Snapchat, and then TikTok.

But again, remember, half of our survey was answered when teens were still going around their normal lives. So it will be interesting to see if we were to, you know, hypothetically do this in a month or so, if that changed, just because some of those content platforms are, I would imagine, not being used as much now as they were, you know, a month ago and some being used more.

ANDY SERWER: Hey, Erinn, let's switch over to that area of expertise of yours, apparel and footwear. And I see athletic stuff, if you'll pardon the technical term, is big. And is that really sort of the overlying trend you're seeing?

ERINN SANDLER: It has been, and it has been for a long time. So it's interesting. A brand like Nike, you know, it is ranked the number one brand in our survey for not just athletic, but for actual fashion apparel, and for 9 and 1/2 years. And so we've just continued to see, you know, that kind of cohort of brands led by Nike to continue to gain share.

Adidas is now the number three brand for apparel. And Lululemon was actually a very big riser in our survey, you know, the number six brand. And that's among all teens, so both income and demographics. Just a year ago, it was number eight. So I do think this is a lifestyle. This is a cohort of consumers that, you know, appreciates the casualization. And that continues to march higher, even through these times.

RICK NEWMAN: Erinn, hey, it's Rick Newman. So you're saying about 85% of the teens own an iPhone in this survey, yet the iOS market share is only around 14%. So what does that mean about your demographic here? Is it more upscale than the population overall, or do teenagers really just love iPhones and somehow find the money to buy them?

ERINN SANDLER: Candidly, I think it's probably more the latter. I mean, if you look at the demographic, the income demographic of our survey, just to kind of hit the few bullet points, 5,200 teens were surveyed. The average income is just over 63,000. And then we've split that into upper versus average income, so upper income is over 100k. Average income is around 53,000 in this survey. So, and that was among all teens.

So I do think that, you know, this is a cohort, and it was the new peak. So it's been marching steadily higher. In fact, 88% of teens said that they expect their next-- you know, their next i-- or excuse me, next smartphone to be an iPhone. So I do think it has more to do with this demographic and their love for this brand.

ANDY SERWER: That's incredibly great news for Apple. My goodness, I had no idea.

MYLES UDLAND: And then Erinn, quickly, I just want to get you out here on this one. You know, you look at wallet share for both young men and young women. And clothing, number two for men, number one for women. Malls are closed right now. Teens aren't going out. You know, you mentioned at least one teen lost their job.

As you think about some of those apparel names in your coverage area, they're not moving into a recessionary period for the first time in 10 years. How much are these companies prepared, perhaps, for what is likely coming in the second half of this year?

ERINN SANDLER: I think it's going to be really challenging. I mean, I think what we've tried to do is we look at our coverage universe, is, you know, try to figure out some-- a framework to kind of delineate winners and losers. And I think the ones that kind of sit on that winning list are those that have very strong digital platforms, a way to connect with consumers outside of the malls.

If you think about a Nike, 20% of their business is digitally led, be it on their own website or through some of their digital partners. And so they can-- and they have multiple apps. So they're connecting with consumers, moving them on to the Nike Train Club app to kind of get them moving and kind of thinking about their brand. Lulu was doing the exact same thing, almost, like, upgrading their ambassador program and doing things with consumers online.

So there's actually been an interesting kind of almost new customer acquisition opportunity for some of the brands that are more digitally led. The concern for us, though, is really more of what you and I would call, like, the traditional mall-based brands or those that are tethered into the department store kind of complex. And that's where I think you're going to see a lot of inventory dislocation.

I mean, nobody knows when the stores will open. I mean, most retailers right now are putting out releases saying likely June 1st. But that is a moving target. And so you're going to be stuck with first half inventory into the back half, which is really not used and that area is no longer necessary, and then back half inventory, which is being cut.

So the traditional names, you know, be it, you know, a Ralph, be it, you know, a tapestry, I think those are going to be challenged, as we sit here. G3, Steve Madden, they all have very significant US wholesale exposure and not strong enough digital platforms to really offset, you know, what I think will be a very challenging time for the industry.

MYLES UDLAND: Yeah, I mean, it's almost time to order your fall inventory, and you can't be open to sell the summer stuff. I think I saw some reports that they're asking to hold back shipments of summer kind of clothing. So interesting time ahead. Erinn Murphy, managing director, senior research analyst at Piper Sandler, thanks so much for joining the program today.

ERINN SANDLER: Thank you for having me.