More bad news for retailers: back-to-school sales expected to dip
It might still be mid-July, but retailers have already turned their attention to back-to-school, and they have a new reason to worry: an industry group forecast suggests that U.S. consumers will continue to be extra careful in their spending and ultimately spend less this year than last.
For many retailers, including J.C. Penney (JCP), Kohl’s (KSS) and Gap Inc’s (GPS) Old Navy, back-to-school is second only to the holiday season in terms of sales volume. The period can also be an early gauge of what to expect for the Christmas season that follows soon enough.
The National Retail Federation on Thursday projected that overall back-to-school sales would slip just a bit to $26.5 billion compared to last year. And while the industry group pinned the expected decline on a slight drop in the number of students, a survey for the NRF showed shoppers spending plans likely to make any retailer nervous.
The NRF found that more shoppers this year (25.4% vs 21.8% last year) are planning to hold out for last-minute deals right before school resumes. That could translate into steeper than expected discounting if shoppers don’t blink, and add to pressure on retailers’ profits. The survey, a poll of 6,178 consumers, was conducted for NRF by Prosper Insights & Analytics in early July. And more (34% vs 32.8% last year) families said they planned to buy store brands, which typically cost less.
“It is going to be a fistfight for market share, because the pie isn’t really growing,” AlixPartners Managing Director Joel Bines told Fortune. “And in the absence of a hot shopping trend, the promotional lever is the only one retailers can pull,” he added.
Shoppers’ continued caution is not surprising given how depressed wages are and how slowly the job market has recovered—Walmart U.S. (WMT) CEO Bill Simon said this month that he expected it to take six months for June’s job gains to translate into more spending, way too late for this back-to-school season. Retailers reported disappointing sales results for June, yet another setback for them as consumer spending recovers in fits and starts.
Still, for some retailers, there could be reason to celebrate if shoppers ended up doing what they told the NRF they would. Spending on laptops, computers, tablets and other devices should rise 20%, hitting the highest amount since 2009. (Best Buy (BBY) could use a good holiday season, no doubt.)
And young adult shoppers said they would increase their spending on clothes by 13%, which could provide some relief for struggling teen retailers like Aeropostale (ARO), American Eagle Outfitters (AEO) and Urban Outfitters (URBN).
Still, retailers that have been waiting for shoppers’ mood to improve may have to wait yet a bit longer given how slowly wages are rising and jobs are being created.
“This summer, we expect parents to continue to use caution,” said NRF Chief Executive Matt Shay.