Deeper back-to-school discounts to hurt teen clothing retailers

U.S. teenage apparel retailers face another tough back-to-school season as they are forced to discount more to lure customers who are flocking to trendier shops and embracing online shopping.

This could be a major setback for apparel companies such as Abercrombie & Fitch Co and Aeropostale Inc, which have been struggling to revive their businesses.

The back-to-school season, spanning mid-July to early September, generates the most sales and profits for apparel retailers, second only to the end-of-the-year holiday season.

Retailers that sell apparel to teens and young adults are expected to discount 5 percent to 10 percent more than in 2014, said Bill Martin, founder of research firm ShopperTrak.

Martin noted that last year had the slowest growth for the apparel industry since 2010, with retailers offering discounts of 35 percent on an average.

There is little choice but to discount.

"Other than discounting, they have no other tool in their arsenal, short-term, to stimulate sales," Kurt Jetta, chief executive of consumer analytics firmTabs said.

If these retailers don't discount, they will face significant losses from selling their merchandise at clearance sales, further hurting margins, he said.

Discounting, however, doesn't guarantee higher sales.

Abercrombie is expected to report a 5 percent fall in sales for the August-October period, from a year earlier, while Aeropostale's sales are expected to decline 12 percent, according to Thomson Reuters data.

Consumer sentiment has improved but parents are more likely to spend on big-ticket items such as iPhones for their kids, rather than on clothes from retailers like Abercrombie, whose preppy designs have lost appeal.

National Retail Federation, the biggest retail association in the United States, has said it expects consumers to spend $68 billion on back-to-school items this year, down 9 percent from last year.

"Out of financial necessity, the retailers doing the worst going into back-to-school season will promote the most. This would include Gap Inc and Abercrombie," Jetta said. He also expects Aeropostale and Urban Outfitters to offer heavy promotions.

Abercrombie is expected to post a 31 percent fall in profit for the August-October period.

Aeropostale is expected to report a smaller loss for the same period, mainly because it is cutting costs aggressively, including store closure and jobcuts. It has reported falling sales and losses for the last 10 quarters.

Aeropostale's shares have lost a third of their value this year, while Abercrombie is down by a quarter.