Cooling Trend at Hot Topic
Jessica Calienes likes shopping as much as the next young woman. But not at Hot Topic, with its vinyl bras, flame pajamas, skull rings and pink hair dye.
“It scares me,” said the 19-year-old student from Diamond Bar, outfitted in hip-hugger jeans, a tan pullover and a scarf draped around her neck for an excursion at Brea Mall. “They tend to sell a lot of Goth, and that’s totally not my style.”
If Hot Topic Inc. stores are too far out for Calienes’ taste, they’re not edgy enough to suit Linda Campos, a 21-year-old band promoter who’s such a fan of the “screamo” group My Chemical Romance that she had lyrics from its song “Our Lady of Sorrows” tattooed on one arm and a visual depiction of the band’s first album, “I Brought You My Bullets, You Brought Me Your Love,” on the other.
“All the bands we’re into, we’re looking to see if they have their shirts,” the Los Angeles resident said, “and they don’t.”
It’s not easy being Hot Topic these days. There’s a preppy trend sweeping the nation, with many young shoppers into prim sweaters, collared shirts and chinos. At the same time, Hot Topic seems to be having some trouble keeping the loyalty of the anything-but-preppy who have been its target audience.
The City of Industry-based company owns 670 Hot Topic and Torrid stores known for their music-inspired T-shirts, dark clothes and counterculture accessories. Its comparable store sales, or sales at stores open at least a year, began sinking this year after a five-year hot streak. The sales figures are key indicators of a retailer’s health.
The Nightmare Before Christmas line the company figured would be fail-safe this season, partly because it sold well last year -- fuzzy dice for $7.99, a “Jack in a Coffin” skeleton that pops out of his burial bed for $19.99 and other items -- fizzled. Now it looks like Hot Topic could post negative comparable store sales for the full year for the first time since it went public in 1996.
What happened? The very quality that helped Hot Topic trounce many competitors in recent years is the thing that’s hurting it now: It is very different from everything else at the mall. Other teen retailers such as Abercrombie & Fitch Co. and American Eagle Outfitters, are free to shift styles as trends change, but Hot Topic can’t swim in the mainstream without losing its target audience. And it may have lost many already.
“A lot of their [male] customers that I talk to these days are shopping at Wal-Mart,” said Robert Buchanan, an analyst at A.G. Edwards & Sons.
When Hot Topic’s products aren’t intriguing enough, these young shoppers will buy the basics -- jeans and a black shirt -- somewhere else, and for less money.
“You look at the kids, they’re all in black,” Buchanan said. “About the only thing that’s not black is their spiked blue hair.”
And Hot Topic stores aren’t “as Goth-specific and only for disenfranchised youth as people would think,” said Adrienne Tennant, an analyst at Wedbush Morgan Securities who downgraded the stock to “hold” from “buy” last month.
In fact, “the people who are really punk wouldn’t shop at Hot Topic,” said Teresa Luu, a student from Buena Park who was at Brea Mall with Calienes. “It’s too mainstream.”
For her part, band promoter Campos said she figured that Hot Topic still attracted plenty of shoppers who like Goth and punk music but was losing “scene kids,” who move quickly from one band to another. The stores “still have old, old stuff,” she said, which for Campos means the Goth/punk band AFI or the political punk group Anti-Flag.
Beyond that, Hot Topic is too expensive, said Michelle Lopez of Los Angeles, who was shopping with Campos. Lopez sported a pierced tongue and eyebrow and a studded Hot Topic belt. But the 19-year-old didn’t purchase it.
“I found it in a mosh pit,” Lopez said, adding that some of her friends would rather buy from thrift shops since they’re going to beat their clothes up anyway. “You want to buy it somewhere cheap so you can rip it.”
Despite its reputation for carefully testing products, analysts said Hot Topic has fumbled, missing the mark during the back-to-school shopping season and flopping this year at Halloween, usually one of its strongest sales times. The company has repeatedly revised expectations downward, which has hurt its credibility, said Pamela Nagler, an analyst at Fulcrum Global Partners who on Nov. 30 downgraded the stock to “neutral” from “buy.”
“Four downward revisions in less than five months does not give the Street a lot of confidence in this name,” Nagler said. Hot Topic executives declined to be interviewed for this article.
The stock closed Friday at $16.01, down 22 cents on Nasdaq and down from a 52-week high of $32.30 on Jan. 22.
Analysts generally agreed that the company would eventually shift back into its groove. But it may take time, given current fashion trends. Beyond that, it has been hard for Hot Topic to post impressive same-store sales lately because those are being compared with last year’s hot streak.
Some retail experts said Hot Topic should aim to connect with more new underground bands or artists whose styles it can translate into clothing. Last year, punk-style pants that looked like something out of singer Avril Lavigne’s closet sold well, according to analysts.
Analyst Jeffrey Van Sinderen at B. Riley & Co. noted that the company planned to hire a new men’s clothes buyer, one sign that “they’re certainly not going to just sit on their hands and wait for the fashion winds to change direction more in their favor.”
Hot Topic is unique in some ways that should help it compete. For example, it strikes licensing deals with musicians and budding apparel brands that allow it to sell some products other retailers don’t have.
The retailer has used its licensing prowess to attract a wider range of shoppers by offering products featuring pop culture icons that might seem strange for Hot Hopic, such as Hello Kitty accessories and Tinkerbell towels.
For many customers, it’s the old standbys that keep them coming back. Anaheim Hills nurse Terry Cupp bought Led Zeppelin and Marilyn Manson shirts last week for her sons ages 13 and 15, and one special item for the older boy.
“My son likes to wear black nail polish,” she said. “And that’s the only place you can buy black nail polish.”
