Back-to-school: Test of economy's strength

Analysts say the second-biggest shopping period of the year will gauge health of the consumer and whether the recession is on the wane.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all RSS FEEDS (close)
By Parija B. Kavilanz, senior writer

NEW YORK ( -- While some kids are still counting the days until the end of this school year, retail experts are looking ahead to the back-to-school shopping ritual as the first real test of whether the economy is recovering.

"In a recession, the consumer is generally the last one to leave the economy and the first one back," said Marshal Cohen, chief retail analyst with research firm NPD Group.

"Consumers didn't really start to pull back until last October," he said. "Now they've gone through months of frugality and there's so much pent-up demand out there."

According to the National Retail Federation (NRF), back-to school shopping is typically merchants' second-biggest selling period after the holiday gift-buying months of November and December.

If back-to-school sales are a disaster, then Cohen warns that the economy is headed for a "long period of continued challenge."

But if he's guessed correctly, and this tidal wave of pent-up demand hits retail stores from mid-summer through September, "it could be the first credible sign that consumers are feeling a little bit OK about spending again," he said.

That's significant because consumer spending fuels two-thirds of the economy. And the economy could use the help: the nation's gross domestic product declined at a 5.7% annual rate in the first quarter of this year, the third straight quarter of decline.

"Parents cannot not spend on their kids," Cohen said. "They will loosen up their purses and wallets because they won't send their kids to school with a 2-year-old backpack."

Still, he said budget-conscious Americans will show a preference for buying "necessities."

Retailers should also benefit from last year's easier comparisons for the season. "Back-to-school sales were very late last year. So most merchants are up against much softer year-over-year numbers," Cohen said.

Catalyst for holiday sales: Cohen and others pointed to a historical correlation between back-to-school sales trends and retailers' performance over the year-end holidays, which usually account for as much as 50% of stores' profits and sales for the entire year.

"For me, back-to-school is always the early indicator of the holiday season," Cohen said.

Ken Perkins, president of sales tracking firm Retail Metrics, agreed. "If back-to-school [sales] are decent, it could become a catalyst for holiday sales," he said.

"Traditionally back-to-school tends to post stronger same-store sales than the holiday season," said Jharonne Martis, senior research analyst with Thomson Reuters, which tracks monthly same-store sales for 30 large national chains including Target (TGT, Fortune 500), Macy's (M, Fortune 500), J.C. Penney (JCP, Fortune 500) and Costco (COST, Fortune 500).

Same-store sales, which measure sales at stores open at least a year, are a key gauge of a retailer's performance.

Conversely, weakness in sales of school merchandise doesn't bode well for holiday sales. That was the case last year when same-store sales rose 1.9% over July and August combined, down from 3% in 2007. Subsequently, holiday sales fell 1.5% in 2008 after rising 2.3% the prior year.

Martis said many parents will also "definitely wait" for sales tax breaks before they start shopping for school products.

Last year, 16 states -- including Texas, Virginia and Georgia -- offered tax-free shopping days, mostly in August, on clothing, computers and general school supplies.

Martis expects three retailers to do particularly well this back-to-school season -- Wal-Mart (WMT, Fortune 500), Aeropostale and Buckle (BKE).

"Consumers will go to Wal-Mart for its discount prices," Martis said. Aeropostale and trendy merchandise seller Buckle will resonate most with teen shoppers, she added.

Clouds linger: But at least one industry watcher isn't seeing any signs of optimism on the horizon.

Citing tightness in the credit market, Burt Flickinger, managing director of consulting firm Strategic Resource Group, expects back-to-school sales will be 4% to 5% lower than last year.

That said, Flickinger expects holiday sales "will be OK."

Besides credit issues, Flickinger anticipates higher gas, food and drug prices later this year will put a crimp on sales of discretionary items.

"Consumers are facing much more day-to-day inflation during summer than in spring," Flickinger said. "I've talked to many retail CEOs, and they are not seeing what analysts are seeing."

"There's high unemployment, including high teen unemployment. Credit lines are being cut by stores and credit card companies," he said. "For back-to-school, students and parents will only buy what is needed." To top of page

They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.