Back-to-School Sales Are Getting High Marks

An early buying surge has retailers breathing easier

Lulu Flores can thank President George W. Bush for her new cargo miniskirt. As soon as the tax-credit checks arrived, her parents gave her $200 to spend on back-to-school items. That's $50 more than last year. On Aug. 18, the 14-year-old New Yorker was at a H&M Hennes & Mauritz store in midtown Manhattan, debating with her friend Heather about whether a clingy $10 t-shirt will pass muster in the classroom. "I think people are going to be dressing better this year," she says, with a touch of anxiety. "All my friends are buying more."

After a tough spring and last year's truly horrible fall season, a surge in back-to-school shopping has some retailers rejoicing. Sure, they're still worried about the rest of the year. But for now at least, prospects look brighter. Bellwether Wal-Mart Stores Inc. (WMT ) says August same-store sales could show the biggest gain in a year. On Aug. 19, Staples Inc. reported a 47% rise in net income, to $87.8 million for the second quarter, in part because of early back-to-school promotions. Even hard-pressed department stores are abuzz with better news. Bloomingdale's (FD ) Chairman and CEO Michael Gould, coming off his best quarter since 2000, says August sales are above expectations: "We feel very good about the business right now."

More money in shoppers' wallets is helping: Tax rebates have given them an extra $13 billion. And many still have cash left over from refinancing their homes. Plus, retailers are offering discounts on everything from home PCs to cargo pants to woo people through their doors. "When back-to-school sales are up," says Ellen Tolley, a spokeswoman for National Retail Federation, "it's a good sign for the rest of the year."

Retailers could use a little good news. Last year's back-to-school season was "a debacle," recalls veteran retail consultant Howard Davidowitz. In 2002, according to NRF, families with kids age 6 to 17 said they'd spend an average of $441.60 on back-to-school items, down from the $456.70 families spent in 2001. Now, spending is finally bouncing back a bit. This year, NRF expects such spending to rise 2%, to an average of $450.76 per family, or a total of $14.1 billion. About 65% of that will go to clothes and shoes, with 16% for school supplies and about 19% on electronics.

What are kids persuading their parents to buy? In apparel, the military look is hot this year, while other favorites include strappy tops, plaid kilt "skorts" -- a skirt-over-shorts combo -- and hooded sweatshirts. Vintage fashions, as well as the long-favored surfer, skater, or even punk-rock-inspired gear are also popular with teens. All ages are picking up cargo pants, as well as cargo-styled skirts, shirts, and jackets.

But as consumers drop more dollars in stores, they're on the lookout for bargains. Over 78% of those surveyed by NRF said they intend to buy their back-to-school gear in discount stores. It's no surprise then that stores are putting more emphasis on providing quality. Retailers from Gap Inc. (GPS ) to Children's Place Retail Stores Inc. (PLCE ) are offering higher-quality merchandise for the same price as last year. Tara Poseley, senior vice-president for GapKids and babyGap in San Francisco, says the chain has improved fit and fabrics this year and has also added features such as Gap Shield -- a teflon-coated twill that resists stains -- to traditional items without charging more.

Merchants are optimistic, but they acknowledge that despite a few solid weeks, they're hardly out of the woods. For one thing, consumers now spread out their purchases or even delay them until after school starts. That's Flores' strategy: She'll buy one outfit now and then look around the halls to see what's hot before buying the rest. With scads of students doing the same, stores won't be able to declare the season a success until the end of September -- or even early October. After that, they'll be praying for a good Christmas.

By Diane Brady in New York, with Wendy Zellner in Dallas

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