By  on August 5, 2005

NEW YORK — Retailers seem tuned into the student body.

School is already in session in certain cities, and stores have cleared out the summer goods efficiently, weeks earlier than last year in some cases. That's given them extra time to focus on back-to-school, which, after just two to four weeks of selling, gets a good preliminary report card from specialty chains. They're citing healthy inventory positions, faster merchandise turns, and widely accepted cowboy and bohemian styles, embellishments, and denims, particularly vintage, premium and distressed styles.

"We are turning the business more rapidly," said Tom Lennox, director of corporate communications at Abercrombie & Fitch. He said A&F cleared summer goods for a b-t-s preview during the second week of June and the selling floors were fully set by July 4.

"We have seen a very positive start to our back-to-school selling season, with end-of-quarter merchandise inventories in excellent shape," Mike Rayden, chairman, president and chief executive officer of tween chain Too Inc., said in a statement. Too Inc. expects to report on Aug. 17 earnings per share from 10 cents to 11 cents, or twice the previous forecast.

There is less optimism among department store executives. High fuel costs, terrorism fears, and a possible denim glut could slow business, and the electronics side of the season doesn't appear as healthy. Also, it remains to be seen whether consumers respond to neutrals, which are popping up, in contrast to the rainbow of colors in past seasons.

On Thursday, major retailers reported July sales and, generally, they were not impressive. As one Northeast department store executive said, "We have some strong items in the way of shrugs and embellished tank tops, but it's slow in denim and denim is the biggest single category of business for back-to-school." Consequently, "the season, overall, is starting off a little slow."

Some denim receipts are delayed, and consumers could be shying away from denim due to the heat, he added.

"As long as consumers stay high on denim, we'll have a good back-to-school season," said a department store ceo. "The kids' business is up a little for the year, and flat for the month" of July.The National Retail Federation also sees some softness ahead, predicting that while clothing, shoes and school supplies will be strong b-t-s sellers, spending on electronics will be tempered. NRF's b-t-s survey, conducted by BIGresearch, found that families with school-aged children will spend an average of $443.77 on b-t-s items, down 8.2 percent from $483.28 last year. B-t-s spending is estimated to reach $13.39 billion this year, down from $14.79 billion last year, according to the NRF.

Spending on electronics will plunge to $2.06 billion, versus $3.09 billion last year, with average consumer spending seen at $68.08, compared with $101.03 last year.

"Though many consumers will be buying electronics this year, they may be taking a break from spending on high-end computers and other expensive gadgets," Tracy Mullin, NRF president and ceo, said in a statement. "It is understandable that after several years of strong gains and record-breaking sales, demand may cool slightly for electronics this year. The real windfall for electronics retailers will likely be from college students, who are continuing to spend money on computers, mp3 players and cell phones."

Clothing will once again take the biggest piece of the spending pie, although there, too, parents are cutting back, planning to spend an average of $205.31 on apparel, compared with $219.46 last year. Consumers will spend an average of $88.54 on shoes and $81.83 on school supplies. 

Regionally, consumers in the Midwest will spend $404.68, versus $571.67 last year; consumers in the Northeast will spend $513.07, versus $435.37; spending in the South will drop to $434.09, versus $535.53, and in the West it is expected to rise to $409.19, versus $381.47. 

According to the survey, one in six parents begins shopping for b-t-s at least two months before school starts. Another 43.9 percent begin shopping three weeks to one month before school begins.

General merchandise and apparel sales are expected to post year-over-year increases of 4.5 to 5 percent in the August-September period, according to Deloitte & Touche USA. "These expectations are a healthy increase over the 3.8 percent growth achieved during last year's back-to-school season, but below the results posted by the industry in the first half of this year," the company said. Last year, hurricanes took a toll on b-t-s.Retailers register the greatest share of the b-t-s business in August, and the lucky ones get a second surge in September, after students ogle the clothes of their peers and bolt to the malls for some remedial shopping. During October, remaining b-t-s merchandise gets cleared and holiday goods start getting displayed at the end of the month.

"Everything seems real optimistic from a fashion perspective," said Deborah Weinswig, an equity analyst at Citigroup Smith Barney, who covers broadline retailers and bullishly predicted 10 percent total sales growth for the sector during b-t-s.

"I think consumers feel better with regards to the macroenvironment," she said, adding, "Inventories are in great shape, everyone is much more disciplined, and you probably won't see a lot of clearance activity. Everyone is going to be aggressive on pricing, but it's all planned."

She said some customers are shifting dollars to department and specialty stores, reflecting a strong fashion cycle, and away from discounters. "This year, there is a lot more for students to choose from" in terms of styles and colors, Weinswig said.

She said Penney's put b-t-s out sooner this season, with more appropriate, lighter-weight fabrics and an aggressive ad campaign that utilizes ad dollars efficiently. She also said Wal-Mart shifted from image-oriented ads to more entertaining, fashionable ones. However, Weinswig believes consumers are opting for school supplies at the moment, rather than apparel.

"For back-to-school, companies that set their floors early, such as American Eagle and Abercrombie & Fitch, I think experienced some nice full-price selling, with some transitional product as well. It boded well, even with it being hot," said Jennifer Black, president of Jennifer Black & Associates.

Among her picks for strong b-t-s business were J. Crew, Pacific Sunwear, Zumiez, Quiksilver, Nordstrom, with its Brass Plum juniors' department, and Urban Outfitters.

George Jones, ceo of the Saks Inc. department store group, said that at the Parisian division, "Kids are very strong across the board. Juniors' was sluggish, but it's really picking up. We're selling regular-priced goods. If you look at juniors' and kids, we have significantly less inventory than last year. Our floors were way too crowded last year. Our team did a much better job planning the business and editing the assortments so they're more focused. We are getting sales increases and traffic has been fine."Jones would address only the Parisian division of Saks Inc., which isn't for sale. Saks Inc.'s Northern Department Store Group is on the selling block, and the Southern Department Store Group was recently sold to Belk.

Same-store sales at U.S. retail chains rose 0.9 percent in the week ended July 30 compared with the prior week — and nearly 5 percent over the same week in 2004, according to the International Council of Shopping Centers. Mike Niemira, ICSC's chief economist, cited the combined impact of hotter weather, demand for seasonal goods and the onset of b-t-s shopping as growth drivers.

"Retailers were able to get out in front of the back-to-school season this year with aggressive promotions that enticed parents into the stores," said Phil Rist, vice president of strategy for BIGresearch, in a statement. "Though some merchandise categories will struggle, we expect to see retailers create clever discounting strategies that will encourage consumers to buy merchandise now, not later." The survey polled 6,487 consumers from July 6 to 13.

There is a lot of faith in denim, as several retailers suggested. According to A&F's Lennox, "Each of our brands [Abercrombie & Fitch, Hollister, Ruehl and abercrombie] have a large denim presence." In addition, consumers are more wear-now oriented, he added, selecting such items as polos, and graphic T-shirts, whereas wovens are downtrending. The fleece assortment will increase as the b-t-s season progresses.

"Denim is very strong, even though it's been quite warm, especially embellished denim and denim with rhinestones," said Robert Atkinson, vice president of investor relations at Too Inc., which has also been catering to its target audience of girls ages 7 to 14 with the "boho" look in cotton skirts, Western-style shirts, camisole tops with shrugs and cowboy boots. B-t-s was introduced at Too on July 1, just like in 2004, with the "real selling" expected in August, Atkinson said.

After Labor Day in some parts of the country, "We see a bounce-back in business." That's when students take notes on how other students dress. "Peer pressure is an important consideration for our customer."

Source: Citigroup Smith Barney-ICSC Back-To-School Survey

Examples include Circuit City or Barnes & Noble
Source: Citigroup Smith Barney-ICSC Back-To-School Survey of 1,000 consumers from July 21 to 24

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