Back-to-school sales are pegged to set a record this year, but the 3.3 percent expected year-over-year gain reflects a slowdown from the past two seasons, noted Customer Growth Partners in its 16th annual back-to-school forecast report.
This year will also present a challenge for department store and apparel retailers, but Craig Johnson, president of the consulting firm, said there will be winners. Johnson said sales this year will reach $540 billion, which is a new record, he said, “but the lackluster 3.3 percent growth represents a marked slowdown from the 4 percent-plus b-t-s growth seen in both 2014 and 2015, when sales were boosted by declining gasoline prices.”
The firm’s forecast is culled from “thousands of data points for 50 major retailers” and also “draws on [U.S. government] definitions,” which excludes sales of cars, gas, dining and home improvement.
“As in past years, the single biggest driver of retail sales is real income growth, which remains anemic for all but the highest income quintiles,” Johnson said. “And gasoline prices, which provided a $14 billion per month tailwind boosting sales in 2015, have risen over 50 cents per gallon since February, reducing the monthly tailwind to only about $6 billion.
“At the same time, discretionary income normally available for retail spending has been ‘crowded out’ by non-discretionary spending for health care, insurance, housing and student debt — to the tune of about 4 percent of consumer spending,” Johnson said, adding that year-over-year growth last year was 4.1 percent.
Despite the deceleration, Johnson said e-commerce b-t-s sales will grow 11 percent this year, which compares to a 10 percent growth rate last year.
“The online sales represent a record 18 percent of all b-t-s category sales — and account for nearly two-thirds of the year-over-year increase in b-t-s sales,” he added. “Amazon alone will account for about a quarter of the $17 billion increase in b-t-s sales this year — and perhaps more so if today’s ‘Prime’ day meets even half of its hype.”
Regarding the department-store sector, Johnson said he expects it to continue to contract, “and is forecast to see a disastrous 7 percent decline as traffic exits the mall and as department stores struggle to make themselves relevant to today’s new generation of shoppers.”
Johnson said apparel sales this season will also dip, by about 0.8 percent, “with weakness at the mall — and as ‘fast-fashion’ retailers continue to peak out as store productivity plunges after the segments’ over-expansion in recent years.”
The firm expects that a handful of specialty and off-price retailers will thrive this season. Johnson includes TJX Cos. and Primark among the winners.
“Back-to-school shoppers in 2016 will be cautious in spending, but relentless in searching for value,” Johnson explained. “The retail winners will be those that provide real newness, relevant to consumers and how they like to shop today — at a great price. But stores selling strictly discretionary goods — particularly commodity product — will face a very tough b-t-s this year. The reason why shoppers are flocking to stores like Primark and TJ Maxx is that they doing what Marshall Field said over a century ago: ‘Give the lady what she wants.’”