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Report on likely back-to-school retail season gets a B-

Many consumers expected to limit spending, industry analysts say.
By Cotten Timberlake, Bloomberg News Published: July 31, 2014

— With many Americans keeping a lid on spending, industry forecasters say the back-to-school season won’t be as strong as last year and are giving it a B- average.

Once again, U.S. retailers are being forced to pour on the discounts because recent economic bright spots — more jobs, stronger growth — aren’t enough to persuade shoppers to spend freely. The discounting will weigh on profits and only reinforce consumers’ expectation for more deals as the industry gears up for the Christmas shopping season.

Walmart Stores is reducing prices on 10 percent more items this year.

American Eagle Outfitters is giving away college tuition money in a sweepstakes to attract shoppers.

“We’ll still see many shoppers browsing around, comparing prices and watching sales,” Pam Goodfellow, principal analyst at Prosper Insights & Analytics, said in an email. “So it’ll remain a very competitive season for retailers this year.”

Back-to-school spending may total $26.5 billion this year, according to the National Retail Federation, a 0.7 percent decline from 2013. The July-through-September period is second only in importance to the year-end holiday season, and some analysts view the former as a harbinger of the latter. Consumer spending accounts for about two-thirds of the U.S. economy.

Better deals

Even as total back-to-school spending retreats from last year’s totals, individual retailers could still shine, said Poonam Goyal, a Bloomberg Intelligence analyst. Walmart’s prices are the best on school supplies, which may help it steal share from Target as well as from the office-supply stores, she said.

Target, meanwhile, is still rebuilding its reputation after a hacker attack last year compromised customer data. In May, the Minneapolis-based retail chain cut its earnings forecast as it works on a comeback.

Since industry forecasters use different measures, Bloomberg News asked five of them to express their forecast as a school grade. The resulting average was a B-. The divergence in forecasts shows how hard it is these days to get a fix on the industry, which has experienced several false dawns since the 2008 financial crisis. A robust back-to-school shopping season in 2011 was followed by a weaker one the following year.

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