Against the backdrop of rampant fuel prices and other inflationary pressures, this year’s back-to-school period could be a make-or-break time for many retailers.
US retailers, including the major office supplies chains, are making a big push this summer to capture a slice of the crucial back-to-school market.
The National Retail Federation (NRF) puts combined back-to-school and back-to-college spending at over $51 billion, making it the second biggest shopping season after Christmas.
About 45 percent of the total – or $23 billion – is estimated to be spent on school supplies and electronic products.
But retailers are going to have to fight hard for consumer dollars as Americans, hit by rising fuel and grocery costs, keep a closer check on their spending.
According to a new survey from Deloitte, a significant number of consumers in the US are set to spend less this back-to-school shopping season.
71 percent of respondents said that they plan to spend less on back-to-school items this year, while almost half said they intend to reduce their household spending by more than $100.
"Consumers have been pessimistic for several months, primarily because of the strains on their budgets from higher gas and food prices," said Stacy Janiak, Deloitte’s US retail leader.
"These survey results indicate that consumers will likely stick to the basics this fall, and parents may be saying ‘no’ more often as they head to the register."
The survey results indicate that this year the vast majority of consumers (88 percent) will do their back-to-school shopping at discount/value department stores.
Almost 37 percent will shop at dollar stores, and almost a third (32 percent) will shop at office supply/computer stores.
"As consumers look for deals and value, discount stores are clearly well-positioned," said Janiak.
"Dollar stores have an opportunity to enhance their market share and positioning by getting the word out about their back-to-school selections. There is also an opportunity for stores with private label lines, charge cards or loyalty programmes to offer new and unique value propositions to customers, which can help pull consumers into the stores and keep them shopping."
While consumers will continue to buy supplies, such as paper, pencils and notebooks (95 percent) and backpacks/book bags (68 percent), many indicated that they intend to cut back on these purchases – 30 percent said they will spend less on backpacks/book bags and almost a third (29 percent) said they will spend less on supplies.
Meanwhile, a similar survey carried out by BIGresearch for the NRF paints a slightly more optimistic picture.
The survey found that the average family with school-aged children will spend $594.24 on back-to-school purchases, compared to $563.49 last year, as a fifth of American households have been holding back this year’s tax rebate cheque for the BTS season.
While spending in most categories will remain flat over last year, says the NRF, electronics spending will continue to rise as many parents plan to spend some of their tax rebate cheque on household electronics like computers and cell phones.
This year, parents will spend $151.61 on electronics purchases during the back-to-school timeframe, up from $129.24 last year, while school supplies ($98.47 vs $94.02 last year) will see more a moderate increase.
"Strong promotions and must-have brands will help retailers stand out in the crowd as shoppers look for the best bang for their buck on back-to-school purchases this year," said Tracy Mullin, NRF’s CEO.
"While cost will be the deciding factor, some families will use rebate cheques to soften the blow, taking advantage of promotions and deals when they can."
While the actual numbers of the two surveys may differ, they both agree on one thing – discount stores will be the main destination for BTS purchases this year.
According to the NRF survey, 73 percent of shoppers will head to discount stores, though office supply stores come in at a very respectable 42 percent.
In for a penny…
And with price topping consumers’ agenda, the major retailers have been quick off the mark to highlight the great deals they are offering.
The prevailing theme amongst the office superstores is the humble penny – or one cent.
Leading the way is OfficeMax which has once again used a hidden camera format for a series of ads which are being circulated on YouTube and other social media to promote its ‘Power to the Penny’ campaign.
The ads feature the actor Matt McCarthy going around New York trying to buy things from a hot dog to a $4000 engagement ring with pennies, and end with the tag line: "We’ll take your pennies".
Click here to see a trailer for the ads.
"Our ‘Power to the Penny’ promotion and aggressive pricing allows us to give parents a break from rising prices, while ensuring that their children are well stocked with essential supplies as they get ready for a new school year," said OfficeMax’ Chief Merchandising Officer Ryan Vero.
Rivals Office Depot and Staples are also running their own 1 cent deals and discounted items.
Depot is offering penny specials on core items such as rulers and protractors and Staples has offered 1 cent deals on pencils, folders and even hand wash.
The Framingham-based giant has even gone back to the safety zone of its Easy Button for its latest back-to-school TV commercials – but the focus is on low cost rather than on its range of products.
The two 15-second TV spots are designed to show the company’s empathy with American consumers, admitting that Staples can’t do anything about rising fuel and food prices, but that it can make back-to-school more affordable for parents.
"Like everyone, Staples is sensitive to the state of the economy and concerns of our customers," said Shira Goodman, EVP of marketing.
"We’re offering parents an affordable solution to help save money for life’s other necessities – like gas for your car."
As efforts to get customers in through the doors (or ordering online) are ramped up, the effect that all this promotional activity is going to have on bottom lines is another question, and it will be interesting to see how margins bear up in third quarter results at the end of September.
Green question mark
There hardly seems to be a day that goes by without an office products company promoting its environmental credentials.
Are eco-friendly products going to be squeezed out as consumers become more price oriented?
According to the Deloitte survey, more than four out of ten respondents said they will seek out "green" products this back-to-school season, and more than three in ten said they will seek out green retailers.
"The green issue has captured the consumer’s attention, but the jury is still out on how much intention will translate into action," warned Janiak.
"In this environment, retailers should take advantage of any marketing opportunity."