RetailSails

After a summer of unseasonably cool and wet weather, retailers hope they can woo shoppers back to the stores in time for the all important back-to-school season. However, if recent surveys are any indication, results will most likely be disappointing for the 2nd largest shopping season behind Christmas.

Back-to-School season officially kicks off this weekend with sales tax holidays in Georgia and Mississippi, to be followed by 13 other states throughout August. Most states offer exemptions on clothing, school supplies, books, computers and peripherals up to a certain dollar amount. This year, many states grappled with the balance between giving consumers a break and further weakening their own perilous financial situations. As a result of economic conditions, Washington D.C., Florida, Maryland, and Massachusetts decided not have tax holidays for back-to-school this year.

The National Retail Federation (NRF) is forecasting total back-to-school sales of $17.4 Billion, a decrease of 13.2% from last year, while America’s Research Group expects a decline of 8.5-12% on top of a 5% drop in 2008. The NRF projects average spending per family with kids aged 6-17 to drop by 7.7% to $548.72, which would be the lowest since 2006:

The NRF expects large spending declines in all categories except for electronics, which is expected to be the one bright spot, as total spending is expected to increase 4.1% and spending per family to be up 10.7%. The NRF expects total spending declines per category of: -18% for clothing and accessories, -19.8% for shoes, -21% for school supplies. In its own survey, Deloitte said that 81% will pare back on clothing, 49% will spend less on shoes, 32% will spend less on supplies, and 30% will spend less on backpacks and book bags.

The recession is still weighing heavily on the minds of American families, and though the economy is starting to show signs of stabilization, consumers are still spending extremely cautiously. Worries about unemployment, debt, and investment losses as well as high gas and food prices will continue to shape consumer buying behavior.

According to a survey of moms with kids aged K-12 conducted by OfficeMax, by far the most important buying factors are durability, price, and value. Products that are environmentally friendly are becoming more mainstream, as 34% of respondents said they would buy more eco-friendly products this year, while Deloitte said 41% will buy more “green” products this year and 31% will seek out “green” retailers.

We expect those stores that have been out-performers since the start of the year to continue to shine. Off-price retailers TJX and Ross Stores have taken market share from traditional department stores as consumers continue to trade down. Teen retailers Aeropostale and The Buckle have so far been immune to the recession, and should continue their impressive run. Dollar stores like Family Dollar and Dollar General should draw a decent chunk of the school supply business. And of course Wal-Mart will draw more shoppers than any other with its unbeatable prices and broad merchandise offerings. Most traditional department and apparel/accessory stores will continue to struggle as they have over the past year. Value-oriented names such as Kohl’s and J.C. Penney will outperform their peers, but most likely still post negative year-over-year comps.

Shoppers are also craving convenience, and drug stores will be the largest beneficiary as they have broadened their merchandise mix  beyond health and beauty products to include school supplies, small electronics, and even groceries. According to the NRF, the number of families planning to shop at drug stores is 18% higher than last year. Nielsen is forecasting a slight rise in sales of school supplies to $2.17 Billion, and James Russo, Vice President, Global Consumer Insights, said “The winners this season will be retailers who offer strong discounts and appeal to the consumer’s desire for savings and value. Look for gains from supercenters, dollar stores, drug stores and to a lesser extent, club and grocery stores.”

Retailers have been preparing for back-to-school season by clearing out merchandise and preparing lean inventories with the expectation of reduced volume. They also started promotions early, with retailers including J.C. Penny, OfficeMax, and Staples all moving towards social media campaigns this year to complement their traditional media presence. While the use of social media by teens has exploded over the past few years, retailers should take note of the fact that parents are making more of the buying decisions this year. According to America’s Research Group, just over half of American parents are trying to get their children to wear what they wore last year, and they are flexing their parental muscle in the matter, with children’s influence on buying decisions dropping by at least 20% compared to last year.

With Labor Day falling a week later than last year, retailers are hoping early promotions jump-start the extended back to school season. However, the OfficeMax survey finds that 41% of moms buy the essentials right before school starts, filling in items as needed, while 31% buy everything right before school starts. Only 28% said they would stock up on items through the summer. The NRF had similar findings, as the majority of families won’t begin their shopping until 3 weeks to 1 months before school starts.

While there are signs the recession is easing and consumer confidence is starting to slowly creep up, economic conditions are still having a large impact on consumer buying conditions. Most retailers will continue to struggle with year-over-year comp declines as they will be up against tough figures from last year when consumers had stimulus checks in their pocket. With expectations so low for back-to-school, we most likely won’t see substantial improvement from retailers until the holiday season.