July 29 (Bloomberg) -- With many Americans keeping a lid on spending, industry forecasters say the back-to-school season won’t be as strong as last year and are giving it a B- average.
Once again, U.S. retailers are being forced to pour on the discounts because recent economic bright spots -- more jobs, stronger growth -- aren’t enough to persuade shoppers to spend freely. The discounting will weigh on profits and only reinforce consumers’ expectation for more deals as the industry gears up for the Christmas shopping season.
Wal-Mart Stores Inc. is reducing prices on 10 percent more items this year. American Eagle Outfitters Inc. is giving away college tuition money in a sweepstakes to attract shoppers. And Staples Inc. has teamed up with Teen Vogue to create fashion-runaway inspired school supplies with a punk theme.
“We’ll still see many shoppers browsing around, comparing prices and watching sales,” Pam Goodfellow, principal analyst at Prosper Insights & Analytics, said in an e-mail. “So it’ll remain a very competitive season for retailers this year.”
Back-to-school spending may total $26.5 billion this year, according to the National Retail Federation, a 0.7 percent decline from 2013. The July-through-September period is second only in importance to the year-end holiday season, and some analysts view the former as a harbinger of the latter. Consumer spending accounts for about two-thirds of the U.S. economy.
U.S. retailers are already hurting. Gap Inc. posted an unexpected drop in comparable-store sales for June. Kohl’s Corp.’s sales stagnated in the second quarter, according to analysts surveyed by Bloomberg. Profit at Urban Outfitters Inc., meanwhile, will shrink 5 percent in that period, analysts estimate. The Standard & Poor’s 500 Retailing Index has declined 5.4 percent this year.
Even as total back-to-school spending retreats from last year’s totals, individual retailers could still shine, said Poonam Goyal, a Bloomberg Intelligence analyst. Wal-Mart’s prices are the best on school supplies, which may help it steal share from Target Corp. and Sears Holdings Corp.’s Kmart chain, as well as from the office-supply stores, she said.
“Amazon also seems to be attracting more school shoppers, which could help it gain some share as well,” Goyal said.
Target, meanwhile, is still rebuilding its reputation after a hacker attack last year compromised customer data. In May, the Minneapolis-based retail chain cut its earnings forecast as it works on a comeback.
Since industry forecasters use different measures, Bloomberg News asked five of them to express their forecast as a school grade. The resulting average was a B-. The divergence in forecasts shows how hard it is these days to get a fix on the industry, which has experienced several false dawns since the 2008 financial crisis. A robust back-to-school shopping season in 2011 was followed by a weaker one the following year.
Craig Johnson, president of Customer Growth Partners LLC, pulled down the season’s grade-point average with a C-.
Johnson, whose consulting firm is based in New Canaan, Connecticut, sees a “mediocre” 3.2 percent gain in retail sales after a 4.2 percent advance a year ago. Johnson uses the Commerce Department’s retail sales figures as his measure, excluding autos, gasoline, food and home-improvement stores. He blames Americans’ lagging real income growth for his pessimism.
This will be the worst back-to-school season since the recession year of 2009, when such sales declined 3.5 percent, Johnson said. The best season in the past decade occurred in 2005, when sales jumped 7 percent, he said.
Goodfellow, whose Worthington, Ohio, firm conducted a consumer-spending intentions survey for the NRF, awarded a B.
U.S. households are planning to spend an average of 5 percent more during this year, the survey showed. That translates to an average of about $669.28 on apparel, shoes, supplies and electronics for parents with school-age children, up from $634.78 last year.
Lisa Blair, a 44-year-old Brooklyn resident who works for a skin-care company, is spending about 40 percent more on her seven-year-old son this season, because she got a promotion. However, she is buying mostly at a discount, having snapped up Mini Boden-brand items at Nordstrom Inc.’s recent sale. She only pays full price for essentials like coats and shoes.
“You know, shopping smart,” she said.
Ken Perkins, president of researcher Retail Metrics Inc., decided on a B- grade because of the “sluggish” comparable sales estimates he sees from equities analysts. Sales at stores open at least a year are projected to rise an average 1.5 percent in the third quarter versus 2.1 percent a year earlier, he said. The promotions will shrink the sales figures -- and hurt profits -- he said.
Both Chris Christopher, an economist at IHS Inc., and the International Council of Shopping Centers, a New York-based trade group, handed out a B+.
The ICSC’s optimism is based on its own recently conducted survey that showed consumers plan to shop earlier, spend more, and purchase a wider array of items compared with recent years, said Jesse Tron, an ICSC spokesman. For example, 50 percent of consumers surveyed said they expected to increase spending, a big jump from the 39 percent who said that last year.
Christopher is forecasting a 4.1 percent gain during the July-through-September period this year after a 4.9 percent jump last year. He uses the Commerce Department’s retail sales figures as his measure, excluding autos, gasoline and food.
“This back-to-school season is looking relatively good –- just not as strong as last year in year-over-year growth,” said Christopher, who’s based in Lexington, Massachusetts.
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