New York City, High consumer confidence and low inflation will be offset by factors such as deflationary pricing and a potentially negative savings rate, resulting in a 1% decline in back-to-school/back-to-college sales in 2005 compared with 2004, according to a forecast released today by Standard & Poor's, the largest provider of independent equity research in the United States.
The study, Retail Outlook: Back-to-School/Back-to-College 2005, cited several factors for Standard & Poor's neutral outlook for the sector. In addition to the aforementioned high levels of consumer confidence and low inflation, other positive factors contributing to retail spending include strong employment trends, a heightened interest in fashion by both sexes, smart merchandising and pricing by discounters, new footwear functionality, continued momentum in hot consumer electronics products, a strong denim cycle and projected increases in primary and secondary school and college enrollment (albeit the high spending college freshmen and juniors are projected to increase at a slower pace than in 2004). Unfavorable indicators include deflationary pricing, a negative savings rate for August forecast by S&P and rising oil prices that may lead to less discretionary income for shoppers.
Standard & Poor's Equity Research Services is neutral on back-to-school/back-to-college retail sales for 2005, and projects total sales of about $40 billion. Of this, S&P anticipates consumer electronics will garner the largest share of the retail market at 26%, or $10.3 billion, followed closely by apparel sales at 24% ($9.6 billion). Both figures represent declines from last year—3% in electronics and 4% in apparel—although back-to-college electronics sales specifically are projected to rise 9%.
“Historically, spending for back-to-school is a closely watched indicator of consumers’ willingness and ability to spend, and has been a good indicator of what consumers will look to spend during the holiday season,” said Marie Driscoll, head of the retail group at Standard & Poor's Equity Research Services.” “Overall, despite our neutral stance, we see some winners in the electronics, apparel and footwear categories as retailers kick off fall 2005.”
Within categories, Standard & Poor’s forecasts Best Buy and Circuit City as the best-positioned consumer electronics retailers, based largely on increased revenue from services. Teen apparel mainstays Abercrombie & Fitch, American Eagle and Aeropostale are cited as well-positioned for success this fall, along with Nike and department stores J.C. Penney and Kohl’s. In footwear, S&P expects sporting goods retailers that have become adept at appealing to young shoppers, in particular Finish Line, to succeed. Finally, giant retail outlets Target and Wal-Mart are projected to do well as the one-stop shopping destinations of the masses.