Emily Ness better savor her new $2,000 MacBook Pro. With the economy souring, her parents won't be as generous with Christmas gifts this year as they were with her back-to-school shopping list.
With the 18-year-old Eagan native about to start her first year at Washington University in St. Louis, her mother, Nancy, didn't skimp on Emily's college needs. In addition to the computer, Nancy Ness estimates she's already spent $700 on dorm stuff with another $200 to go once they arrive on campus.
"It's her first year," Nancy Ness explained. "I think the economy has been tough for a couple of years. But these are special moments and we just have to deal with it."
Nevertheless, Christmas "will not be as frivolous as previous years," she said.
As back-to-school shopping season, the second-largest sales period after Christmas, swings into high gear, retailers face what appears to be the vanguard of a broader economic slowdown that some analysts think could accelerate through the end of the year and into 2012. Retailers are still likely to eke out flat or small back-to-school sales gains over last year, mostly because consumers like Nancy Ness aren't willing to shortchange their children's back-to-school lists.
Christmas may be a different story. Consumers who feel threatened by the economy may delay their frugality until November and December. Little Jimmy needs notebooks, pencils and clothes for school. He does not need an XBox Kinect for Christmas.
"The economy is a worry for me," said Angela Fern Thomson of Woodbury, whose oldest child will be attending Elmhurst College outside Chicago this fall. "I'm hoping that we don't have layoffs. But the main thing on my mind is making sure [my daughter] has everything she needs" for college.
Thomson also said she has had to spend more on school supplies for her two younger sons because the school districts lack money.
The back-to-school season started strong enough in July as retailers like Minneapolis-based Target Corp. posted solid sales gains at stores open for at least a year. But the bruising political fight over the country's finances combined with stock market volatility and bleak economic data on unemployment and economic growth have undermined consumer confidence, surveys show.
"We are not sure what shoe will drop next but what is clear is that after massive stimulus [and] low interest rates, U.S. economic problems are not being resolved and GDP growth is now again at risk, only this time there are fewer bullets left for the fight," Daniel Binder, a retail analyst with Jefferies Group, wrote in a recent research report. "Meanwhile, market turmoil could influence consumer spending and we think it probably has already."
Retail consultant Burt Flickinger, managing director of Strategic Resource Group in New York, thinks the country is entering the start of what he calls a 500- to 700-day "retail recession," citing higher unemployment among public sector workers as local, state and federal governments close budget deficits by slashing payrolls. Ultimately, 500,000 to 700,000 public employees lose their jobs over the next year or so, he said.
Flickinger says he saw weakness beginning in the second half of July. Wal-Mart Stores Inc., for example, said same-store sales in the United States fell 0.9 percent in the second quarter. Kohl's Corp. reported comparable stores sales rose just 1.9 percent in the second quarter. That figure includes a 4.6 percent same-store sales drop in July.
Retail traffic in department stores decreased into the second week of August, falling 3.8 percent month to date after three months of decline, according to Bloomberg.
Flickinger thinks CVS, Costco, Amazon and Target are best equipped to manage the recession. Earlier this month, Target said same-store sales rose a solid 3.9 percent thanks to strong sales in food, health and beauty, and household goods; Target's July comparable store sales jumped 4.5 percent.
During a recent conference call with analysts, Kathryn Tesija, Target's executive vice president for merchandising, said early back-to-school sales were "very strong" but it was too early to make predictions. The next two weeks represent "the heart" of Target's back-to-school and back-to-college sales, company officials say.
"I don't think there have been many surprises," Tesija said. "I would tell you that the early shopping results from back-to-school supplies was very strong, and we saw guests trading into better product, which we were pleased with. We've got the bulk of the season ahead of us. We'll see how that progresses, but so far so good."
On the flip side, retailers that struggle with back-to-school sales face two big problems, said Laura Gurski, head of consulting firm A.T. Kearney's retail practice.
'Last year didn't feel as dire'
First, the compressed time the between back-to-school and holiday shopping season means retailers will need to clear their shelves quickly to make room for holiday merchandise, Gurski said. Retailers stuck with back-to-school stuff they couldn't sell will need to get rid of the inventory quick through heavy discounting, which shrinks profit margins, she said.
Second, back-to-school sales were strong in 2010 as the economy was recovering from the recession. That means retailers this year already face tough comparisons, Gurski said.
"And last year didn't feel as dire or as mixed up as it does now," she said.
Suky Brinkman personifies today's consumer ambivalence. A mother of three, the Edina resident didn't seem particularly worried about dropping $2,500 on back-to-school things for her daughter Emily, who's about to attend the University of Wisconsin in Madison.
"There are basics that you have to have," Brinkman said. "It's the cost of doing business. Why go cheap on things?"
But she takes a more cautious view on holiday shopping.
"I spend based on how I feel," Brinkman said.
So how does she feel?
"I feel bad today," Brinkman said, laughing. "Just watching the stock market go down. I want to turn off the TV."
Thomas Lee • 612-673-4113