Analysis: Back-to-school sales seen up, but unemployment hurts

Students walk by Doheny Memorial Library at the University of Southern California (USC) in Los Angeles April 7, 2010.

NEW YORK (Reuters) - Sixteen year-old Gabriella Jones, who works in a low-paying job at an ice-cream parlor, has no plans to splurge on back-to-school items this year.

Browsing through the accessories aisle at a Hot Topic Inc HOTT.O store, Jones said she would spend a little more than last year and focus on basic clothing. A weak job market for teens is spoiling back-to-school for her and her friends.

The season kicks off in July and runs through Labor Day in early September, when stores lure young shoppers to pick up clothes, gadgets and old-fashioned paper supplies as they head into a new school year. It is the second-largest shopping period in the United States, after the holiday season in November and December.

"We expect back-to-school is going to be better than last year, but we don't expect stores to set any records," said Kurt Salmon Associates retail strategist John Long.

Retailers will face easy comparisons with the exceptionally bad season in 2009, he added.

The International Council of Shopping Centers expects back-to-school sales to rise for the first time since 2007, with a moderate gain of 2.5 percent to 3.0 percent, said Chief Economist Michael Niemira.

For a graphic on back to school sales performance over the past decade, see link.reuters.com/bet22m.

Discounters, apparel retailers and department stores should benefit most, Niemira said, and those offering the biggest bargains will reap the handsomest rewards.

"Value continues to be 'in' for the consumer," he said.

While the worst of a recession and financial markets crisis has passed, a bleak job market for teens and a still-shaky economy is taking some bounce away from consumer spending.

A Challenger, Gray & Christmas report said the summer job market for teens was off to its slowest start since 1969.

Only 6,000 new jobs for teens aged 16 to 19 were created in May, compared with 111,000 openings a year earlier. Employment for 20-to-24-year-olds grew by 270,000 positions, the report said.

"Most of my friends don't have jobs," said Marc Muckle, a 20-year-old Web designer. "This year, older people are taking the jobs, and it's more difficult for teens to get them."

FEW JOBS, FEWER SPLURGES

Retailers, already reeling from the worst Christmas sales in nearly four decades in 2008, saw back-to-school sales drop 1.4 percent in 2009.

Reuters interviews with more than a dozen teenage shoppers found that many planned to limit their shopping to essentials like clothes and books, while steering clear of bigger items like pricey electronics.

Fast fashion and low prices at Forever 21, H&M (HMb.ST), Aeropostale Inc (ARO.N) are favorites, but younger customers will still shell out extra money for something special.

Erian Murphy, 19, and her 17-year-old sister Kasey were among the many shoppers at the Urban Outfitters (URBN.O) store in New Jersey's Garden State Plaza mall. "We always shop here," said Erian. "The styles are fresh, and I just like it here."

Other stores like Zumiez Inc (ZUMZ.O), Hot Topic, Delia*s (DLIA.O) and Aldo, which were running promotions and are generally considered affordable, were doing reasonably good business, in contrast to pricier competitors Guess Inc (GES.N) and Abercrombie & Fitch (ANF.N).

"Teens will likely stick to their planned purchases ...," Kurt Salmon's Long said. "That's not to say that there won't be an iPad or two, but not largely."

For stores catering to teens, managing inventory will be a challenge due to the careful habits of their clientele.

Retailers sharply cut back on merchandise in 2009 after taking unprecedented markdowns at the height of the recession. But analysts say inventories are starting to creep back up as retailers fear losing sales when demand resumes.

"If things do not move fast, it might mean they will have to take to discounting, hurting margins," said Morningstar analyst Kimberly Picciola.

Weeden & Co analyst Amy Noblin named companies like American Eagle Outfitters (AEO.N), Gap Inc (GPS.N) and Coldwater Creek (CWTR.O) as among those that need to cut back.

"Overall, inventory is still lean," she said, "but we are beginning to see bulging pockets."

(Reporting by Nivedita Bhattacharjee, additional reporting by Dhanya Skariachan; Editing by Michele Gershberg)