The recent volatility of macro factors such as inflation, Fed interest rates, and disposable income have furthered levels of uncertainty in the retail economy. Despite this, much of 2023 has shown surprising spending trends among customers. Each month, economists are anticipating a downturn in spending habits, but customers continue to be resilient, with nearly every retail category seeing sales increases in the first half of the year. This is sustained by the wage and employment growth that bring a sense of security to customers, allowing them to spend how they please. As summer break for students comes to an end, back-to-school shopping will likely be a strong contributor to many retailers’ Q3 sales and could dictate retail outlooks going into Q4. The National Retail Federation (NRF) recently hosted a webinar detailing their projections for 2023 back-to-school consumer trends. Below, we address some of our key takeaways from the event and add some of our own back-to-school insights for retailers.
Back-to-School Insights: Retail
Increases in Expenditure
According to results from the annual survey conducted by the NRF, back-to-school and back-to-college shoppers are expected to spend record-breaking amounts this year. Estimates for back-to-school spending are $41.5 billion, and back-to-college spending is projected to reach $94 billion, roughly a 12% and 27% increase from each respective categories’ previous high. These spending surges can be largely attributed to a few conditions detailed below, which align with many of the principal conditions for increased sales.
Customers are Spending More
Increasing the average transaction size is one avenue for growing sales. Supporting this idea, there is an expected 3% increase in back-to-school spending per household and 14% for back-to-college. Further breaking these spending increases down, the electronics segment will be the dominating expenditure, with clothing and accessories and dorm and apartment furnishings also contributing to the bigger household transaction size.
More Shoppers are Spending
Not only is each household spending more on average, but more households are spending when it comes to back-to-school shopping. In broader terms, retailers are seeing increases in average basket value and number of customers shopping. Each of the three main contributors to back-to-school and back-to-college sales are seeing record percentages of households buying items, with the highest purchase participation rates being back-to-school shoes (94%) and clothing and accessories (95%). Between each household spending more and more households spending on back-to-school shopping, a large portion of the expected record-level spending can be explained.
The last component to be discussed in explaining the trends contributing to the high back-to-school expenditures is the influence of inflation. One survey of 1,000 retail organizations found that 85% of businesses had increased their prices in response to challenges posed by inflation, supply chain disruptions, and high demand. This trend has prolonged as inflation continues to stronghold retail pricing strategies. Despite this, there’s a widespread belief that consumers have grown less sensitive to prices, and there’s research that backs this. According to the NRF, from 2022 to 2023, there was a 10% drop in respondents that said their increase in back-to-college spending was due to higher prices. If back-to-school shoppers are undeterred by inflationary impacts, retailers don’t need to be as worried about the effect of price changes on overall sales, as demonstrated by the expected record level spending.
Value vs. Brand Loyalty
Although there is growth of a suspected price inelasticity associated with back-to-school shopping, customers are still looking for the best deals to stretch their dollars. Back-to-school shoppers are confident in their ability to find good deals and are altering their purchasing process to account for this. By engaging in more comparative shopping online, shopping more sales, and buying store brand and generic products, customers are guiding their decisions based on value instead of brand loyalty. According to one study, 43% of customers have stopped shopping at certain retailers due to their increased prices. Dubbed “value shoppers,” these customers make up a substantial portion of back-to-school spending and are shifting the way brands are marketing and pricing their products.
Electronics Continue to Grow
The final back-to-school insight to consider is that the Covid-19 pandemic heightened the need for electronics due to the sudden shift to virtual learning environments, and while students have returned to campuses and classrooms, the demand for technology has remained. Whether it’s back-to-school or back-to-college shopping, laptops, tablets, calculators, electronic accessories, and speakers/headphones account for about 2/3 of electronics expenditures. While other segments of back-to-school spending may be optional, electronics such as these are becoming essential items as the utilization of digital devices in schools has increased by 99% since 2020. Experts are unsure what the replacement rate of these electronic devices will be in the coming years, but there’s widespread certainty of imminent high-tech spending in back-to-school shopping this year.
Clarkston is Here to Help
Recent evidence has revealed that the consumer confidence index has reached a two-year high, as customers have adapted to the economic conditions and adjusted their spending accordingly, showing few signs of slowing down. As the back-to-school and back-to-college shopping months quickly approach, customers are preparing to spend more this season on electronics, clothing, and other essentials than they ever have before.
It’s imperative that retailers find ways to offer high value at low prices, leveraging effective marketing campaigns, order fulfillment capabilities, and omnichannel integration to create a strong shopping experience. Clarkston’s retail experts are equipped with all the necessary tools to help your company prepare for the impending rise in shoppers. If your organization is looking to improve its strategy going into this highly anticipated back-to-school season, contact us today.
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Contributions by Aaron Messer