Caution Lights Flashing for Back-to-School Sales

© Provided by CNBC
© Provided by CNBC

Despite early indications that back-to-school was shaping up to give retailers a much-needed boost, a new round of reports is raising a wave of caution for the industry.

The National Retail Federation on Wednesday said that total spending for school-age and college-bound students is expected to hit $68 billion this year, a drop of 9 percent compared to last year’s forecast. The projected decline is led by an anticipated 11 percent decrease in college spending, which makes up about two-thirds of back-to-school revenue.

Adding to the gloom, the results came one day after the Commerce Department’s June sales figures fell short of expectations, posting a decrease of 0.3 percent from May. Weakness was spread almost across the board, including the typically strong online category.

Still, as shopper confidence and employment trends continue to improve, the NRF emphasized that its findings nonetheless “point to a more confident consumer.”

“We are optimistic that economic growth and consumer spending will improve after a shaky first half of the year, and the back-to-school season is a great starting point,” CEO Matthew Shay said.

According to the trade organization’s Back-to-School Spending Survey, which polled 6,500 consumers between June 30 and July 8, the average family with children in kindergarten through 12th grade expects to spend $630.36 this year, down from $669.28 in 2014. That would result in total spending of $24.9 billion, compared to $26.5 billion last year.

The overall decline is even more poignant among the college set, with families and students planning to spend an average of $899.18, a drop from $916.48 the prior year. Total spending on this group is forecast to reach $43.1 billion, compared to $48.4 billion in 2014.

The electronics category is expected to be hit particularly hard, with an anticipated 7 percent dip in spending from the K-12 group, and a 15 percent decline from college students. Shay attributed the drop among electronics and other categories to the fact that “spending on ‘back-to-school’ has consistently fluctuated based on children’s needs each year.”

“It’s unlikely most families would need to restock and replenish apparel, electronics and supplies every year,” he said.

One bright spot among the findings was college students’ expected spending on home décor. According to the NRF, half of college shoppers will buy dorm or apartment furnishings, and they plan to spend an average of $126.30. That represents a 30 percent increase over last year, and the most since the trade group began asking the question in 2007.

The survey’s tepid results follow a more bullish poll by the National Retail Federation last month, which found that parents of both K-12 and college students planned to spend more this year. And on Tuesday, the International Council of Shopping Centers released the findings from its back-to-school shopping study, which found that 67 percent of back-to-school shoppers plan to spend more than last year.

Although these forecasts mirror improvements in the broader economy, not everyone has been optimistic about the second-largest shopping season. Also last month, America’s Research Group’s Chairman Britt Beemer said that back-to-school sales would only rise marginally this year, perhaps posting only a half-point increase.

This trepidation was mirrored by reaction to Tuesday’s lackluster retail sales results.

“The consumer isn’t very strong and by extension, neither is the U.S. economy,” BTIG’s chief strategist, Dan Greenhaus, told investors after the Commerce Department report.

Still, ICSC spokesman Jesse Tron said he views June’s results as “more of a one off,” adding they are not an indication that back-to-school sales will be weak. Because May’s 1 percent growth was strong, Tron said, it’s likely that some sales for June—which is traditionally a low-volume month—were pulled earlier into May.

It’s also worth noting that on a year-over-year basis, retail sales rose 1.4 percent in the month of June.

“I would look for July and August to probably be a lot better off than June,” Tron said.

Written by Krystina Gustafson of CNBC

(Source: CNBC)

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