As Read in The Bloomberg Brief: Back to School = Bah Humbug!

  • Posted by
  • on August 30th, 2013

bloomberg_brief

For years many analysts and pundits have viewed back-to–school shopping as a predictor for a positive holiday season. The thinking has been, “As teen spending goes, so goes the Christmas season.” Or something like that. Recently that has changed. We are now in uncharted waters as Americans tend to buy items closer to need. Chronic unemployment, a decline in personal income and the recent correction in the stock market have made it difficult for the middle class to return to former spending patterns.

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With 25 million unemployed and underemployed Americans, the U.S. consumer has become a “buy now, wear now” shopper. Recent lackluster earnings from teen retailers like Abercrombie and Fitch, American Eagle and Aeropostale bear this out. Even discount retail bellwether Wal-Mart suffered a blow as shoppers pulled back amid historic low levels of consumer confidence. One look at the recent performance of heritage retailers like JC Penney and Sears and it’s easy to reach the conclusion that these retailers are a proxy for the financial health of the middle class. This doesn’t bode well for ‘Black Friday’ and the upcoming holiday shopping season.

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The irony is that the retail business, which prides itself on following consumer behavior and buying patterns, seems to be following an antiquated retail calendar. These revolving “calls to action,” as they are known in marketing, consist of dates that the industry has created — back-to-school, holidays — as opposed to following consumers’ lead. That’s a perilous slope for retailers desperate for a larger share of consumer wallet when more and more choices abound.

Take Back-to-school shopping as an example. Many public schools are beginning school earlier in an effort to maximize the school year. These schools have already been in session for three weeks or more when retailers begin advertising back-to-school specials in August and September.

It’s not that consumer’s won’t shop for back–to-school; it’s where and when. School supplies, shoes, healthcare increasingly show up as things consumers need to get their kids in the door for school. Those are the segments getting an increasing share of the wallet.

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Meanwhile, technology has also become a must-have for back-to-school shoppers. For upper income consumers, Apple is a back-to-school necessity, if not a fashion statement, as is the Nike Fuel Band. With that share of dollars flowing out of apparel and into technology it’s easy to see why many teen retailers are feeling the twinge of desperation.

It’s not just tablets, smartphones and laptops. Online retailers like Amazon and fast fashion retailers like H & M, Zara and American Apparel are making business extremely difficult in the specialty apparel space. As a result, American Eagle, Aeropostale and Abercrombie & Fitch — once the cool kids of retail — may find themselves lonely at the lunch table and perhaps forgotten under the Christmas tree.


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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