Retail

Retailers have high hopes for back-to-school shopping season

July 11, 2013 at 1:21 PM ET

Nine in 10 shoppers polled say they plan to spend as much or more on back-to-school goods than they did last year.
Bloomberg News
Retailers are counting on an even better back-to-school shopping season this year, which brought in $84 billion last season.

Although students in the Northeast jumped off the school bus just a few weeks ago, students in the southern half of the country head back to their classrooms in mid-August, and retailers are ready to get them equip them for that first day.

There's a lot at stake. More than $84 billion was spent during the seven-week, back-to-school shopping season in 2012. Retailers hope this year will be even better, as unemployment is lower than it was last year, and consumer sentiment is at its highest level since before the recession. ShopperTrak estimates that sales and foot traffic will increase this August by 4.3 percent and 0.6 percent, respectively.

Back-to-school shopping isn’t just No. 2 pencils and new shoes – it’s the second-most important time of the year for retailers, and it often sets the tone for Christmas, the most lucrative time of the year.

"Customers are telling us they want to have an early jump on things," said Demos Parneros, Staples North American Stores & Online president. "People come back-to-school shopping incrementally ... making two or three trips."

Stores need to make the most of those trips. Retailers consider the middle of July through Labor Day back-to-school shopping season.

"On the whole, more people feel better about their financial situation than they did last year," said Bill Martin, founder of ShopperTrak, which measures the number of people shopping at stores. "Parents are ready to spend on their children's necessities."

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Early indications may point to increased back-to-school spending, but it won't be done without a careful plan. A National Retail Federation survey of more than 5,700 adults found that consumers will do comparative shopping research online at a record-high rate in the survey's history. It also found that they plan to do the least amount of comparison shopping using retailer's physical advertisements.

Back-to-School Promotions

While it's inevitable that children grow and pencils wear down, back-to-school isn't always a slam dunk for retailers, and competition gets tougher with every passing year. Retailers are pulling out all the promotions—often all at once—from low-price guarantees to offers for curbside pickup to reward schemes that benefit schools picked by customers—basically whatever it takes to win business.

Sears is offering eCoupons redeemable either in store or online, in addition to programs that allow customers to buy items online and pick them up in store. As an added perk, a store associate will even bring the purchases out to the parking lot so you never have to get out of your car.

Best Buy has its sights set on the older student, and its back-to-school promotions kicked off in June. The consumer electronics retailer is offering gift cards with the purchase of a Windows 8 tablet and $100 off an Apple iMac as special deals, among other deals.

Many shoppers don't really care what brand of school supplies they buy, so retailers have to compete on price, squeezing margins even more. This week, Staples begins its back-to-school promotions, including packs of erasers, index cards and pens for a penny.

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"They are traffic drivers. We want to win the customer's trip to the store, it's hard to pass up a penny deal, and most customers spend far more," Parneros said.

Even governments are adding incentives for consumers. This year, at least 17 states will offer shoppers sales tax breaks for back-to-school. Twelve will occur between Aug. 2 and Aug. 4.

Who's Poised to Win

Beyond the pricing, retailers are hoping to lure in shoppers with fresh twists on the products. They're betting big on bright: Shelves are stocked with neon-colored notebooks, tablet carriers and apparel.

While apparel shopping tends to happen later in the season, several analysts project Macy's will be a top destination for back-to-school shoppers.

"Macy's is winning the game in all respects. Online, fashion, price ... and has no real direct competition in its space. It just keeps bringing in more and more product that appeals to the back-to-school shoppers from children's and teen to collegiate," said Jan Rogers Kniffen, a retail consultant and former May Department Stores executive.

J.C. Penney may be not a clear favorite for back-to-school, but it's nonetheless going to be carefully watched by Wall Street.

JPMorgan analyst Matthew Boss is keeping a careful eye on Penney and Kohl's for back-to-school. In a note to investors, Boss said J.C. Penney continues to strategically rebuild inventory for back-to-school, and strength for Penney could be troublesome for Kohl's. Boss is forecasting positive same-store sales for July though he expects profit margins will continue to be pressured.

Kniffen is also predicting positive sales for the struggling department store. "Penney will run its first back-to-school positive store-for-store sales in three years," he said.

Because parents are buying everything from rulers to sneakers to lunch boxes, big box retailers Wal-Mart and Target are often shoppers' favorite destinations for one-stop shopping.

Kids may not be ready to trade in their camp T-shirts for school uniforms just yet, but for parents ready to fill those backpacks, retailers are ready.

—By CNBC's Courtney Reagan. Follow her on Twitter @CourtReagan

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