June 25, 2010 / 5:04 PM / 7 years ago

Analysis: Back-to-school will not wake up retail sales

NEW YORK (Reuters) - Retailers expect the back-to-school season to be only a bit better than in 2009, dampening hopes that the second-biggest sales period of the year might give the retail industry and economy a lift.

American consumers, bombarded with a daily dose of grim economic data, are in no mood to abandon their austere ways, top executives and industry watchers told the Reuters Consumer and Retail Summit in New York.

“I don’t think the consumer’s mindset is going to be much different in terms of being value-conscious,” Newell Rubbermaid’s (NWL.N) Chief Marketing Officer Ted Woehrle said.

OfficeMax OMX.N the third-largest U.S. office supplies retailer, expects the back-to-school season to be tough, even as school districts load more of their purchases onto parents.

“I think a year back isn’t so much different for the consumers of back-to-school. Unemployment is still very high. There is still a lot of pressure on home mortgages. There is still a lot of pressure on consumer debt,” said OfficeMax Chief Operating Officer Sam Martin.

But he did say that parents are being asked to buy more supplies by cash-strapped school districts, including markers and other items the schools used to buy themselves. When consumers buy those items, OfficeMax may make more profit then when they are sold in a fixed contract to a school, he said.

The fact that a lot of summer jobs this year were filled by non-teens may spell trouble for retailers.

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. However, employment for 20-to-24-year-olds grew by 270,000 positions, the report said.

While teenagers tend to spend their pay when they get it, older workers are trying to build up savings, said Matthew Katz, global retail practice leader for restructuring advisory firm AlixPartners.

“That means some of that income that would’ve been in the marketplace for spending won’t be there,” he said.

BARGAIN HUNTING

While retailers hope to avoid margin-sapping discounts in their second-biggest selling period after Christmas, budget-conscious consumers may choose to wait until the last minute to get the best deals on everything from books and pens to clothes and shoes.

The trend means further pain for the economy, which is clawing its way out of its worst downturn since the 1930s. Consumer spending accounts for about two-thirds of U.S. economic growth.

In yet another batch of disappointing news on Friday, U.S. economic growth was found to be slower than previously reported in the first quarter, as estimates of business and consumer spending were cut.

Recent data has also suggested the recovery lost some momentum in the second quarter, with high unemployment curbing consumer spending, and home building and purchases faltering.

Nevertheless, some executives downplayed the chances of a double-dip recession.

“We never thought it would be a smooth slow steady move up ... We will be up and down, up and down, up and down, with the general (move being) up over the year,” OfficeMax’s Martin said.

DEMANDING CONSUMER, CUT-THROAT COMPETITION

Many U.S. retailers face the double whammy of dealing with a bargain-hungry customer as well as tackling strong competition from discount chains and new entrants in the back-to-school market.

While most retailers have cut back on inventory to adjust to the new normal, they might still have to discount in the upcoming back-to-school season if industry goliaths like Wal-Mart Stores Inc (WMT.N) cut prices further.

“Clearly consumers are going to go to the discount stores first. They are still in that mindset. That’s probably going to be their first destination,” said Janet Hoffman, global managing director of Accenture’s retail practice.

Adds OfficeMax’s Martin, “I think consumers will shop promotions as they have. I think that you will see it be every bit as competitive if not more so than it was a year ago.”

Also, consumers have more choice in terms of where they can shop as more retail players fight for a share of the back-to-school sales pie.

“The back-to-school game is not anymore just about apparel and picking up school supplies. There’s technology components to it. There’s home components to it. And so the players involved in back-to-school are more diverse than ever,” said Hoffman.

Reporting by Dhanya Skariachan; Editing by Brad Dorfman and Tim Dobbyn

Our Standards:The Thomson Reuters Trust Principles.
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