August 8, 2010 in Business

Retailers spice up back-to-school offerings

Merchants use new tools to market merchandise
Andria Cheng MarketWatch
 
Associated Press photo

Back-to-school shoppers crowd the aisles at a Staples store in Little Rock, Ark. Retailers are using technology, promotions and social media to get shoppers to spend.
(Full-size photo)

NEW YORK – For the first time, teen retailer Abercrombie & Fitch Co. is tapping Facebook as a marketing tool in a promotion that gives teens a shot at Hollywood fame.

Abercrombie also launched its racy quarterly magazine for the first time in seven years, and rival Aeropostale Inc.’s new initiatives include advertising in Teen Vogue and featuring real teens in addition to models in its campaigns.

Discounter Target Corp. will increase the number of schools it offers transportation to and from for college freshmen’s after-hours shopping. And office-supply chain Staples Inc. has a new deal to give back the full cost of its computer service plan if the customer never uses it throughout the plan’s life.

As retailers head into the critical back-to-school season, the industry’s second-biggest selling period, they’re using an array of new tools and deals to spur consumers to buy. They also hope exclusive products such as Madonna’s Material Girl line at Macy’s Inc. and trends such as skinny jeans, so-called jeggings and iPads, will spur demand.

The stakes are high because back-to-school sales typically serve as a barometer of consumers’ propensity to spend during the critical holiday season. Retailers look at the period’s performance to see if they need to tweak any holiday plans, analysts said.

“This is a great indicator for the holiday season,” said Edward Yruma, an analyst at KeyBanc Capital Markets. “It’s going to be pretty negative as consumers demand more value and retailers have to be more promotional than they were last year. Promotions are at a very near-term high.”

With second-quarter GDP showing a slowing U.S. economy, consumer confidence falling to the lowest level since February, and teens’ jobless rate about triple the already high national average, retailers are accelerating discounts and other promotions to clear excess goods and to entice budget-conscious shoppers, some of whom have taken a pause in spending, analysts said.

“I wouldn’t want to be in the teen apparel business right now,” said Maggie Gilliam of industry research and advisory firm Gilliam & Co. “It’s too competitive.”

Target, for instance, has been “strategically lowering” its kids’ apparel prices, such as reducing its Cherokee girls T-shirts to $4.99 from $5.99, to be “priced competitively,” said Janna Fischer, a company spokeswoman. She said the company has added more “weekly wows” including $7 denim in its circulars. Abercrombie said in July that its quarter-to-date average selling price declined 16 percent.

“It’s really hard to predict back to school,” said Chief Executive Wesley Card of Jones Apparel Group Inc., maker of l.e.i. jeans for Wal-Mart Stores Inc., in an interview.

“Consumers have been a little softer in recent weeks. They have clearly reacted to the various economic indicators,” he said.

One sign of consumers’ money worries: More parents are taking over the decision of what their kids will get for school. Only 24 percent of parents – an all-time low for the survey – said they would let their children decide on the majority of their back-to-school spending, according to an America’s Research Group and UBS survey.

As a negative sign, teen surf-apparel company Volcom Inc. shares tumbled as much as 20 percent on Friday after it gave a third-quarter outlook that missed Wall Street expectations.

Teen retailers aren’t the only ones facing challenges. Sales for general merchandise retailers this season will likely be mediocre with consumers remaining focused on price and economic worries, said Deborah Weinswig, a Citigroup analyst.

A Citigroup survey showed 41 percent of respondents plan to spend less than last year and 32 percent plan to spend less than $100 in total on back-to-school purchases, up from 21 percent who said that last year.

Still, not all signals are red. Trade group International Council of Shopping Centers forecast sales this season to rise 5.4 percent to $38.4 billion, the first increase in three years. National Retail Federation showed consumers plan to increase spending this season by the biggest amount since at least 2003.

Mall-traffic tracker ShopperTrak, while forecasting a 1.4 percent decline in U.S. foot traffic, projected a 3.5 percent sales increase, driven in part by pent-up demand.

Retailers are hoping new styles will help lift spending.

Aeropostale, already known as the lowest-priced teen retailer against Abercrombie and American Eagle Outfitters Inc., has seen competitors getting more promotional. Its price gap with rivals narrowed from as much as 50 percent to about 20 percent, said Co-Chief Executive Mindy Meads. Still, she said the retailer doesn’t plan to be more promotional but will adjust prices accordingly based on individual product demand.

“We promote all the time,” Meads told MarketWatch. “The key difference is the right assortment.”

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