Why Back-to-School Is Expected to Be a Bright Spot for Struggling Retailers

back-to-school
Retailers are feeling good about this year's back-to-school sales outlook.
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It’s been a challenging year for retailers, but the all-important back-to-school season could be a bright spot.

The National Retail Federation is forecasting a five-year high in back-to-school spending, driven by stronger employment levels and a continued increase in wages. According to the trade association’s annual survey, conducted by Prosper Insights & Analytics, total spending for school and college combined is expected to hit $83.6 billion, up from last year’s $75.8 billion.

“Families are now in a state of mind where they feel a lot more confident about the economy,” said NRF president and CEO Matthew Shay. “Consumers are spending more, and we are optimistic that they will continue to do so throughout the rest of the year.”

Deloitte’s 2017 Back-to-School Survey revealed a shift in how consumers will allocate their money, which could deliver a healthy bump in sales. Spending in key categories such as school supplies, computers and hardware is expected to decline slightly, leaving more room in the family budget for apparel and shoe purchases, which are forecast to surge 10 percent from last year.

“With today’s technology-based education system, there is less need for traditional school supplies, likely contributing to the shift toward more spending on clothing and accessories,” said Rod Sides, Deloitte’s vice chairman and U.S. retail, wholesale and distribution practice leader.

At Rack Room Shoes, execs are feeling positive about the outlook. “We expect a strong season, especially as these natural family shopping moments are our strength,” said CEO Mark Lardie, citing continued momentum in the athletic category, led by brands including Nike, Adidas, Vans, Puma, Converse and Skechers.

Lardie said the retailer is ramping up its digital presence alongside its brick-and-mortar business to better capture consumers’ shifting shopping preferences. “We continue to focus on our omnichannel approach, which allows our customers to interact with us when and how they want,” he said.

Famous Footwear also is betting big on the athletic trend. “We’re especially excited about Nike and Adidas, as well as our newly available Under Armour selections. Nike is the brand force that kids love, and Adidas has been the fastest-growing brand in the market this year. We anticipate that will continue,” said Karlyn Mattson, chief merchandising officer, noting that this season’s promotional efforts will focus on buy-one-get-one deals.

In anticipation of the back-to-school rush, Famous rolled out a buy online, pickup in store program to better serve its customers. “This gives us an added edge of convenience and speed for parents and kids,” Mattson noted.

Deloitte’s survey also highlighted another opportunity for retailers: the undecided shopper. As the season gets underway, 1 in 5 consumers — collectively representing $5.4 billion of the back-to-school share — remain undecided about where they’ll shop. “This segment is up for grabs but likely to go to retailers that draw customers in early with promotions and unique digital experiences,” Sides noted.

But B. Riley & Co. analyst Jeff Van Sinderen warned that retailers need to focus on more than just price if they hope to capture these customers.

“The days of just price promoting to win are over. Sure, the season will be promotional, and some will flock to the cheapest merchandise, but e-commerce has made price transparency ubiquitous for similar items,” he said. “Retailers executing programs that elevate their merchandise assortment with differentiated, relevant product and that deliver enhanced customer service are best positioned to gain share.”

Matt Powell, VP of industry analysis for The NPD Group, voiced similar concerns about the overly promotional retail climate. “Back-to-school appears to be much more promotional than last year. I’m expecting a challenging season for all. Unfortunately, we’ve trained the consumer to expect a deal,” he said, also citing a lack of standout product across the market.

Within the independent channel, however, store owners are feeling bullish heading into the back-to-school period.

“This year has been very strong for us, despite the doom and gloom that many other industry people are talking about. With the closure of a large number of Stride Rite stores and several other major brick-and-mortar players, we expect an increase in sales,” said Kay Mehrens, co-owner of Walking Tots, a kids’ boutique in The Woodlands, Texas.

When it comes to the growing threat of online competition, Mehrens said she isn’t too worried. “People want to touch and feel shoes, and they want their child to be properly fitted in person, especially since kids’ sizes vary so much across different brands and styles. Our families are choosing not to click.”

In New York, where most schools recommence after Labor Day, Tip Top Kids’ business is already picking up. “We already have customers in looking for their back-to-school shoes, which is a really great sign. I have high hopes for the season,” said manager Margot Wasserman. “We’re getting some good early reads on both fashion and core product, and our sneaker business remains strong.” Wasserman noted she is especially excited about the new product she’s bringing in from brands such as Naturino, Nina, Steve Madden and Nike.

David Karmely, owner of Cedarhurst, N.Y.- based A Shoe Inn, is slightly less optimistic. “My feeling is that sales will be flat — very warm weather is always a killer for the back-to-school footwear season — but that being said, there is always a segment of our clientele who loves a fresh look for the season,” he said, noting he hopes his store’s unique merchandise assortment, which includes special makeup product from selected brands, will set it apart.

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