Consumers, armed with government rebate checks, still have eyes only for heavily discounted items and necessities, and the critical back-to-school season is looking like another difficult period for the nation's retailers.
U.S. retailers on Thursday reported better-than-expected June sales results, providing some relief to merchants, particularly discounters. In fact, Wal-Mart raised its earnings outlook based on robust results. But even the extra cash from the government's stimulus checks failed to spur major splurges, leaving experts to predict a return to overall sluggish sales when the last of the checks are mailed this week.
Parents are expected to stick to the basics like notebooks and jeans. That might mean no $100 suede backpacks and fewer new tops for the kids. More children may have to wear hand-me downs from their older siblings.
“I don't think people are looking for the luxuries – expensive pens or fancy new computers,” said Janet Hoffman, managing partner of the North American retail practice of Accenture. “They are going for the basics and they are on a treasure hunt for value.”
Retailers are responding with enticements to try to grab limited dollars.
Starting this weekend, Wal-Mart Stores Inc., the world's largest retailer, is rolling out a new round of aggressive discounts on back-to-school and other products across the store. It hopes to grab shoppers who want to consolidate their trips to save on gasoline.
“Shoppers are going to do the math on the whole picture. They are going to look at supplies, electronics and apparel in the entire basket,” said Melissa O'Brien, a company spokeswoman.
Late next week, J.C. Penney Co. will launch a back-to-school campaign tied to the popular '80s movie “The Breakfast Club” to highlight six new teen brands, including a dorm furnishing collection called Dorm Life and a denim-inspired collection for teen girls called Decree.
Retailers are operating in a brutal economic climate. The latest example was Wednesday's Chapter 11 filing by Steve & Barry's LLC, once considered the future of low-price fashion retailing. The privately held chain blamed a cash crunch as a result of tighter credit markets and sluggish economic conditions
Analysts are scrutinizing the back-to-school period, the second-most important for retailers after the holiday season.
The good news is that some merchants have seen some relief from the tax rebates that consumers began receiving in May. But many analysts believe spending will deteriorate as those benefits fade. That's because many of the financial worries – high gas and food prices, slumping housing prices and tighter credit – aren't going away.
Such strain showed up in June's monthly reports as shoppers generally continued to shy away from mall-based apparel stores.
The preliminary tally by UBS-International Council of Shopping Centers was that monthly sales rose 4.3 percent, beating projections for a 2 to 3 percent gain. But excluding Wal-Mart's robust gain, the sales tally was up 1.9 percent. That's only slightly better than the 1.1 percent average seen so far this fiscal year, which for retailers begins in February.