By Leticia Miranda / Bloomberg Opinion
It’s the time of year when retailers are replacing rows of pool toys and beach chairs with rows of notebooks, pencils and backpacks. Although it’s still early, there are signs that back-to-school sales are shaping up to be a bit drab; if they could even be described as “sales.” This is surely disappointing for shoppers, especially those at the lower end of the income spectrum, where consumer confidence hasn’t rebounded as quickly and are increasingly judicious about their spending. It might also foreshadow what’s to come for the highly promotional holiday season.
Target is offering the same deal as last year: a one-time 20 percent discount for Target Circle members who are also students, teachers or college students with a valid ID. Walmart is keeping all its school supplies at 2022 prices as its main offering. Considering that the costs for school supplies have gone up about 24 percent the past couple years, the case can be made by retailers that holding the line on prices is a tremendous bargain. But for consumers, these are hardly “doorbusters.”
The somewhat underwhelming discounts advertised so far reflect retailers’ confidence in how deep consumers are willing dig into their pockets. Back-to-school spending is expected to reach a record $41.5 billion and back-to-college spending is seen at $94 billion, not adjusted for inflation, according to the National Retail Federation and Prosper Insights & Analytics. The gains this year are forecast to be the biggest in school and college spending since 2020 when the pandemic forced households to invest in at-home schooling setups. Now, though, many consumers have run though most of their stimulus checks and are turning more price conscious. At 4.3 percent, the personal saving rate is about half of what it was before the pandemic, suggesting Americans are dipping into their bank accounts to make ends meet. And an increasing number of consumers say they are comparing prices on more items, buying off-brand goods and shopping at discount and dollar stores, according to the National Retail Federation.
Still, the top line for retailers is that shoppers are spending; even if they’re more cautious with their dollars. The Commerce Department said Friday that personal spending rose 0.4 percent in June when adjusted for inflation, the biggest increase since January. For low-cost retailers, this means there is little incentive to dramatically cut prices, which helps support profit margins. Retailers such as Walmart are betting it will be a solid year for sales growth. The company increased its net sales forecast for the year from growth of 2.5 percent to 3 percent to 3.5 percent. Off-price retailer TJX Companies also raised its full-year profit margin guidance from 10.1 precent to 10.3 percent to 10.3 percent to 10.5 percent based on strong first-quarter performance.
With other retailers, consumers may not see dramatic discounts because some simply can’t afford to lose additional margin to sales. Target, for example, is looking to recover from its recent string of year-over-year declines in operating income stemming from sluggish discretionary spending and excess inventory costs. The company told investors earlier this year that it plans to cut costs and lean on its physical stores to fulfill online orders to reach its goal of returning to its pre-pandemic 6 percent operating income margin by next fiscal year. Gap’s Old Navy brand, another back-to-school staple, saw sales fall last quarter as demand from lower-income consumers softened. Best Buy continues to see its sales decline as Amazon.com makes further inroads in electronics market share. For Best Buy, any further discounting would be devastating to its already fragile bottom line.
It’s not all doom and gloom for back-to-school retailers or shoppers. Retailers know consumers are price comparing more than usual and are using loyalty programs and temporary free shipping deals to entice shoppers even if they can’t offer big promotions. Even so, the back-to-school shopping season offers a glimpse into what might be coming during the holidays, disappointing shoppers at a time when they are even more eager for deals.
Leticia Miranda is a Bloomberg Opinion columnist covering consumer goods and the retail industry. She was previously a business reporter at NBC News and a retail reporter at BuzzFeed News.
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