US Insights

Bet on a Bigger Back to School Season

Doug Hermanson

Principal Economist

Retail 07.26.2017 / 10:00

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Higher income shoppers plan to spend more.

Back-to-school shoppers will be spending more this year, lifting third-quarter sales growth to 3.8%, up from last year’s feeble pace of 3.2%. But competition from Amazon and bifurcated spending plans between income groups will produce mixed performance among retailers and channels.  

Boosting the topline outlook is the improved financial situation of households with children. According to Kantar Retail ShopperScape®, these households felt significantly better about their job security, income growth, debt levels, home values, and investments in June relative to the same period in 2016. These macro tailwinds contribute to significantly higher shopper spending intentions for back to school.

BTS Picture

Notably, though, improved finances and spending plans are focused among upper-income households (i.e., households making more than $60,000). Meanwhile mid- to lower-income households (i.e., households making less than $60,000) are not reporting significant improvement in job security and income in June, contributing to more shoppers in this income segment indicating plans to spend less this back-to-school season. Additionally, with food and fuel deflation bottoming out this summer, these households will keep a tighter hold on their discretionary spending relative to last year’s period of steep price deflation.

So, who will win this back-to-school season?

Based on the overall macro, shopper, and sales trends; high-end supermarkets, apparel specialists, department stores, and Target should benefit from upper-income families’ improved spending if they can ward off competition from Amazon. Other supermarkets and drugstores will have relatively less traction this back-to-school season given mid- to low-income families have been trading down to Walmart and small-box discounters.

And here’s how the hard numbers look according to Kantar Retail’s third-quarter forecast:  

  • Topline growth of 3.8% will be more than a half percentage point stronger this year vs. a year ago. Sales growth will be moderate by historical measures as income growth, albeit improved, is still relatively low.
  • The online channel will maintain a rapid pace of growth (+15.5%), leading to it capturing 45% of the incremental third quarter sales dollars.
  • The specialty apparel, mass, and homegoods channels will post stronger growth (+2.4%).
  • The combined drugstore and supermarket channel will post similar nominal growth to a year ago (+2.2%), but will be noticeably weaker after adjusting for food and prescription drug inflation.

Kantar Retail clients can access these and two dozen other U.S. channel forecasts in the coming days on the Macro Data section of KantarRetailiQ.com.

Source: Kantar Retail

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