In our three-part blog series, RSM’s senior industry analysts explore back-to-school shopping trends and the impact on consumer businesses.
With total spending expected to reach $128 billion across the K-12 and college categories, according to the National Retail Federation, the back-to-school season is a critical indicator for retailers as they assess how consumers are responding to an uncertain economic landscape. Businesses and consumers alike are navigating the effect of tariffs on prices, margins and their financial future.
Tariffs and their impact
Tariffs have emerged as a significant influence on consumer sentiment, even as nuanced underlying economic conditions continue to fuel spending for now.
Consumer sentiment fell to nearly an all-time low in May in part because of concerns over tariffs, but recovered somewhat in June with the relief news that tariffs may not be as high as initially announced, according to surveys of consumers from the University of Michigan. Correspondingly, retail sales growth decreased in May before rebounding in June, demonstrating the correlation between consumer spending and tariffs.
Wages continue to outpace inflation, with the U.S. average hourly earnings increasing an annual 3.7% rate, according to Bloomberg, fueling continued spending. But growth is trending downward. Unemployment in June remained low at 4.1%, according to the Bureau of Labor Statistics. But a shrinking labor force, resulting from tighter immigration and retirements, is masking weakness in the labor market.
Additionally, the bottom 80% of households have experienced a substantial decline in savings and liquid assets since 2022, according to the Federal Reserve Bank of San Francisco.
The erosion of financial buffers and concerns over potential tariff-induced price increases are reshaping how families are approaching back-to-school shopping, emphasizing value, timing and necessity.
Spending trends
Consumers, anticipating price hikes, are shopping even earlier this year. In July, 67% of shoppers had already begun their back-to-school purchases, up from 55% last year, according to a National Retail Federation survey.
Last year, this shift in behavior was driven by a desire to spread out spending and to capitalize on early promotions. This year, this behavior is likely amplified by concerns of tariff-related price increases, and to avoid potential stock outs on priority items.
While average per-person spending is expected to be slightly down from last year ($1,326 for K-12 and $858 for college), according to the National Retail Federation, total spending is up because of broader participation.
Consumers are rethinking what is essential, pulling back on electronics and discretionary spending, even as electronics remain the top category for spending. Instead, they are prioritizing core categories such as clothing, shoes and school supplies.
Interestingly, both lower and higher-income households are adjusting their buying behaviors, according to the National Retail Federation. Lower-income families are focusing on essentials, shopping sales and considering refurbished items. Higher-income households, traditionally more inclined to splurge, are now trading down, opting for store brands and discount retailers to stretch their dollars.
The shift is particularly evident among college shoppers, where discount patronage has increased significantly to 36%, up from 31% last year.
Retailers can meet the demand for lower price points by offering refurbished electronics and alternative brands. With price sensitivity at an all-time high, loyalty programs and targeted promotions can drive repeat purchases and reduce churn. Additionally, substantial discounts on more expensive items may encourage shoppers to trade up on items they might normally do without.
Looking ahead
While inflation increased in June, it remains muted for now, with the full impacts of tariffs still working their way through the supply chain. Many retailers stocked up on inventory ahead of tariffs, and may be absorbing some of the cost increases, allowing them to shield consumers for longer.
This strategy is only temporary, though. With an effective tariff rate of 18.2%, according to The Budget Lab at Yale, an increase from 2.4% in early January, businesses must eventually raise their prices to protect their margins.
This likely increase may affect prices later in the season, as back-to-school shopping typically involves purchases of clothing, shoes and electronics, categories that are affected by tariffs. Additionally, items where multiple tariffs apply, such as backpacks, are particularly vulnerable to price increases.
Retailers should closely monitor multiple suppliers and competitor price movements to determine when tariff-related price increases may become unavoidable without further eroding margins.
Additionally, a Penn Wharton Budget Model found that the adverse effects of businesses bearing the burden of tariffs more than consumers would be worse, in the form of lower gross domestic product and reduced wages as businesses try to protect their margins, than if consumers were to bear the entire burden.
As retailers look ahead to the holiday season, the back-to-school trends offer some guidance:
- Just as back-to-school shopping has shifted earlier, expect holiday shopping to begin in October. Prepare inventory and promotions to capture early demand and mitigate supply chain risks.
- Evaluate product mix for tariff vulnerability. Consider diversifying suppliers, negotiating contracts, or exploring domestic sources to reduce exposure.
- Use regional and demographic data to optimize promotions and profitability. Lower-income households may respond to value messaging, while higher-income segments may respond to quality at a discount.
- Invest in omni-channel integrations to ensure a seamless customer experience across digital and physical touchpoints. Multi-channel shoppers drive the bulk of spending, and convenient, frictionless engagement is key to conversion.
- Expect continued pullback in categories perceived to be affected by tariffs and discretionary items. Focus on core categories and explore alternative products to meet demand.
- Maintain flexibility in inventory planning and adapt messaging to reflect current concerns and social media trends.
The back-to-school season serves as a bellwether for how consumers are adapting to tariff pressures and economic uncertainty. Retailers that decode these early signals and adjust their strategies accordingly will be best positioned to thrive.
