For those who never had their mom drag them to Sears to replace the school uniform pants you outgrew over the summer, the notion of back to school season as the second biggest shopping time of the year may seem weird. But it is and thus an important part of a retailer’s year. At this time last year, we had stories about limited inventory was facilitating greater price discipline than in the past. The Wall Street Journal is reporting that this year could well be different (Suspense in Back-to-School, Aug 2).
Retailers are expecting things to be up from last year but face several challenges:
This year, total back-to-school spending is expected to reach $55.1 billion, up roughly 16% over last year, according to the National Retail Federation, a sharp rebound from a terrible year-ago season. But the increase masks what retailers say is still a very cautious shopper and shifts in what they are buying.
Some of the dollars that previously went to back-to-school wardrobes have been diverted to other categories, particularly electronics. One-stop shopping locales, such as big-box heavyweights Target Corp. and Wal-Mart Stores Inc., are poised to be winners, experts say. Elsewhere, however, necessities are trumping the frivolous. …
The average American family with school-age children is expected to spend about $58 more this year than last, for a total of $606.40, up 11%, the NRF says. Households with college students are forecast to spend about $2 less, or $616.13 in all.
Average back-to-school spending on clothes is forecast at $225.47 a household with school-age children, the NRF says. That’s up 10% from 2009’s battered level but down 3.9% from two years ago, before economic turmoil took hold. In contrast, consumer electronics spending is expected to reach $181.61, up nearly 20% from 2008.
So money is moving away Toughskins to iPads. That means that apparel retailers are left competing for a limited amount of money. But relative to last year, they are better stocked. Put that another way, are sales expected to be up because consumers are feeling more economically secure or because there will be more stuff to buy? The latter is certainly true. The former is not so clear. I am willing to believe that consumers are feeling better than they were at the bottom of the recession but to the extent that the news harps on a slowing recovery and lack of jobs, they can’t be brimming with optimism.
That all sets up the prospect for some nasty discounting:
“We anticipate the back-to-school season to be very promotional this year and our competition to be very aggressive,” Kevin Peters, Office Depot Inc.’s president of North American Retail, said last week on a call with investors. …
Many retailers, such as Abercrombie & Fitch Co. and American Eagle Outfitters Inc., grew too confident and are now stuck with a glut of inventory, says Eric Beder, managing director of equity research at Brean Murray, Carret & Co. …
The season will help retailers hone their discounting strategies for the holidays, says Sherif Mityas, a partner in the retail practice at A.T. Kearney. Most apparel retailers have locked in their holiday orders by now, so there’s little opportunity to adjust to weakened demand. But there’s still time to test targeted promotions that could head off the need for clearance sales, Mr. Mityas says.
It’s this last point that strikes me as the most important. Last holiday season, there was talk of a new era of retailing as retailers were able to toe the line and avoid flooding the mall with clearance sales. This back to school season may provide a hint of whether retailers have developed greater discipline or backed into last year’s strong prices because they underestimated demand. Personally, I’m banking on cheap jeans.