Cautious Consumers and Heavy Promotions Generate Tepid Back-to-School Results

Students are not the only ones disappointed with the end of summer this year. After 2012’s record back-to-school season, retailers this year saw soft sales, inconsistent spending trends and far greater competition throughout the summer.

At the beginning of the season, the National Retail Federation (NRF) released a survey that pointed to an expected drop in consumer spending for the back-to-school season. The report predicted an 8 percent decline in spending by families with school-age kids compared to 2012’s numbers, with a full 45 percent of shoppers claiming that they planned to reuse the previous year’s purchases instead of buying new. College students, too, were expected to keep their purse strings tight.

So far, overall sales reports have reflected the NRF’s predictions. August same-store sales are expected to have grown by a modest 3.1 percent for the month, hovering right around July’s lukewarm 3.5 percent growth. Still, compared to the 6.5 percent same-store growth seen in August 2012, this year’s numbers point to a much slower back-to-school season.

Behind this year’s back-to-school results are several trends we’ve seen emerging over the last few weeks and months:

Slow growth: Despite payroll tax increases and persistent unemployment, consumer confidence has improved slightly over the last few months. However, when it comes to consumer goods—especially for lower-income households—customers remain cautious. Interest rates remain low, so 2013 has seen U.S. consumers gravitating towards big-ticket, durable goods such as cars, houses and appliances. As a result, parents may be spending less on nonessentials such as clothing, backpacks and laptops, instead opting to recycle last year’s back-to-school purchases. Coupled with an almost 24 percent teen unemployment rate in July, sluggish discretionary spending has especially mired teen retailers this season.

More competition and more promotions: From the outset, modest sales projections prompted retailers to lower expectations and adopt significant back-to-school promotions. Major brands, including Wal-Mart, Apple and various apparel chains began offering sales in early July in order to gain a head start, which added to the rush of activity at the beginning of the summer.

Peaks and valleys: Aside from economic issues, U.S. consumers also seem to have strategically focused their buying this summer. Instead of consistent spending throughout, they instead took full advantage of early promotions and new inventory at the start of the season, retreated through much of August, and returned around Labor Day to leverage end of season deals. This slowed overall growth for retailers, since the majority of their sales were at discounted prices.

Nevertheless, inconsistent back-to-school sales don’t necessarily spell doom for the holiday shopping season—a season with its own, unique buying incentives and sales strategies. Stay tuned to the Consumer Business Compass for our latest analysis of expectations and trends affecting the biggest shopping season of the year.