In our four-part blog series, RSM’s senior industry analysts explore back-to-school shopping trends and the impact on consumer businesses.
The beginning of the year saw consumers grappling with economic uncertainty due in large part to high inflation, depleting savings and the fear of an impending recession. However, as we reach midsummer, consumers find themselves in a far more favorable economic environment than a year ago, but they are still mindful of bargains and the various channels to find the best deals.
Boom or bust?
The labor market has remained strong with sustained low unemployment and wage growth while inflation has eased significantly in recent months. Despite improving consumer sentiment and economic conditions, consumers remain steadfast in embracing the cost-conscious mindset that they adopted over the past year to balance their household budgets in a high inflationary environment. This back-to-school season is already showing signs of shifting consumer preferences which you can read more about in the first release of our series.
The annual survey released by the National Retail Federation and Prosper Insights & Analytics revealed that this year’s back-to-school season could see a total spending increase to $41.5 billion from $36.9 billion last year, with the average household spending of $890, roughly $25 more than last year. The growth is driven by respondents indicating that they are simply in need of more items than prior years and, specifically, require more expensive purchases like electronics and furniture. However, consumers have scaled back in discretionary spending in recent months and are not as willing to accept higher costs as they were during the pandemic. The consumer’s willingness to splurge on discretionary purchases will dictate if this season will be a boom or bust.
A cost-conscious mindset
Consumers have become accustomed to searching for deals given their recent battles with high price tags and that perspective will most certainly spill into the back-to-school season. Shoppers eagerly seek out discounts, compare prices online and in-store, and purchase private label brands over name brands more readily than in the past. Retailers seeking to grow market share and maintain profitability will need to execute on strategies built around these preferences and cater to more selective shoppers who are starting their back-to-school shopping earlier each year. NRF’s survey found that 55% of respondents had already started shopping in July in search of early back-to-school bargains. So where will consumers turn for their back-to-school needs this year?
High inflation forced many consumers to evaluate not only what they are buying but also where they are buying it and that consideration will continue to resonate with shoppers this back-to-school season. According to CoreSight Research’s 2023 US Back to School survey, the number of shoppers planning to shop in-store rose by 4.1% from last year to 78%, while 70% of respondents indicated that they would be shopping online in some capacity this summer, a decrease of 2.1% from last year. The renewed desire for in-store experiences will play to the strengths of omnichannel retailers that can offer customers multiple ways to buy, providing for a more seamless experience.
Businesses will need to focus on leveraging omnichannel tools to drive transaction volume as retrenchment leads to lower average ticket value. For example, while not the most popular purchasing option among shoppers, mass merchandise stores should strategically leverage their buy online pickup in-store (BOPIS) model to drive in-store foot traffic through discounts and promotions available to those who leverage their platform.
The growing popularity of in-store shopping in conjunction with the inclination to seek out bargains leaves mass merchandise retailers and so-called dollar stores in a favorable light with back-to-school shoppers. According to Fiserv, the same store year-over-year dollar volume growth of general merchandise and value retail stores has been trending positively for the three-month period through June while traditionally more expensive outlets such as specialty clothing stores, sporting goods stores and factory outlets have experienced stark declines, further illustrating the shift of consumers to more affordable institutions.
In addition, the shift to more cost-conscious shopping channels is not limited to those in lower income brackets. In fact, a daily survey performed by Morning Consult revealed that households with six figure incomes were 15% more likely to indicate that they would shop at a dollar store this June than a year ago.
The focus on budget shopping appears to be here to stay and it’s evident up and down income brackets.
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Consumers will likely remain more selective as the back-to-school shopping season kicks it into high gear. Middle market retailers will need to communicate value to cost-conscious shoppers through the deployment of strategies built around selection, seamless shopping experiences and attractive pricing. Maintaining profitability while driving transaction volume and cart size will be critical for the businesses that come out on top in this year’s back-to-school shopping season.