What's in store for US back-to-school sales?
Back-to-school is the second biggest selling season after the holidays
Analysts are forecasting a mixed bag of back-to-school sales this year, with the stagnant economy expected to weigh on demand for apparel and footwear, but falling cotton prices, promotions and tax holidays likely to provide some respite. As usual there will be winners and losers, but which retailers are likely to fare best in their second biggest selling season of the year? Katie Smith reports.
Analysts at Citigroup remain circumspect in their forecasts for the back-to-school season, expecting sales to be flat against last year. "We have a cautious outlook for back-to-school 2012 and are forecasting the softest back-to-school season since 2009," they say.
The research firm sees same-store sales as flat to rising 2% for the August to September period, citing headwinds including a lack of compelling new fashion trends, soft mall traffic, cash-strapped consumers and a soft macro environment. "We expect consumers to focus on buying the basics at the best price and pass up discretionary purchases to save money."
The views contrast with what it describes as "overly optimistic" forecasts from the International Council of Shopping Centers (ICSC) and the National Retail Federation (NRF).
The ICSC expects sales to climb 2.5% to US$40.4bn between July and September, while the NRF believes total sales of back-to-school merchandise will increase 33% to $30.3bn.
Specifically, NRF projections suggest parents will spend an average of $246.10 on clothes this year, compared to $220.60 last year - a rise of 11.6%. And families will spend $129.20 on shoes, up 23.6% on last year's $104.53.
Analysts at Lazard Capital Markets also remain upbeat and forecast total growth of around 5%, while Euromonitor expects back-to-school sales of clothing and footwear alone to be in the mid-single digit range.
What will impact sales?
Back-to-school sales will depend - as they do every year - on a huge range of variables. This year, the stagnant economy, rising gasoline prices, tax holidays, falling cotton prices and even the burgeoning number of teenagers living in the US will all have a part to play.
Citigroup analysts believe the macroeconomic environment will restrict how much shoppers spend on their children. "We do not expect the consumer to be aggressive with back-to-school spending this year in light of concerns over the health of the economy," the company said in a research report sent to just-style.
As the unemployment rate hangs at around 8%, many people are worried about losing their jobs. Jennifer Davis, research analyst at Lazard Capital Markets, agrees the challenging economic trading climate will have a negative impact on spending.
"Obviously if people feel good, they will spend more. If they're still uncertain, they'll be a little bit more tight with their wallets," she tells just-style.
With gas prices continuing to rise, consumers are now having to spend more money to fill up their cars - meaning it will cost more money to go shopping, so they may be inclined to spend less on back-to-school products this season.
Kailing Cai, US research analyst at Euromonitor, says: "Gas prices are definitely going to be an issue especially for the people who are either struggling or thinking more about how they're going to spend the money."
Doris Wilshere, vice president and director of retail intelligence at Lazard Capital Markets, also points to a rise in the number of children between the ages of 6 and 17, which means parents are having to kit out more children, thus spending more. "So even if she was to spend the same dollar amount per kid, she has more kids going back to school," Wilshere notes.
However, a boost back-to-school sales could come from declining cotton prices, Cai tells just-style. "Cotton input prices peaked at the beginning of last year and then they dropped down again, so you'll see the benefits of that for a lot of manufacturers and retailers in the second-half of this year," she adds.
An increase in promotions is also expected to lure parents and teenagers into stores. American Eagle is selling jeans for under $30, while Abercrombie & Fitch is offering all jeans for $39. Cai believes promotions will drive sales because "a lot of people are still focused on value and saving money".
Meanwhile, Davis believes that if retailers have the right merchandise, they will be less likely to struggle when it comes to sales. "I think you have to have a good product, that's first and foremost and then secondly, you have to have a competitive price," she says.
Winners and losers
New fashion trends including coloured denim will be important in driving demand this season, according to Cai. "For back-to-school, I think jeans are still going to be an important category. They always are, especially with children who grow every year, [because] you have to replace those," she says.
In addition, the benefits of falling cotton prices should benefit retailers when it comes to both prices and margins. "Jeans will probably be helped by the cotton prices stabilising," Cai adds.
"Macy's is making an effort to capture more of the junior customer," she tells just-style, adding "TJ Maxx is actually capturing a younger teen customer so I think girls are shopping there as well as the mall and that's a relatively new trend."
"Obviously not all of the department stores are capitalising on this trend but there are definitely a few that have been doing really well this year and are expected to continue growing their sales for back-to-school and for the rest of the year," she says.
While, Abercrombie & Fitch is likely to gain market share within the coloured denim jeans category, the teen retailer is not expected to perform well when it comes to back-to-school overall, according to Cai. "The rest of their assortment is pretty problematic," she says.
Davis agrees that Abercrombie will not capture consumers this season. "I think they will sell coloured denim but that's about it," she says.
One of the main problems facing the retailer is inventory levels, Doris Wilshere, vice president and director of retail intelligence at Lazard Capital Markets says. "Abercrombie has too much inventory, forcing them to be highly promotional, and as such the other competitors can't ignore it and so they up their game to some extent where they feel they can capture the share back," Wilshere tells just-style.
Abercrombie may have to resort to heavy discounts along with Aeropostale, Davis says. "I think Aeropostale will see continued markdown pressure because their assortment is weaker and because Abercrombie & Fitch, primarily Hollister, is more promotional and therefore competing in some of the Aeropostale price points."
A soft start to the back-to-school season coupled with promotions in its core business pushed profit at Aeropostale down to $71,000 during its second-quarter this year, compared to $2.9m the same period last year.
Online vs retail stores
As many retailers look to capitalise on the growing online trend, Cai believes incentives will sway whether customers shop online or go to the stores. "Consumers are right now more willing to shop online but I think whether or not they actually make their purchases online versus going to the store will depend on what kind of incentives they have to do so," she says.
Many students will be buying their essential back-to-school items from various retailers in the hope of getting a different deal at every store.
Retailers may advertise sale events in store, but will also try to entice customers online by offering further discounts. "I think consumers are really just looking for a good deal and convenience," Cai adds.
Meanwhile, Davis believes parents and children will still want to try on and buy their clothes in store, even though online is growing at a faster rate than retail shops because it is growing off a lower base. "Online will be important but I think that people will still want to go to the mall and get their clothes," she tells just-style.
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