July 11, 2008 in Business

Retailers facing tough season

Back-to-school sales will focus on basics
By ANNE D’INNOCENZIO Associated Press
 

NEW YORK – 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 may mean no $100 suede backpacks, fewer new tops for the kids, and $2 pens might seem like too big a splurge. More children may have to wear hand-me-downs.

“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 items and products across the store. It hopes to grab shoppers who want to consolidate their trips to save on gasoline.

Office supply chain Staples Inc.’s vice chairman and chief financial officer, John J. Mahoney, said its back-to-school campaign focuses more on price than in past years. Shoppers, he said, are being “more careful” with nonessentials like cool-looking pens, but he is hoping they’ll be attracted to new doodads like magnetic wallpaper for children’s lockers.

Retailers are operating in a brutal economic climate. Analysts are closely monitoring 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, and the residual effects could help with back-to-school spending.

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