Strategy

Hot Topic cools off

As it starts to expand in Canada, kids have suddenly cut back spending.

With few expenses and cash from their parents in hand, teens are leading indicators of discretionary spending. But lately that’s been bad news for Hot Topic, the California-based retailer primarily known for shilling the faddish T-shirts of bands, cartoons and movies to angst-ridden suburban youth. The company is set to open stores this month in two Ontario malls, and if all goes well, Hot Topic will launch several other locations across the country in the coming year.

But teen wallets aren’t as loaded as they once were. Retail growth has been slow across the U.S., and chains like Abercrombie & Fitch and the Gap have been hit especially hard. Hot Topic is no exception — its shares dropped to about US$5 in July from a high of US$8.58 in mid-April. The company predicts it won’t meet operating income targets for 2010.

According to the research firm Retail Metrics, youth retailers were one of the few categories to post a sales decline (of 1.9%) in May, after a previous slide in April. The big Canadian retailers don’t publish monthly sales figures, but it’s understood from companies operating in both countries that while the Canadian market has fared better than the U.S., it has still seen declines. Unless Hot Topic’s merch can inspire teens to break that trend, it may be a long, cool summer.