Outlook darkens for U.S. back to school sales

By Nicole Maestri - Analysis

SAN FRANCISCO (Reuters) - In January, as retail executives gathered in New York at the industry's annual convention, one event was on everyone's mind -- the back-to-school shopping season.

Reeling from their worst Christmas sales season in nearly four decades, executives said they were writing off the first half of the year and were looking for relief during the back- to-school season, when parents typically view purchases of new clothes, shoes or computers as essential.

That season is now in its early days and, judging from the decline in June sales reported by many U.S. retail chains on Thursday, consumers will not be giving retailers the relief they want.

With home prices falling, access to credit still tight, and the jobless rate at a 26-year high of 9.5 percent, consumers are not in a spending mood.

"Sales should be looking better at this point than they do and they're still not looking good," said Erin Armendinger, managing director of the Jay H. Baker Retailing Initiative at the Wharton School of the University of Pennsylvania.

"Consumers are still being bombarded with disappointing news and it's still stressing them out."

That does not bode well for back to school sales, she said.

SECOND BIGGEST SELLING SEASON

The back-to-school season is the industry's second-biggest selling period after Christmas, but National Retail Federation spokeswoman Ellen Davis expects it will be a tough one this year.

"It would not be surprising if back-to-school this year is just as challenging if not more so than it was a year ago," she said.

Last year at this point, consumers had not yet been rocked by a global financial crisis that erased stock market and housing wealth and dried up access to credit.

Davis said retail sales declines in the first half of the year have been more substantial than the NRF was expecting, although the trade group still expects an uptick in sales in the fourth quarter.

As has been the trend, price will be a key factor in making back-to-school buying decisions.

"Fashion and brand names aren't going to be as crucial this back-to-school season," said Ken Perkins, president of Retail Metrics.

Retailers such as Aeropostale Inc (ARO.N), which offer teens the latest styles at low prices, are well positioned, but Abercrombie & Fitch Co (ANF.N), with its high prices, will struggle, he said.