Online sales as a share of total back-to-school sales are expected to reach 20.6% this year, up from 19.5% in 2017, according to a new report from IHS Markit associate director James Bohnaker.
According to analysis, retailers are trying to leverage the success of Amazon’s Prime Day by offering online back-to-school sales of their own earlier in the summer. Bohnaker said the earlier promotions, along with the year-round convenience of online shopping, has caused the traditional back-to-school season to become less concentrated in August.
“Shoppers are looking for deals earlier in summer and know that waiting longer can sometimes lead to a better price,” he said.
In 2017, retailers generated $662.4 billion in sales ahead of the new school year, with spending on clothing and footwear among the key product categories along with books, school supplies, computers, computer software, smartphones and tablets. This year, he said, based on strong consumer confidence, rising incomes and lower tax rates, back-to-school retail sales are forecast to rise 4.9% from a year ago.
“This would be the best year for growth in back-to-school retail sales since 2014, but not the surge one might expect given the strength of the economy in 2018,” Bohnaker said. “Therefore, we are giving a grade of ‘B+’ to the expected back-to-school season.”
Consumer fundamentals are the best they’ve been in years, according to Bohnaker. Importantly, the summer job market for young adults boasts the lowest June unemployment rate since 1969. In addition, their pay is increasing, too, with the the employment cost index for wages and salaries growing 2.9% year over year as of the first quarter, which is the fastest growth in nearly 10 years.
Related Stories
“Adding to the windfall from lower unemployment and rising wages is the fact that most Americans received a tax break in early 2018 after the passage of the Tax Cuts and Jobs Act,” he said. “The impact of lower tax rates was not large enough to provoke an immediate increase in spending, but the cumulative effect of slightly higher paychecks over the last six months affords shoppers the opportunity to spend more if they choose to do so.”
However, some consumers still face restraints on their ability and desire to spend this season, he noted. That’s due to many young parents still paying off their student loans, along with rising rents and unaffordable home prices in many areas of the country.
On a more macro level, consumer price inflation is the highest it has been in a while and rising interest rates are raising borrowing costs, both of which could curb consumer spending, Bohnaker noted.
“Additionally, the threat of tariffs or other shocks to the economy may cause some uneasiness about the stability of households’ future financial situations,” he added. “None of these alone is enough to cause the retail season to be a failure, but the combination is likely to forestall an all-out shopping spree from parents and students.”
A survey released this month from the National Retail Federation and Prosper Insights and Analytics forecast total spending for K-12 schools and college combined to reach $82.8 billion, nearly as high as last year’s $83.6 billion.
“With the economy thriving thanks to tax reform and growing consumer confidence, we expect to see a very strong season,” NRF president and CEO Matthew Shay said. “College spending is expected to be at its highest level ever and back-to-school will be one of the three highest years on record. Whether shoppers buy now or wait until the last minute, retailers are ready with everything they need for a successful start of the school year.”
According to the survey, back-to-school shoppers plan to spend $236.90 on clothing, followed by $187.10 on electronics such as computers, calculators or phones, $138.66 on shoes and $122.13 on supplies such as notebooks, pencils, backpacks and lunch boxes. College shoppers are expected to spend the most on electronics ($229.21), followed by $153.32 on clothing and accessories, $109.29 on dorm or apartment furnishings, $102.82 on food and $83.41 on shoes.