Julys results shed little light on US shoppers back-to-school spending plans

July's results shed little light on US shoppers' back-to-school spending plans

Lured by warm weather and deep discounts as stores cleared their summer merchandise, US shoppers hit the malls in July giving an overall boost to many apparel retailers - but the results shed little light on back-to-school spending plans.

While apparel was one of the few sectors to continue to show gains, the figures were also mixed, perhaps reflecting tough price competition in certain channels and diverging spending among upper and lower income shoppers.

Retail same-store sales cooled from a strong June to 4.8% growth in July as spending showed renewed signs of duress, according to Kantar Retail. Yet while this was softer than the 7.1% same-store sales gain last month, it still beat the 2.9% gain in July last year.

Figures from MasterCard Advisors SpendingPulse, which follows retail sales across all payment forms, showed sales at specialty apparel retailers continued to do well, rising 6.2% over July last year and slightly better than the year-over-year results for May and June.

The SpendingPulse Luxury Index (which includes luxury sales at high-end restaurants, food stores, department stores and general apparel categories but excludes jewellery) showed 11.6% year-on-year growth - the largest increase since April 2010.

Among the winners with better-than-expected same-store sales gains for July were Limited Brands, Abercrombie & Fitch and Hot Topic. Saks, Nordstrom and Macy's Inc, parent of the Bloomingdale's stores, all cater to higher-income shoppers and saw sales rise as a result.

Upbeat figures also came from chain stores such as Macy's Inc, Target Corp and JC Penney, and off-price retailers TJX and Ross Stores.

But there were disappointments too, including Kohl's Corp, Gap Inc, and Aeropostale.

"Most interesting in these numbers is that many retailers are reporting decent gains in apparel sales, which is a discretionary category that is often the first to suffer from the economic strains on shoppers' confidence and spending intentions," said Kantar Retail senior economist Frank Badillo. 

"That discretionary spending, however, is undoubtedly falling off most among lower income shoppers hurt most by rising prices and a weak job market."

Not to mention growing concerns about the economy. While action last week saw a last-ditch deal to raise the US's $13.4 trillion debt ceiling, new figures from the US Commerce Department raised the spectre that the country is heading for a second recession after consumer spending in June fell for the first time in almost two years.

And the decision on Friday (5 August) by Standard & Poor's to downgrade the US credit rating by one notch to AA+ is likely to eventually raise borrowing costs, not only for the US government, but for companies and consumers as well.

With gasoline now costing around $1.00 more per gallon than a year ago, shoppers have less money in their pockets to spend or save.

And their spending power is likely to come under fire from another quarter too, as the higher cost of cotton, other raw materials, transport and labour in items sourced over the past six months or so finally shows up in higher ticket prices on garments landing in stores now and through the second half of this year.

In fact, just in time for the all-important back-to-school and holiday selling seasons.

While it's still too early to gauge the trend for the looming back-to-school sales period - the second-largest selling season after the holidays - there are fears that consumers will continue to postpone purchases in the hope of more discounting as term-time nears.

The National Retail Federation expects back-to-school spending in the US will change little from last year as customers shop around for bargains and focus on buying only what they need. Its annual survey forecasts families will spend $603.63 on back-to-school supplies including clothing, within a few dollars of last year's $606.40.