Back-to-school season a lesson in thrift for stores
CHICAGO (Reuters) - Economics will be a far more important subject than fashion for retailers this year as cash-strapped U.S. consumers do their back-to-school shopping over the next several weeks.
The key selling season is likely to look a lot like recent months, with shoppers hitting discount and other low-price stores and mostly buying only what they need, analysts said. Even teens and college students -- who can usually be counted on to boost the season by spending money earned at summer jobs -- are not likely to help.
"The difficulty in (students) getting jobs this summer is something that has got to be weighing on retailers' minds from a teen pocketbook perspective," said Stacy Janiak, retail leader for consulting firm Deloitte.
The back-to-school season is not only one of the most important selling periods for retailers, it also helps set retailers' expectations for the all-important holiday season.
"Retailers look at the results of back-to-school as a gauge for where the consumer's mood is really at," Janiak said.
That mood is frugal, according to a number of surveys released this week, including Deloitte's own, which found 71 percent of consumers planned to spend less on back-to-school items this year, with almost half planning to cut spending by more than $100.
Separately, the National Retail Federation, an industry trade group, on Tuesday forecast a 7 percent drop in back-to-school spending for college students to $599.38 per person on average.
But the group also forecast a 5.4 percent increase in spending for families with children in kindergarten through 12th grade, to an average of $594.24 per family.
Many parts of the retail sector have suffered this past year as consumers coping with surging gasoline and food prices, lower home values and higher mortgage payments have reined in spending.
Overall, the Standard & Poor's retail index .RLX is down almost 15 percent this year, compared with a 14.2 percent decline in the S&P 500 index .SPX.
But consumers will still spend something in the back-to-school season -- students need school supplies and new clothes, after all.
"The one thing about back-to-school is you can't send your kid to school naked," said Patricia Edwards, retail analyst at Wentworth, Hauser and Violich. "They grow, they need new clothes, you have to buy them."
But those clothes are now likely to be bought at Wal-Mart (WMT.N) and other lower-priced outlets, analysts said.
According to the Deloitte survey, 88 percent of respondents said they would do their shopping at discounters like Wal-Mart Stores Inc and Target Corp (TGT.N) and lower-priced department stores such as Kohl's Corp (KSS.N).
Wal-Mart already has a jump on the back-to-school season, beginning its push just after July 4, as it did last year.
Besides selling spiral notebooks for 5 cents and Elmer's glue for 22 cents, this year the retailer is emphasizing the low prices it has on name-brand products, like Toshiba (6502.T) and Hewlett-Packard (HPQ.N) laptop computers.
BRANDS STILL MATTER
On the clothing side, brand names will still play a part in what gets sold, but price could still be more important.
"The marketplace on back-to-school is very, very challenging and we're being very cautious," said Jack Gross, chief executive of Jones Apparel Group Inc's (JNY.N) jeanswear division. "But we believe we have a portfolio of brands and the ability to really succeed in times such as this."
He said the company's jeans brands, which include l.e.i., Energie, Gloria Vanderbilt and Bandolino Blu, were well-priced and offered good value to many consumers who are looking to spend a bit less in this difficult environment.
Those l.e.i. jeans are one of the brands Wal-Mart is featuring in its advertisements. With gasoline prices north of $4 a gallon, stores like Wal-Mart and Target could do especially well because they offer both clothing and supplies.
"With gas prices, it's going to be about shopping where you don't take an extra trip," Edwards said.
But when extra trips are taken, lower-priced teen apparel retailer Aeropostale Inc (ARO.N) has been "knocking the cover off the ball," she said, while in children's clothing, Gymboree Corp GYMB.O and Children's Place Retail Stores Inc (PLCE.O) have done well.
American Eagle Outfitters Inc (AEO.N), which competes with Aeropostale, is lowering its prices on some items, like $29.50 zip hoodies and graphic T-shirts at $15.50, and revamping its denim lines with new washes and stitching in hopes of making up for weak sales from uninspiring young women's clothing this spring and summer.
At the same time, FBR Capital Markets analyst Adrienne Tennant wrote in a recent note that Pacific Sunwear of California Inc's (PSUN.O) jeans, sold at two pairs for $55, could see a positive response from teens, based on their relatively cheap price and selection.