Schafer: Tracking teens yields investment insights

Among high school kids these days what's cool is being unique. Stepping off the school bus wearing more or less the same Abercrombie & Fitch shirt as everyone else is so 2007.

"Conformity is actually the antithesis of popular right now" said Steph Wissink, talking about one key finding from a big teen preference survey that she and her colleagues just published.

The thing is, Wissink is not a social scientist or think-tanker. She's a stock picker, the co-director of investment research at the ­Minneapolis investment bank Piper Jaffray & Co.

As Piper has proved, the purchasing habits of teenagers swing a lot of capital allocation decisions in our economy, and business owners and investors who aren't on top of this ought to pay attention to ­Piper's work.

Anyone managing businesses in media and entertainment, restaurants, retailing, consumer ­marketing, consumer electronics and cars should understand what teens are doing. Even investors holding shares in real estate investment trusts that own retail centers need to know if kids have really lost any interest in going to a mall.

Piper thinks it's the only investment research outfit trying to find out what teens think from talking to them. What began as a limited search for insight on a handful of retailing stocks has turned into something far broader.

The team now visits teens in their schools in 12 states and with its online effort collects results from about 7,500 kids. It does its survey twice a year.

Traditional teen retailers like American Eagle Outfitters and Abercrombie & Fitch were doing great business selling logo apparel several years ago, when they had more than a third of the market. That share has fallen to 13 percent. It's why American Eagle's stock trades for about a third of its all-time high, reached in ­January 2007.

Piper has figured out that its survey findings can interest investors in other industries, too, even in ­Silicon Valley.

Early last October, for instance, there was a 10-percent dip in the share price for Facebook on a spike in trading volume. There was no news from the company that could have spooked traders.

What happened was that early one morning Piper's high-profile technology analyst, Gene Munster, said Facebook was no longer the most popular teen social networking application. Twitter was. And he had his own survey data to prove it.

The restaurant business is yet another one influenced by teens. Investors should be interested to learn that for the first time, kids are spending less on clothing than on food. Since very few kids buy bags of groceries for the family, what's going on here?

That means trips to the regional shopping mall for entertainment have plummeted — one of the reasons shopping frequency of teens has declined from the peak rate of 38 trips a year a few years ago to below 30. Piper thinks mall traffic generally for teens has declined 30 percent in the last 10 years.

"What's been so entertaining about [our survey] is that there are hundreds of millions of dollars of shares that trade every day just in teen retail," Wissink said. "A lot of it is uninformed decisionmaking on what teens ­actually like."

The person with the most influence over what any teenager actually likes is another teen, but Piper has asked for years for a longer list. For girls, magazines came in second as recently as two years ago, and now for both boys and girls, it's the Internet.

With social networking tools, both of the top two influencers come through smartphones. Now you can see why everyone at a big table of high schoolers at Noodles will have a phone in front of their face, not talking.

Piper's team has identified some of the companies that really understand these trends. Wissink said investors should listen to the top management at retailer Urban Outfitters talk to shareholders, to hear about connecting with customers on mobile devices and through social media.

What's most interesting about Piper analysts' work is that teens tell them a lot about what older people will be buying a year or two down the road.

Wissink observed that Facebook started out as an online directory for college students, quickly got adopted by high school kids, and then their parents and grandparents decided it would be cool to be on Facebook. That alone was probably enough to have kids start ­preferring Instagram and ­Twitter.

The teens are leading on television viewing, too. The number of Americans who pay for TV through cable, satellite or fiber services actually fell last year, for the first time ever. Teenagers love TV, but not if it means scheduled programming presented on a television set. TV comes streaming from Netflix through screens as small as an iPhone's.

It is stunning how teens are interested in the newest new thing, and Piper just found out that 17 percent would buy an Apple iWatch if it were launched by Christmas for $350. Setting aside the question of why any high school junior needs a $350 smart watch, that's $350 that won't go to clothing or get saved as a down payment on a used car.

But in two years, I will probably want one, too.