The Back-to-School Season: Winners and Losers in Retail
As thrifty consumers prepare for back-to-school shopping, they are aware that they will be spending more due to higher prices. Retailers that offer value and affordability are becoming the preferred choice for these consumers. Despite facing challenges such as rising rates and the expiration of the student loan moratorium, consumers still possess buying power due to healthy balance sheets, rising real wages, and a resilient labor market, according to Morgan Stanley analysts.
Record-High Spending and the Impact of Inflation
The National Retail Federation's annual survey predicts that back-to-school spending will reach a record-high of $41.5 billion, with back-to-college spending estimated to hit $94 billion. Persistent inflation is a contributing factor to increased sales, as revealed by a survey conducted by Jefferies. The survey indicated that around 75% of respondents are likely to spend more on private label items, with big-box retailers emerging as winners this season. Consumers are planning to allocate more funds towards apparel, school and office supplies, and accessories. Higher-income consumers are also willing to spend more, benefiting specialty apparel stores.
Value Retailers and E-commerce Dominance
Value retailers like Walmart, Target, Costco, and Dollar General are expected to thrive as consumers seek cheaper alternatives, including private label products. Walmart, in particular, is projected to receive a significant share of back-to-school spending, with 31% of polled consumers planning to do most of their shopping at the discount retailer. Amazon, with its unmatched product assortment, is also poised to capture a substantial market share. The e-commerce giant is especially well-positioned in categories such as dorm decor and bedding.
Fashion Trends and Specialty Apparel
The SPDR S&P Retail ETF has seen a 6% increase this year, driven by strong gains from holdings like Abercrombie & Fitch, American Eagle Outfitters, and Boot Barn Holdings. Analysts believe that specialty apparel options such as American Eagle and Abercrombie will be the top beneficiaries for back-to-school shopping. However, there may be some downside risk for retailers like Kohl's, Hollister, American Eagle, and Victoria's Secret. Analysts also note that fashion trends, particularly in footwear, may differentiate the winners. Retro basketball styles from Nike were popular among back-to-school shoppers, although Nike has faced challenges, including a recent losing streak and market share loss to brands like New Balance, Hoka (owned by Deckers), and On Holding.
Challenges and Outlook
While consumers are seeking value retailers to save money, not all retailers are benefiting equally. T.J. Maxx, Dollar General, and Walmart, which have focused on product quality and private label assortments, have seen positive growth. However, Dollar General experienced a significant drop in shares after missing earnings estimates and providing a weak forecast. The August discounting activity and potential slower back-to-school season raise concerns for the upcoming holiday season, as investors often look to back-to-school sales as an indicator of winter sales performance.
In conclusion, the back-to-school season will see a clear divide between winners and losers in the retail industry. Value retailers, specialty apparel options, and e-commerce giants are expected to fare well, while some retailers may face challenges. Understanding consumer preferences, adapting to inflationary pressures, and staying attuned to fashion trends will be vital for retailers to succeed in this competitive landscape.
Implications for New Businesses
The back-to-school season presents a unique opportunity for new businesses to understand and respond to consumer behavior. The current retail landscape suggests that consumers are seeking value and affordability, which could guide new businesses in positioning their products or services.
Value and Affordability
New businesses, especially in the retail sector, should consider focusing on providing value and affordability to attract thrifty consumers. Offering private label items, which are becoming increasingly popular, could be a successful strategy.
E-commerce Opportunities
The dominance of e-commerce platforms like Amazon underscores the importance of having a robust online presence. New businesses should consider investing in e-commerce capabilities to reach a wider audience and capitalize on the convenience factor that attracts many consumers.
Conclusion
In conclusion, the back-to-school season offers valuable insights for new businesses. Understanding the importance of value, affordability, and e-commerce in the current consumer climate can guide business strategies. However, businesses must also be aware of potential challenges, such as inflation and changing fashion trends, and be prepared to adapt accordingly. Ultimately, success in this competitive landscape will require businesses to stay attuned to consumer preferences and market trends.
.svg)
