Now Trending: A Confusing Curriculum

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As the initial results came in for this year’s back-to-school retail spending forecasts, the numbers were about where I thought they might be: down a couple of percentage points. It’s a modest dip, and certainly nothing to be alarmed about given the degree to which back-to-school spending has spiked over the last decade (average back-to-school spending has increased 42 percent over the last 10 year period). So why is it that these numbers are raising some eyebrows among industry analysts and observers?



What is noteworthy about the initial back-to-school predictions is the degree to which they highlight the predictive uncertainty surrounding seasonal spending. Professional forecasts and surveys released by analysts and industry groups were remarkably widespread, with predictions that seemed to be all over the map. In fact, in the decades that I have been working in the retail industry, this might be the widest disparity among different predictions from that I can recall.



Consider the following forecasts:



• The National Retail Federation’s (NRF) Back-to-School Spending Survey (conducted by Prosper Insights & Analytics), found that both K-12 and college-age students and their families planned to spend less in 2015 than in 2014. The K-12 spending figure on “electronics, apparel and other school needs” was expected to be $630.36 per family, down from $669.28 in 2014. That represents a 6% drop in spending. Overall spending was expected to drop from $75 billion to $68 billion, an even more precipitous drop of 9.3%.



• According to Forbes, which reported on numbers released from a Consumer Pulse survey from Rubicon Project, 56% of parents plan to spend more money on back to school shopping this year than in 2014.



• The International Council of Shopping Centers (ICSC) released the results of its survey that suggested more than two-thirds of parents are planning to boost their back-to-school spending (a number larger than at any other time in the last four years).



Keep in mind, these are reputable and experienced industry experts, utilizing sophisticated surveys and analytical tools to make these forecasts — all of which were very different. A one-year drop of close to 10% would be an enormous drop, and yet none of the exaggerated forecasts were accurate, either on the negative side or the positive side. The interesting question of course is why: why was there such a wide range of such dramatic predictions, what does it tell us about the state of the industry and the economy, and what does it mean for the future of back-to-school (and seasonal/holiday) retail spending?



To understand what this unusual situation might portend, we first need to take a closer look at what might be responsible for a modest decrease in spending. The reasons for the slight downturn have little to do with the overall retail environment, and more to do with what people are buying, where they are buying from, and how they are prioritizing their spending. Part of the drop can be attributed to a significant spending spike in 2014 (meaning that many families stocked up just last year and would subsequently be less likely to dig deep into the bank account just a year later), but it’s worth noting that a continuing decline in the price of consumer electronics is almost certainty one factor keeping consumer spending on back-to-school electronics down. And, as those electronics represent an increasingly significant slice of the back-to-school spending pie, that downward pressure on prices will continue to play an impactful role in keeping spending from going up too quickly in years to come.



There are other reasons to suspect that the decade-long increase in back-to-school spending might not be sustainable. Across the retail landscape, apparel shoppers are continuing to move away from premium brands like Abercrombie & Fitch and PacSun and more toward “fast fashion.” The lure of quality fashion at affordable price points is helping brands like H&M and Forever 21 (not to mention F21 Red, Forever 21’s new value-priced spinoff) continue to gain market share.



People tend to start their back-to-school shopping earlier, but it is difficult to say why that is. It may be that consumers are responding to the increasingly aggressive sales that retailers are rolling out earlier and earlier, or it could simply be that school schedules across the country are variable, with more schools starting earlier or adopting a year-round calendar. As the dates that have traditionally defined the back-to-school shopping period continue to broaden, the spending is becoming more diffuse, as well.



One thing that does potentially bode well for back-to-school sales in the future is that the rise in spending over the past 10 years seems to have been fairly resistant to economic downturns and other outside factors. What that might imply is that more families are waiting for seasonal sales and holding off on purchasing needed upgrades during the rest of the year.



Overall, however, I would not be surprised if 2015 is the beginning of a “new normal” with respect to back-to-school numbers. Apparel isn’t going to get any more expensive anytime soon. Discount retailers are on the rise. Technology is becoming cheaper all the time. This year, which right now may seem to be unique, or an anomalous blip on the industry radar screen, may instead be heralding some bigger long-term structural changes that will continues to manifest themselves in the years ahead.

Jeff Green, president and CEO of Jeff Green Partners, combines more than 30 years of retail industry experience to provide comprehensive consulting services to national retailers, developers, shopping centers and health care facilities. The firm specializes in shopping center feasibility, distressed center repositioning, retail real estate planning and investing, medical retail consulting, retail expansion planning, location analysis, commercial land use and urban redevelopment. To learn more, visit Jeffgreenpartners.com or connect with Jeff at [email protected].