Upstarts: Tapping Generation Y
Searching for the mountain of youth
A new wave of start-ups court an unprecedented swell of cash-rich teens
Entrepreneurs have always enjoyed a certain level of immaturity. But recently a growing number of them have taken to paging through Tiger Beat, hanging around in skateboard parks, and watching marathon sessions of Backstreet Boys videos on MTV. Rather than reexperiencing their ever fading adolescence, those CEOs are desperately trying to gain insight into the widely touted, white-hot teen-consumer market.
Because kids are hot. And start-ups with young brands are often better positioned with teens than venerable corporations like Levi Strauss and Reebok. "The very, very small brands are selling like crazy," asserts Michael Wood of Teenage Research Unlimited, a Chicago-based market-research company. "There seems to be a backlash against some of the big brands that appeal to everyone."
Why the backlash? Well, teens by their very nature are rebels, a fact often reflected in their choice of clothing. The pimply set of today shun their mothers' Paleolithic Levi's simply because their mothers wore them. This natural change in tastes is amplified by the sheer size of today's teen market. By 2010, its ranks will swell to 35 million, making the cohort a larger chunk of the population than even the fabled baby boomers.
Another wrinkle: teens today differ from their rebellious progenitors in that all they've ever known is the new economy. They expect unflagging customer service, speed-of-light E-commerce, just-in-time delivery, generous return policies -- oh, and deep discounts. Simply put, says researcher Wood, they're the toughest, most demanding, and most fickle customers in the world.
And no one knows that better than the folks at Artemis Innovations Inc., a three-year-old footwear company based in Torrance, Calif. Artemis's brand -- Soap -- feature soles with a three-inch molded-nylon plate positioned along the instep. The plate is used for "grinding" -- a decidedly teen-based activity that involves sliding down stair rails, park benches, or any available concrete edge in parks and other public spaces, typically on skateboards or with in-line skates. Since grinders are at the pinnacle of teen social hierarchy, Soaps have been selling briskly among boys aged 10 to 15. The company racked up a spectacular $7 million in sales in 1998 and more than doubled that in 1999. Next year's sales are expected to hit $25 million.
Soap's association with grinding may be both a blessing and a curse, however, as it presents Artemis with a dilemma that many companies face in selling to teens. The trendsetting core audience that discovered the brand, although crucial, is too small to sustain the company over time. "There's an expression in our industry: the core is poor," says Artemis cofounder Jerry Gross. But by marketing to a broader audience, Artemis risks having it appear that its brand has "sold out." Grinders may eventually decide that Soap has become too mainstream and divert their dollars and acolytes elsewhere. To continue to thrive, the company must convince grinders that Soap is still the bad-ass brand, even as it achieves mass-market volume. "Right now our mission is to keep the core kid coming back to check out what's new from Soap," Gross explains.
A mere seven miles away from Gross's office, Hunter Heaney is building a start-up that elegantly sidesteps that branding trap. CEO Heaney, 30, runs a three-year-old company in Manhattan Beach, Calif., called MXG Media Inc., which sells achingly trendy clothing, beauty products, and other fab goods to achingly trendy teenage girls. MXG products include Trophy Girlfriend Nail Polish, the Vixen Makeup Kit, and the Boyfriend-Beater Tank Top. The $3.2-million company sells other companies' wares through a slick, highly trafficked Web site and a catalog-cum-magazine that reads more like Teen People than like L.L. Bean.
Unless you're 17, you've probably never heard of the labels MXG carries -- and that's the way Heaney wants it. Like his counterparts at Soap, Heaney relies on the continued backlash against traditional brands. But unlike the Soap folks, Heaney is less concerned with building a new brand than he is with continually identifying and exploiting the ever changing appetites of teenagers.
So Heaney watches MTV. First, the Harvard M.B.A. and former Goldman Sachs banker thinks that's a good way to monitor the day-to-day changes in teen slang, fashion, and consumerism. And second, Heaney emulates the MTV business model. Just as MTV doesn't rely on any one recording artist, MXG doesn't need just one brand of cargo pants or T-shirt to hit pay dirt. What Heaney is banking on is a steady stream of next big things.
To fine-tune his smoldering-waif antennae, Heaney employs 75 high school girls as "trend spotters." The teens photograph and profile their classmates and then send MXG a complete dossier on each fashion group at schools in New York, California, and Ohio, among other locations. Most of the girls report from home, but about a third drop by the company's headquarters each week, tweaking headlines and critiquing the product mix. "Nothing leaves this office without a teen seeing it or being involved in its production," Heaney says. "Frankly, I'd be terrified to do it any other way."
Teen spending is twice what it was a decade ago, says Michael Wood of Teenage Research Unlimited. In 1997 teens spent $122 billion. Last year their pockets bled $141 billion -- a healthy 16% increase . Here's how that sum was divvied up:
|Entertainment (including computers)||22%|
|Cosmetics and personal-care products||8%|
|Sporting goods and clothing||6%|
Source: React magazine.
Note: Percentages do not add up to 100% because of rounding.
Still awesome after all these years
Keeping a brand teen relevant is truly an art form. And the makers of Vans sneakers are the Picassos of their breed. The company has thrived in this tricky marketplace for most of the past 30 years. Vans CEO and president Gary Schoenfeld says he can describe his brand in two words: "Jeff Spicoli." That's the name of the stoned-yet-affable surfer dude portrayed by a young Sean Penn in the seminal 1982 teen movie Fast Times at Ridgemont High. Back then Spicoli's trademark Vans checkerboard slip-ons became must-haves for cool dudes across the country. Today the Spicoli character is something of a metaphor for the Vans brand. "His Southern California attitude and image endures," Schoenfeld explains. "Kids can get it quickly."
And kids do get Vans. The business racked up $205 million in sales in fiscal 1999. What's more impressive, it enjoyed a striking 11% surge in same-store sales in 1998. How has the company captivated a new generation of teens? By ripping apart its business and starting fresh. Schoenfeld explained the makeover to Inc. staff writer Mike Hofman:
Inc. : You became CEO of Vans in 1995 and promptly overhauled the business. What was wrong with it?
Schoenfeld: Vans had evolved into a family-shoe manufacturer -- its advertising was all over the place, appearing in everything from GQ to Mademoiselle. The company made 100% of its footwear in two U.S. factories, which was a problem because the tooling in those two factories limited the styles we could make. The company couldn't react with the market, because it was very expensive to change the tooling on short notice.
Inc. : So how did you change the company?
Schoenfeld: I wanted to get everyone inside the company thinking about Vans as a global brand aimed at consumers aged 10 to 24. Vans really thought of itself as a manufacturer, but I wanted the company to be much more product and customer driven.
We decided to close the U.S. factories and source the shoes in Asia. With manufacturing outsourced, marketing became the company's focus. You have to strategically commit to the teen market and then tactically find the things that are relevant to teens and cost-effective for the company. Kids don't relate to direct hard-sell advertising. They see through a company that's just spending a lot of money to attract their attention. Our strategy is to ingratiate ourselves more into their lifestyle. Rather than pour money into advertising, we invest in sports and music and entertainment, sponsoring music festivals and events in our core sports -- surfing, skateboarding, BMX biking, and snowboarding -- all closely related to the Southern California lifestyle.
Inc. : How do you keep up with trends?
Schoenfeld: By staying close to the consumer. We've designed and built three huge skateboard parks in Southern California -- one of them is the largest in the world. Thousands of kids visit them every month. Our designers and product people spend a lot of time at the parks. We do some focus groups there, but we've found that we get the best insights when our people hang out with teens more informally. We also learn by watching them skate. As they push things in their sports and find ways to do new tricks, we can incorporate design changes into our footwear.
Inc. : Will you move into more traditional team sports?
Schoenfeld: You have to start with the customers and the things they relate to in your brand. We don't put up banners at Dodgers games trying to appeal to the whole family. We look to see if we can create a leadership position in a sport. If we can't, then it's outside our realm. We look to see where our customers cross over. Snowboarders don't tend to play soccer, so that's not something we're going to incorporate into our brand.
Inc. : Do you ever flirt with expanding your target audience?
Schoenfeld: No. You have to be comfortable with not retaining a customer for his or her entire life. We won't try to reach that same customer 20 years from now. Our focus will be on a new batch of young consumers. That's where we've been successful. If you really want to reach the teen market, you have to focus on them specifically.
Talk about your sweet target market. Although from 1972 to 1976 Americans produced nearly one million fewer babies per year than they had a decade earlier, maternity-ward traffic later rebounded to pre-Vietnam, pre-Watergate, pre-disco levels, peaking in 1990. Children born in 1990, most of whom are now in the fifth grade, are just entering their key consumer years.