October 1, 2007
Back-To-School Sales Get ‘A’ Marks From Retailers
By Faye Brookman, special to GMDC
Major mass market retailers reported solid sales gains for this year’s back- to-school season, even though some of those sales were generated via aggressive pricing to lure shoppers to one store over another, which has raised some doubt on the final profitability achieved.
Nonetheless, sales were great. According to Retail Metrics, Inc., U.S. retail sales rose 3.1 percent in August – which is better than expected. One-third of all households made back-to-school purchases, spending an average of $427 by the third week of August, and estimated to spend an average total of $571 for the entire season, according to research by TNS Retail Forward.
Economists had feared that worries about the economy, mortgage foreclosures and gas prices would impact back-to-school sales, but Americans spoke with pocketbooks and proved back-to-school is a necessity – not a luxury.
Shoppers were prompted to buy with sharper discounts in some areas this year as retailers tried to keep up with category killers. For example, filler paper and other items were priced much lower than even last year. The hope was that the traffic lured by sharp pricing would not only result in a boost for the featured items, but also in impulse purchases of other higher margin goods.
One of the strongest sales trends was in supplies for college kids, including home goods to set up dormitories such as ready to assemble furniture and storage. Electronics also benefited from a big census bubble of kids heading to college. Chains who targeted the college crowd said they were pleased with sales of everything from bedding to organizing plastic storage bins. The current generation of parents seems more intent, experts say, in buying up everything their offspring need for college than past generations who left kids to fend more for themselves.
For products for younger kids in grade school and high school, the basics fared well. Mass merchants such as Wal-Mart and Target singled out traditional needs such as binders, notebooks, lunch boxes and backpacks as among items nudging up August sales. There was also a nice blip for licensed merchandise fueled by the popularity of properties such as Hannah Montana and High School Musical.
There were two sales bursts – the last two weeks of August, recorded in August sales, but also the first weeks of September. Some schools started later than in other years and many children wait to see what other kids have before making their major shopping spree.
Discussion questions: Given the general economic mood in the U.S., will the sales gains generated by back-to-school set the tone for the remainder of the year in overall mass market retail sales and, specifically, general merchandise sales? Are retailers and their supplier partners going to need to promote extremely aggressively for the remainder of the year to generate top line growth?
BrainTrust
Recent Discussions
Discussion Questions
Poll
What will help retailers in almost every category for the next year or two: the terrific slowdown in new location openings and new retail square footage. The U.S. has suffered from much too much retail space for years compared to retail spending growth. Chain after chain (Wal-Mart, Barnes & Noble, Macy’s, Whole Foods, Michael’s) in almost every category plans to build very few new locations compared to 5 years ago. Almost no new major malls are being built. More and more, roll-up strategies (for department stores: Macy’s, for party stores: Party City, Party America, and Factory Card Outlet) are rationalizing retailing and allowing the corporate participants to gracefully end their footraces to sign more and more leases. It’s much healthier, financially, to merge chains than to build new locations. Even if sales increases are modest, they’re more profitable if they are shared by fewer locations. When sales were booming a few years ago, they weren’t necessarily very profitable, because of the terrible costs of location growth.
Unfortunately, in their pursuit of top line growth, retailers have created a discounted price environment. Consumers have come to expect lower prices throughout the year. The back to school discounting reinforces consumer expectations which had previously been created by discounting holiday merchandising the last several years.
One of my favorite expressions is “anyone can give away product, it takes brains to sell it.” Retailers will be challenged to add real value to customers short of price discounting.
It may have made sense in the past to build expectations from one holiday to the next based on spending habits and economic conditions. But it seems to me that the baseline for such decisions has changed drastically. A few months ago the stock market nosedived and sub-prime was top of mind. Then we come to a day like today where the market hits a new high and there has been one rate decrease and the anticipation of another. Christmas decisions in this environment are a long, long way away.
Holiday shopping may be very similar in that consumers see it as a necessary spend; the spend that may be an issue is discretionary spending like holiday parties, New Year’s Eve dinners, holiday vacations that need to be booked in advance…and will those spending decisions be curtailed?
We noted in BTS data this year that the discounting began at least 3 to 4 weeks before 50% of the consumers said they would be in the stores. This is happening already with holiday merchandise, especially toys. While toys as an overall category is somewhat unusual this year given the recalls, it does seem to me that retailers are weeks and weeks ahead of consumer shopping patterns for almost every major purchasing cycle, thus creating the deflated margins for each season by bringing merchandise in and discounting it way ahead of when consumers actually want to shop.
Ditto Professor George’s comments about price promotion expectations. Retailers have become their own competitors. I’m not sure the back to school season needed that extra push. It is not discretionary to send kids to school in K-12 years. And the Boomer Echo is headed off to college in record numbers. People are competing for top college entry in spite of the estimated $30,000 per year outlay. Who do you suppose is buying all that dorm stuff? The generation with the loosest purse strings in history. Seems to be a lot of nervousness in retail. Not sure how much of it is warranted by the state of the economy.
The economy has a dramatic impact on purchasing. Many would not attribute this to the overall economy but tightening of purse strings can be tied back to concerns about economic viability. Retailers will need to promote and market with creative ideas to pull in those dollars. Promotion will need to be tied to benefit. There will definitely be a battle for the Christmas Dollar and the more creative and aggressive retailer will win.
Many are looking at “cause marketing.” If the price is the same or higher, many consumers would rather purchase from a retailer that is donating to a cause. Cause marketing is a win/win for retailers and consumers.
Back to School is the second most hyped, discounted, and promoted shopping event of the year, so it needs to be considered and evaluated on its own, the same as the holiday shopping season is evaluated year to year.
I’m not sure the overall BTS season was robust. As I recall, several key players had poor July results, even when adjusted for calendar impact. August was stronger than expected, but September numbers are not out yet. What we do know is that Target adjusted its September guidance downward a week ago, and the market has punished other retail stocks in anticipation.
BTS was supposed to be slower growth than previous years, and the lack of compelling merchandise trends was seen to significantly impact overall volume. Only when we can look at the 7 to 8 week period generally seen as the “season” in total can we even attempt to give out grades.
One troublesome trend (outside of WM already discounting toys) is the impact of electronics purchased at BTS. Will these purchases reduce Christmas? As electronics have moved more and more into the BTS period, and further down the age tree, are these going to be “plus” spending, or shifts from the traditional time that relatively big ticket items like these are bought? Again, we don’t know now, but the probability is that some portion of those dollars are shifted, and that bodes poorly for a Holiday season already without any significant technology, trend, fashion or license driver to stimulate growth.
The real economy continues to perform well: growth, profits, employment, productivity, income, wealth. Perceptions, however, lag behind. Yet, when strong enough, perceptions become part of the real economy, and even, at times, self-fulfilling prophesies.
This is the dilemma that will confront retailers for the rest of the year, including the crucial Holiday season. Do you promote and discount aggressively to capture consumers who are feeling uncertain, or do you aim high to capture consumers who realize these are the good times?
You have to know your own best customers to answer this question. Or you can try to do both. Or you can, to every extent possible, individualize and customize. Not easy, but the retailers that are doing so will thrive in any environment.
More Discussions
Has Same-Day Delivery Become an Expectation Across Retail?
Are expectations around retail delivery speed in flux?OpenAI Names the Infrastructure Standard for Agentic Commerce
Will OpenAI or Google (or another entity) set the gold standard for agentic commerce?Is Five Below Poised For Even Greater Growth?
Five Below is hitting serious growth numbers. Can this trend continue?
What will help retailers in almost every category for the next year or two: the terrific slowdown in new location openings and new retail square footage. The U.S. has suffered from much too much retail space for years compared to retail spending growth. Chain after chain (Wal-Mart, Barnes & Noble, Macy’s, Whole Foods, Michael’s) in almost every category plans to build very few new locations compared to 5 years ago. Almost no new major malls are being built. More and more, roll-up strategies (for department stores: Macy’s, for party stores: Party City, Party America, and Factory Card Outlet) are rationalizing retailing and allowing the corporate participants to gracefully end their footraces to sign more and more leases. It’s much healthier, financially, to merge chains than to build new locations. Even if sales increases are modest, they’re more profitable if they are shared by fewer locations. When sales were booming a few years ago, they weren’t necessarily very profitable, because of the terrible costs of location growth.
Unfortunately, in their pursuit of top line growth, retailers have created a discounted price environment. Consumers have come to expect lower prices throughout the year. The back to school discounting reinforces consumer expectations which had previously been created by discounting holiday merchandising the last several years.
One of my favorite expressions is “anyone can give away product, it takes brains to sell it.” Retailers will be challenged to add real value to customers short of price discounting.
It may have made sense in the past to build expectations from one holiday to the next based on spending habits and economic conditions. But it seems to me that the baseline for such decisions has changed drastically. A few months ago the stock market nosedived and sub-prime was top of mind. Then we come to a day like today where the market hits a new high and there has been one rate decrease and the anticipation of another. Christmas decisions in this environment are a long, long way away.
Holiday shopping may be very similar in that consumers see it as a necessary spend; the spend that may be an issue is discretionary spending like holiday parties, New Year’s Eve dinners, holiday vacations that need to be booked in advance…and will those spending decisions be curtailed?
We noted in BTS data this year that the discounting began at least 3 to 4 weeks before 50% of the consumers said they would be in the stores. This is happening already with holiday merchandise, especially toys. While toys as an overall category is somewhat unusual this year given the recalls, it does seem to me that retailers are weeks and weeks ahead of consumer shopping patterns for almost every major purchasing cycle, thus creating the deflated margins for each season by bringing merchandise in and discounting it way ahead of when consumers actually want to shop.
Ditto Professor George’s comments about price promotion expectations. Retailers have become their own competitors. I’m not sure the back to school season needed that extra push. It is not discretionary to send kids to school in K-12 years. And the Boomer Echo is headed off to college in record numbers. People are competing for top college entry in spite of the estimated $30,000 per year outlay. Who do you suppose is buying all that dorm stuff? The generation with the loosest purse strings in history. Seems to be a lot of nervousness in retail. Not sure how much of it is warranted by the state of the economy.
The economy has a dramatic impact on purchasing. Many would not attribute this to the overall economy but tightening of purse strings can be tied back to concerns about economic viability. Retailers will need to promote and market with creative ideas to pull in those dollars. Promotion will need to be tied to benefit. There will definitely be a battle for the Christmas Dollar and the more creative and aggressive retailer will win.
Many are looking at “cause marketing.” If the price is the same or higher, many consumers would rather purchase from a retailer that is donating to a cause. Cause marketing is a win/win for retailers and consumers.
Back to School is the second most hyped, discounted, and promoted shopping event of the year, so it needs to be considered and evaluated on its own, the same as the holiday shopping season is evaluated year to year.
I’m not sure the overall BTS season was robust. As I recall, several key players had poor July results, even when adjusted for calendar impact. August was stronger than expected, but September numbers are not out yet. What we do know is that Target adjusted its September guidance downward a week ago, and the market has punished other retail stocks in anticipation.
BTS was supposed to be slower growth than previous years, and the lack of compelling merchandise trends was seen to significantly impact overall volume. Only when we can look at the 7 to 8 week period generally seen as the “season” in total can we even attempt to give out grades.
One troublesome trend (outside of WM already discounting toys) is the impact of electronics purchased at BTS. Will these purchases reduce Christmas? As electronics have moved more and more into the BTS period, and further down the age tree, are these going to be “plus” spending, or shifts from the traditional time that relatively big ticket items like these are bought? Again, we don’t know now, but the probability is that some portion of those dollars are shifted, and that bodes poorly for a Holiday season already without any significant technology, trend, fashion or license driver to stimulate growth.
The real economy continues to perform well: growth, profits, employment, productivity, income, wealth. Perceptions, however, lag behind. Yet, when strong enough, perceptions become part of the real economy, and even, at times, self-fulfilling prophesies.
This is the dilemma that will confront retailers for the rest of the year, including the crucial Holiday season. Do you promote and discount aggressively to capture consumers who are feeling uncertain, or do you aim high to capture consumers who realize these are the good times?
You have to know your own best customers to answer this question. Or you can try to do both. Or you can, to every extent possible, individualize and customize. Not easy, but the retailers that are doing so will thrive in any environment.