America is about to go on a 'Back to School' splurge

While parents may like to think otherwise, the reality is that children are “active decision makers” in family economies.

We’re not going by what we’ve heard or seen, but rather by the data from YouGov that confirms this influence.

Moreover this influence is fairly well spread among the purchases ranging from clothes, footwear and personal care products to be worn by the teenager, but also entertainment content and where to eat.

Per YouGov:

  • Apparel for the teen to wear (96% of teens having some degree of influence);
  • Where to shop for clothes for the teen (90%);
  • Personal care products for the teen (93%);
  • Footwear for the teen (93%);
  • Which fast-food restaurants to go to (95%); and
  • Types of out-of- home entertainment/sports/recreation to attend or do (93%);

Why is this important now?

We are in the midst of Back to School (BTS) shopping season, and the National Retail Federation sees BTS 2016 spending hitting $75.8 billion. And yes, that is up compared to the $68 billion spent last year.

When we see aggregated numbers like that we also prefer to look at them on an individual or household basis as it tends to provide some much needed perspective. This year the NRF sees shoppers spending an average of $674 per household, up from $630 last year.

The two big winners this year are online shopping, which comes as hardly a surprise given our connected society investing theme, and discount stores, again little surprise given our cash-strapped consumer theme.

But what will these back to schoolers be buying from online retailers like Amazon (AMZN) and at Costco (COST) or Wal-Mart’s (WMT) Sam’s Club?

To ferret out some answers we turn to data published by Piper Jaffray (PJC). Each spring since 2001, Piper Jaffray has conducted a study of teenage shopping habits. In the process, Piper has surveyed more than 130,000 teens and collected more than 35 million data points about teenage spending habits over the past 15 years. This year’s study surveyed 6,500 US teens across 46 US states with an average age of 16.5 (broken down to 56% male, 44% female).

Contrary to the NRF Back to School spending forecast, Piper’s finding show teen spending is down compared to 2015. Even so, upper-income teens spent 38% of their “wallet” on fashion categories, such as clothing, accessories, footwear, etc. That’s a 2% uptick from a year ago, according to the study.

So where are teens spending that wallet or otherwise influencing spending decisions?

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Athletic apparel accounted for 17% of spending total. While Nike (NKE) was the most popular brand at 21%, followed by: American Eagle (AEO) 8%; Forever 21 (7%), Ralph Lauren (RL) 6%; and Hollister (ANF) at 4%).

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Among upper-income teenage females, beauty products amounted to 10% of overall spending, which is the highest per cent the survey has seen in 10 years. While no specific retailer was called out, one of the best positioned companies that continues to see more of its business conducted online is Ulta Salon (ULTA).

Sales of denim jeans also rose to 14 per cent of total spending among upper-income females, the first time it’s showed up as a top trend in spending since 2013. Again, there were no specific denim brands mentioned but several contenders include VF Corp.’s (VFC) 7 for all Mankind; Guess? (GES), True Religion, and brands owned by PVH Corp. (PVH).

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Restaurant spending made up 22 % of total overall spending for upper-income teens and they tend to frequent limited-service restaurants rather than the full-service dining experience (and heftier price tag).

The average check for a teenage meal was $4 — $17 Starbucks (SBUX) was the most at 14%, followed by Chipotle (CMG) 9%; Chick-fil-A 7% and then Panera (PNRA) and McDonald’s (MCD) both at 4%.

Online shopping

Amazon (AMZN) dominates teen spending habits with 41% of all online teenage sales occurring there, while Nike (NKE) and Forever 21 tied for second at 5% apiece and eBay (EBAY), American Eagle (AEO) and Victoria’s Secret (LB) all tied for third at 3% each.

The get down tv review netflixMyles Aronowitz/Netflix‘The Get Down’ stars, from left, Jaden Smith, Skylan Brooks, Tremaine Brown Jr., Justice Smith, and Shameik Moore.

Media consumption
Teens are also watching much more Netflix (NFLX) and YouTube (GOOGL) than traditional TV channels and shows.

Teens spent 65% of their time watching Netflix (NFLX) and YouTube, compared to just 26% of their time watching “traditional TV.”

Netflix is clearly dominating teen view habits at 38%.

Given the influence that teenagers have on overall spending, it’s what’s not mentioned above that is rather revealing. Given the respondent age range, there is too little data to conclusively say anything about the automotive, travel or markets; however consumer electronics is notably lacking this Back to School season.

We find that rather interesting given the ongoing shift in schools to Bring Your Own Device (BYOD) vs. school districts purchasing millions of dollars of computer equipment. This of course pushes the spend to families, and helps explain the continued year over year increase in Back to School spending this year.

As we mentioned, there is no mention of automotive preferences from the Piper Jaffray findings, but we did come across a new study by Michael Sivak and Brandon Schoettle at the University of Michigan Transportation Research Institute that showed a drop in the number of people with a driver’s licence.

What we found hard to fathom was the drop in people with a driver’s licence has been steadily falling since 1983 among people aged 16-44. Then we dug into the report and found something even more shocking – in 2014, just 24.5% of 16-year- olds had a licence, a 47% decrease from 1983, when 46.2% did. If we expand the age range, we still find far fewer teens getting their driver’s licence by the time they are 19 – 69 per cent of 19-year-olds had licenses in 2014, compared to 87.3%t in 1983.

Perhaps all the various ways to communicate today as part of our increasingly connected society – thank you iMessage, Facebook (FB), Messenger, Skype, Snapchat, Instagram, FaceTime and now Google Duo (GOOGL) – means 16-18 year olds no longer feel the itch to get out of the house and hit the road to see friends.

While it has little bearing on 2016 Back to School spending, we have to wonder what the longer-term implications are for auto demand?

Will it shift from more individuals owning cars to consumer facing car services, like Uber and Lyft, driving new car purchases? Could it have the same effect on Ford (F), General Motors (GM) and other companies like the one Uber and Lyft have had on shares of Medallion Financial Corp. (MFIN)?

Shares of Medallion Financial peaked in November 2013 at just below $18, but before too long the impact of Uber’s 2011 launch in New York City would weigh on the shares. Add in Lyft and the adoption of smartphones, and before too long Medallion Financial shares would cross the $10 mark and continue to fall even though the company instituted a quarterly dividend.

The answers to those questions will come in time.

Chris Versace is the chief investment officer of Tematica Research.

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