In the US, the back-to-school season is in full swing, and the National Retail Federation (NRF) forecasts that shoppers will shell out a total of $28 billion on school-related items this year. This total excludes back-to-college spending, which the NRF predicts will be worth another $55 billion to US retail. As substantial as these estimates are, the NRF expects back-to-school spending to be down marginally versus last year, when it reached an estimated $30 billion. The NRF bases its forecasts on its consumer surveys, which asked shoppers to predict how much they would spend on school- and college-related items this year.
Given the broader economic context, we are less pessimistic about back-to-school sales, and we see little reason for shoppers, in aggregate, to cut back. In fact, we forecast a 3%–4% year-over-year uplift in back-to-school sales, for five primary reasons:
- Most importantly, we are seeing strong demand in US retail. Total retail sales excluding autos and gasoline were up 4.5% in the first half of the year, and sales of discretionary goods such as apparel, electronics and furniture accelerated even as gas prices rose and threatened to pinch consumer spending.
- Unemployment is low, registering at 3.9% in July, versus 4.3% a year earlier.
- Consumer confidence is up, measuring 97.9 in July versus 93.4 last July, per the University of Michigan Index of Consumer Sentiment.
- Wage growth is solid, registering 2.7% in July, versus 2.5% a year earlier.
- Critically, total spending on clothing and footwear is accelerating, according to the US Bureau of Economic Analysis. This long-moribund category saw consumer demand jump by 4.1% year over year in the second quarter. Apparel is a core back-to-school category, accounting for an estimated 35% of total spending, per the NRF.
So, what are the negatives? And in a retail sector growing at around 4.5%, why are we forecasting “only” a 3%–4% increase in back-to-school sales? We consider two factors as potential negatives:
1. Gas prices have been rising strongly and were up 24% year over year in June. Traditionally, higher gas prices act as a strong drag on discretionary retail sales. So far this year, we have seen a countercyclical trend of strengthening discretionary sales, but sustained increases in gas prices could take the edge off further discretionary growth.
2. Retail sales increases are being supported by big-ticket categories that are unrelated to back-to-school season. Home improvement and furniture are among the categories supporting total retail growth, and few shoppers will be visiting these kinds of stores for back-to-school purchases.
Overall, though, we see many more reasons to be optimistic than pessimistic this season. One final data point that underscores this positivity is a survey finding from Prosper Insights & Analytics: when the firm surveyed US shoppers in June about their back-to-school spending intentions, a net 22.8% said that they expect to spend more this year than they did last year.
Other pieces you may find interesting include: Amazon Is Playing Its Part in Changing the Back-to-School Shopping Season, The Holidays, Black Friday and the Discounting Spiral, US Back-to-School 2018: A Review of Fashion Trends and Apparel Spending, US Back-to-School 2018 Digital Trends: Shoppers Turn from Social Media to M-Commerce, US Back-to-School 2018 Retail Outlook: Shoppers Look Ready to Spend.
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