Mixed Forecast for Back-to-School Shopping

Will back-to-school sales be a boom or a bust for retailers this fall?

Forecasters are mixed, as some predict the highest spending ever and some anticipate a modest pull-back.  Additionally, if sales increase, is it due to greater demand or simply that prices have increased substantially since last year?

With forecasters uncertain, how are retailers impacted?

Video Spotlight:  

• Experts warn of expensive back-to-school shopping season (Aug 1, 2023, Good Morning America)
• New survey highlights how people plan to navigate back-to-school shopping this year (July 11, 2023, ABC Action News)

This post is based on the USA Today article, Back to school 2023: Could this be the most expensive school year ever? Maybe, by Mike Snider, July 29, 2023; the Forbes article, Back To School Is A $41.5 Billion Opportunity For Brick-And-Mortar Retail, by Joan Verdon, July 31, 2023; and the YouTube videos in the Spotlight.  Image source: Drazen Zigic/Shutterstock

Discussion Questions:

1.  How does back-to-school shopping, which is the second biggest shopping season of the year, differ from holiday shopping?

Guidance: One survey by Sensormatic Solutions showed that 79 percent of shoppers want the in-store experience with their kids, which is three percent higher than in 2021 and 2022, despite the overall shift to more online shopping in recent years.

Unlike at Christmas, back-to-school shoppers still value the chance for their kids to check out the selection of clothes, shoes, and school supplies firsthand.  This means that brick-and-mortar stores need to be prepared not only with the right quantities and sizes of merchandise, but also with the correct number of employees scheduled for receiving and stocking merchandise to keep displays full and helping customers shop or pay.

The service component of the shopping experience is important, and the wait times and helpfulness of store staff can play a role in customers’ desire to return in the future.

2. How does forecasting in the macro (i.e., for the entire retail industry) differ from forecasting by individual companies or stores?

Guidance: Forecasters do not agree on what this back-to-school season will look like.

The National Retail Federation (NRF) anticipates a surge of over $24 billion compared to last fall, for a total back-to-school spending of $135 billion. Among the K-12 group, the increase is forecast at $4.6 billion, or 12 percent, while among college students the increase is much larger, rising $20 billion to a total of $94 billion, driven largely by spending on electronics and dorm furnishings.

Others, such as Deloitte, predict that sales from K-12 families will decline by 10 percent compared to last fall.

Macro-scale forecasts from various entities vary widely, and retailers must do their own forecasting, balancing the risks of overstock versus stocking out.

In addition, stores have to generate their own forecasts because the “trends” detected by the NRF certainly do not apply equally to all companies.  For instance, at present, it appears that consumers are not trading down to discounters the way they did during the 2008 recession, but they may be checking prices more closely to look for bargains at their preferred retailers.

Another consideration is that many of the decisions stores make about order quantities had to be made long before the retail forecasts were generated by agencies like NRF.

Beyond that, even for a given chain, such as Macy’s, each location may require a unique mix and quantity of merchandise based on store size and local demographics and economic conditions.

Thus, while macro-level projections can give retailers an overall sense of what the season may bring to the retail industry, store-level forecasts must be made to accurately determine what each location should have on hand.

3. What risks do retailers face when ordering for the back-to-school season?

Guidance: Categories of merchandise for back-to-school include clothing, shoes, school supplies, electronics, and dorm furnishings.

For some of these categories, such as fall/winter clothing, if a store orders too much, it has to choose between heavily discounting leftovers, paying to store them till the next season when they may no longer be in fashion, or getting rid of them to be sold later on by stores like Ross or T.J.Maxx.

Accurate forecasting is also complicated by the need to anticipate how many of each size item are needed.

Similarly, if too many electronics are ordered, the technology may become obsolete before the store can sell all its stock.

For both apparel and electronics, if a store doesn’t order enough, there is an opportunity cost of lost sales, as shoppers turn to competitors to pick up the slack.