Back-to-School Sales Remain Weak
Recent evidence is consolidating our back-to-school sales forecast. Retailers are entering the final, big summer weekend facing many headwinds. And consumer confidence is very weak. Our back-to-school sales forecast remains at 2.8% growth.
- IHS Global Insight is forecasting 2011 back-to-school retail sales to rise 2.8% compared with last year—most of this increase is due to price increases. Our forecast has not altered since July.
- In 2010, back-to-school retail sales totaled almost $38 billion, up 5.0% from 2009. Back-to-school sales were down in both2008 and 2009.
- IHS Global Insight defines the retail sales back-to-school shopping season as July, August, and September for family clothing stores, shoe stores, book stores, and computer and software stores.
- According to the Census Department, 77 million children and adults were enrolled in school in October 2009—from nursery school to university.
- U.S. consumers are paying more for rent (owners' equivalent rent), even though housing prices are falling and there is excess inventory. This is demand driven with consumers changing their attitudes towards housing—another cost that well impact college students.
There are many definitions of the back-to-school shopping season, but most retailers would agree that it is the second-most important shopping time of the year, after the year-end holiday season. In addition, a back-to-school results provide guidance to retailers for the upcoming holiday season.
In 2010, back-to-school retail sales rose 5.0%—their first increase since 2007—and holiday sales were relatively robust. There was hope that the U.S. consumer was making a comeback.
Much has changed since the last half of 2010, with consumers pulling back in the face of tremendous headwinds. The unemployment rate still stands at 9.1%, and the jobs figures indicate that firms are not going to pick up hiring anytime soon.
The Reuters/University of Michigan's consumer sentiment index and the Conference Board's consumer confidence index for August were at recession levels—over the last three months, both indexes have nose-dived.
Retailers are feeling the pinch. The ICSC (International Council of Shopping Centers) monthly chain-store sales index rose 4.6% higher than last year in August, equaling July as the smallest year-over-year increase since March. None of the chain-store sectors went into negative territory; however, there were slowdowns in apparel, department, luxury, and discount stores. Hurricane Irene has probably had some impact on back-to-school sales, causing delayed shopping in the affected areas. The ICSC estimates that while Hurricane Irene’s impact on individual retailers was mixed, the hurricane brought the overall sales growth pace down by 0.5–1.0 percentage point from where it otherwise would have been.
The retail payroll numbers contracted by 7.8% in August versus July. Electronics and appliance stores fell 7.9%, health and personal care stores were down 2.0%, sporting goods fell 3.3%, general merchandise were also down 3.3%, and department stores declined 2.4%. The one bright spot of employment gains were at clothing stores, up 4.9%.
We expect back-to-school sales to be up only 2.8% this year. Most of the increase is due to higher prices and not more demand. The recent rise in clothing prices accounts for a large percentage of the increase in our back-to-school forecast this year. The month-over-month consumer price index for apparel and upkeep has been in the 1.2–1.4% range for the past three CPI reports; July's clothing prices were up 3.1% year-over-year. In 2010, 37.4% of the back-to-school sales occurred in August, 31.6% in July, and 31.0% in September. Approximately 72% of back-to-school sales are family clothing and shoes, with computer/software at 14% and books at 14%.
Many retailers can handle weak back-to-school sales, but if things do not change soon, retailers are looking at a relatively weak holiday shopping season.
by Chris G. Christopher, Jr.
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