Now that the tax-rebate steroid shot has dried up and there are no real catalysts on the horizon to save consumer spending, many retailers are looking at an anemic back-to-school shopping season. In fact, according to a survey of 1,000 adults by America’s Research Group, almost 30% of U.S. parents plan to spend less money this year than last on back-to-school purchases. Last year, that figure was only 16%.
Couple that lackluster demand with inflation in China, and you’ll see why retailers are downright dour in their forecasts (Bloomberg):
One of the biggest contributors is inflation in China, where a quarter of all the clothes sold in the U.S. are made. China’s producer price index, a measure of inflation, climbed 8.8 per cent in June, the biggest increase since Bloomberg data began in 1999. In May China’s PPI rose 8.2 per cent.
That in turn helped push U.S. costs on goods from China up 4.8 per cent in June, the biggest year-over-year gain since the labour Department started tracking the data in 2003.
So what does this mean for everyone’s favourite recession-thriving retailer, Wal-Mart (WMT)? It looks like another opportunity for Wal-Mart to gobble up share from consumers who are tradin -down. Because WMT buys in such large quantities compared to other retailers, they can also work with suppliers to absorb costs rather than pass on increases.
Target (TGT) looks to reap some benefit as well, although a spokeswoman said TGT will be “price competitive” for back-to-school with Wal-Mart (i.e. more expensive), meaning Wal-Mart wins again.
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