Forecast: Back-to-school sales to hit seven year high
American consumers are ramping up their spending just in time for the critical back-to-school (BTS) season.
This year’s BTS sales are predicted to rise 5.1%, the highest increase in seven years, to a record $595 billion, according to retail research firm Customer Growth Partners’ 16th annual BTS Forecast. In 2017, BTS sales, which are based on the July to September period, rose 4.3%
“After a slow start due to the long winter, retail has inflected sharply up since late April, and has hardly looked back,” said Craig Johnson, president, Customer Growth Partners. “This is the most momentum we’ve seen in seven years, and spans almost all retail sectors — even long-lagging apparel, where growth has tripled to 4.8% from its annual growth of barely 1.5% since 2011. This year’s BTS marks a key turning point not just for retailers, but for overall consumer spending — which drives 69% of the economy.”
The key to BTS growth this year is the increase in disposable income due to the jump of 3.7 million full-time jobs since January 2017, which provides the steady cash flow households need, according to Johnson.
“People with only a part-time job or no job spend just on needs, while people with full-time jobs spend on both needs and wants,” he explained. “This is the first time in over a decade that more than half, 50.3%, of working age adults had a full-time job, up from 48% as recently as 2014.”
The BTS growth will be led by online retail, home furnishings and a major rebound in apparel. Here is CGP’s category forecast for 2018 BTS:
• Online: Up 10.6%;
• Home Furnishings: Up 5.9%;
• Apparel: Up 4.8%;
• Miscellaneous [Pet, Eyewear, Gift etc.]: Up 4.3%;
• Clubs/Superstores: Up 4.1%;
• Health/Personal Care: Up 3.1%; and
• Consumer Electronics/Appliances: Up 1.8%.
CPG expects declines in the following retail sectors:
• Sporting Goods, Books, Toys, etc.: Down 2.4%; and
• Department Stores: Down 3.5%.
High gasoline prices ($2.85/gallon, which is about 60 cents/gallon above 2017 at this time) have only had a minimal impact on retail spending, according to CPG. The company’s past data show that pump prices need to stay well above $3/gallon to noticeably reduce retail spending, and above $4/gallon to substantially reduce it. The newly announced tariffs have also had little impact to date on the consumer.
“Any potential tariff-based increase in retail prices for apparel or footwear may well yield — since demand for such goods is modestly price-inelastic — fractionally lower unit volume, but higher dollar sales,” said Johnson. “The massive growth in household Income will provide a halo over consumer spending even in the wake of new tariffs — and even a friendly tailwind to retailers’ sales growth. The question is whether the robust BTS momentum leads to sustained GDP growth into 2019 and beyond.”
Trade war could impact retailers’ holiday plans
An escalating trade war with China could put a dent into the holiday shopping season.
President Trump has threatened to add a 10% tariff on at least an additional $200 billion of Chinese-made goods, potentially doubling that to as much as $400 billion if China retaliates. Such a move could impact about 80% of all Chinese imports and ensure some sneakers, clothing, smartphones and even toys would be targeted, Bloomberg reported. The first round of tariffs, on $34 billion of Chinese goods, went into effect on Friday, July 6.
“Retailers have already made the buying decisions for what will be on the store shelves in the fall for Christmas holidays,” David French, senior VP of government relations at the National Retail Federation told Bloomberg. “If items aren’t imported before any possible tariffs go into effect, it will lead to “higher prices, a cut into consumer spending and a cut into consumer confidence — and we are very concerned about it.”
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RILA: Global trade war has begun
A leading retail association issued a stern warning about the impact of tariffs on American consumers and workers.
The Retail Industry Leaders Association said that American families and workers will be most impacted by the barrage of tariffs imposed on consumer products from China, and U.S. exports to the European Union, Canada, Mexico, and China. RILA issued its statement on Friday, July 6, the same day that a 25% tariff on $34 billion worth of Chinese imports to the U.S. went into effect. Chinese authorities retaliated with, as they had previously warned, equivalent tariffs on $34 billion worth of imported U.S. goods, ranging from vehicles to soybeans, beef and other agricultural products.
The U.S. tariff list includes:
• 25% tariff covering $34 billion in U.S. exports to China
• 25% tariff covering $34 billion in imports from China
• 10%-25% tariff covering $12.5 billion in U.S. exports to Canada
• 10%-25% tariff covering $3 billion in U.S. exports to Mexico
• 10%-25% tariff covering $3.4 billion in U.S. exports to the European Union
“There is no longer a ‘threat’ of a global trade war — the battle has begun,” said Hun Quach, VP of international trade for RILA. “These tariffs are officially being imposed on products sold by American businesses, and consumed by American families. Americans are caught in the crosshairs of the Administration’s three-front trade war, and they will be the ones paying the price. The recent onslaught of tariffs will jeopardize manufacturing and agriculture jobs in the U.S., while driving up prices on household items.
Quach noted that retailers support a level playing field for America on the global stage, but “punishing American families and the millions of American workers whose jobs are supported by trade is not the way to strengthen our trading relationships.”
“This tranche of tariffs on both exports and imports threatens our nation’s prosperity, and will imperil millions of jobs if allowed to persist,” she said. “We continue to encourage the Administration to focus its trade negotiations on solutions and shield American families from the barrage of tariffs coming from all directions.”