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NEW YORK (CNN/Money) -
Teen consumers are fast becoming the hottest segment of the retail market, and for good reason.
For the most part, these young adults don't pay for their food, rent, mortgage or insurance costs. But they get "free" income, better known as an allowance, from their parents.
Plenty of teens also supplement their allowance doing odd jobs such as baby-sitting, lawn mowing or dog-walking. Why? Because this is a consumer group with an insatiable appetite for shopping.
The spending fury of teens was clearly obvious in last month's sales results.
Specialty stores that cater to teens such as American Eagle Outfitters (Research), Abercrombie & Fitch (Research), Pacific Sunwear (Research) and bebe stores (Research) had blowout sales in January. Teen merchants overall significantly outperformed the discount and department store categories.
A recent industry report suggests that the notoriously freespending teens will shell out even more money this year.
According to tracking firm Teenage Research Unlimited (TRU), teens spent about $169 billion in 2004, down slightly from $175 billion the year before, but still healthy given a tough climate for retailers nationwide.
But despite last year's decline, teen spending has increased an average of 5 percent a year over the past seven years. Rob Callender, TRU's trend director, says spending levels rebounded nicely during the holidays and indicate a likely upswing in 2005.
"Our annual survey of 2,000 teenager suggests that spending for 2005 appears optimistic," said Callender.
About 45 percent of respondents to the TRU Study expect that they'll spend more money this year; 37 percent predict to spend about the same, while only 17 percent of teens surveyed anticipate that they'll spend less compared to last year.
Marshal Cohen, chief retail analyst with market research firm NPD Group, believes that the uptick in spending levels will benefit high-end retailers and those merchants that offer something unique and different.
"This is a very difficult group to sell to because of their fickle nature," said Cohen. "Teens are always focused on image building. They want to buy the fashionable brands which are also more expensive. Yes, teens may be spending more to acquire higher-priced brands but they could very well pick up fewer items in total."
Industry watchers don't expects teens to spend their money equally across-the-board. Instead, they say teens will favor those retailers who are able to connect well with kids and set the trends."
Among the names Cohen likes are Coach, bebe, American Eagle Outfitters and Urban Outfitters (Research). "American Eagle has wearable affordable fashion," he said. "Bebe is very hot right now with teens and adults. But all this could change in the next six months."
Both TRU's Callender and Cohen agree that gadgets and gizmos thus far have the lead over apparel in terms of winning a bigger chunk of teen dollars, especially electronics that carry the Apple insignia.
"This really goes back to what happened last back-to-school season," said Cohen. "People didn't believe me back when I said cellphones will be must-have items for kids. Cell phones were hot for back-to-school. Then kids were demanding MP3 players like the iPod. If we get another new hot electronics product in the next six months, that could really pull the focus away from clothes."
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