Published August 01, 2014
The second half of the year is a ‘make or break’ time for retailers. Between the Back-to-School shopping season, Halloween, Thanksgiving and the Christmas/year-end holiday shopping season, consumers spend, spend, spend during the last five months of the year. And while you may not believe it, Halloween is the fourth most popular holiday that gets consumers to open up their wallets and pocketbooks, according to the Alliance Data Retail Services.
As we sit here on August 1, the opener to that expected spending spree is Back-to-School shopping. You know the story, toddlers and children grow and that means new clothes and shoes as well as other items that are needed for the coming school year. Better yet, it happens year in, year out and make no mistake it’s big dollars that are shelled out. According to the National Retail Federation's annual survey, total spending on back-to-school items is expected to reach $74.9 billion, up 3% from $72.5 billion last year.
While notebooks, calculators, laptops and tablets as well as clothing tend to be standard purchases, Back-to-School spending is expected to include a wider variety of items this year. According to the National School Supply Lists Directory, required school supply lists for the upcoming year contain on average 18 items. That's a 29% increase from 2013 and reflects the pain of slashed school budgets that shifts more into the wallets of students-parents-guardians for items such as tissues, hand wipes, glue and other school supplies.
Stepping back, however, there are a number of reasons to question the likelihood of that NRF forecast becoming reality. When trying to get a gauge on the consumer’s ability to spend, recent retail sales and restaurant results have not been favorable. Despite positive results from Chipotle (CMG), the National Restaurant Association has reported weak traffic data over the last few months.
Other findings from Gallup point to consumers spending more of their money on necessities such a groceries, gas/fuel and utilities and far less on clothing, consumer electronics, travel and dining out. We’ve seen that reflected in recent retails sales reports, which fell well short of Wall Street expectations. It comes as little surprise, then, that more than half of American consumers Gallup polled say in the past four weeks they purchased generic or store brand goods (83%), shopped at more than one store for similar items to get the best deal (61%), gone online to compare prices and find the best deal (59%). Researching online has been a growing trend according to Deloitte Digital – since 2012, the percentage of digitally-influenced sales has increased from 14% to 36%.
To me the big question is not how much consumers will spend or even what they will be spending on – we know consumers will be spending one way or another this Back-to-School season. The real question is where will they choose to spend?
With consumers looking to maximize the disposable dollars they do have, they are likely to take a page out of their year-end holiday shopping playbook and spend more online for Back-to -School items then they did last year. According to data provided by Internet Retailer, 68% of consumers with back-to-school shopping lists plan to shop more online this year. Factors fueling that online shift are similar to those that have led the shift in year-end holiday shopping online -- better prices, quicker shopping and avoiding crowds.
Some quick Googling shows there is no shortage of companies that are already offering discounts and sales. From J.C. Penny (JCP) to Target (TGT) and Wal-Mart (WMT), they are all looking lure shoppers. Even Amazon.com (AMZN) is displaying a “Back to School, Back to Amazon” banner on its landing page that leads to a dedicated store for backpacks, calculators, paper, writing supplies and more. Factor in Amazon’s Prime service as well as its electronic couponing and one-click purchasing, and it stands to be a share gainer this Back-to-School season.
Which companies are likely to be winners this Back to School season? Apple (AAPL), Under Armour (UA), Nike (NKE), and in my view Amazon (AMZN) are likely standouts. Even though companies like Target, Wal-Mart, Office Depot (ODP), OfficeMax (OMX) and Best Buy (BBY) tend to set up in-store Back-to-School stores, the spending shift we have seen over the last few years toward online shopping is likely to take some wind out of those sails.
Chris Versace, editor of the investment newsletter PowerTrend Profits, owns no shares of any companies mentioned, but the Thematic Growth Portfolio that he manages owns Amazon shares.