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Back-to-School Season Breathes New Life into Floundering Retail Sector

July 18, 2018, 08:00 AM
Filed Under: Retail

News of the looming death of the traditional retail sector may have been greatly exaggerated -- at least for distressed brick-and-mortar stores that managed to make it through a tough first half and into the start of the back-to-school season.

This week, childrens clothing store Gymboree launched a splashy rebrand that leverages a back-to-school shopping season that analysts expect to generate $28 billion for the floundering retail sector this year. That makes it one of only a handful of retailers to successfully emerge from bankruptcy intact and apparently on solid footing under new ownership led by Searchlight, Apollo Global Management, Oppenheimerfunds, Brigade Capital Management, Marblegate, Nomura Securities International and Tricadia Capital Management.

A new survey from Deloitte projects that parents will spend an average of $510 between July and September, with most of that occurring in stores ($292) —more than two and a half times the amount they plan to spend online ($115), which accounts for nearly one-quarter (23 percent) of their spending.

“The amount people plan to spend and tendency to shop in physical stores for back-to-school are consistent with last year, but retailers need to act fast for that $5.5 billion wild card,” said Rod Sides, vice chairman, Deloitte Consulting LLP and U.S. Retail, Wholesale & Distribution leader. “In just one year, previously undecided dollars have shifted dramatically by product category. For example, in 2017, 30 percent of people said they hadn’t decided if they would purchase computers online or in-store and that number shrunk to 20 percent this year, most of it going online. In electronics, undecided spending dropped 10 percentage points, moving primarily into the stores.”

Meanwhile the so-called "Amazon Effect" that many blamed for putting the last nail in the traditional retail sector may have hit a saturation point, according to analysts. 

Among Deloitte's respondents, 49 percent plan to use their desktop or laptop to shop, down from 57 percent last year. Mobile use increased to 53 percent after trailing desktop/laptop use in 2017. Parents’ social media use also appears to be decreasing, with 23 percent saying they plan to use these tools to find promotions, receive coupons and browse products, down from 27 percent in 2017 and 32 percent in 2016.

“When we look deeper into these findings, customers seem to be waiting for the next wave of digital experience to attract and entertain them,” added Sides. “Retailers’ next assignment for back-to-school shoppers is to make the online and mobile interactions more exciting and meaningful."

Gymboree filed for Chapter 11 last June amid mounting debts related to its 2010 acquisition by private equity firm Bain Capital. According to court filings Gymboree Group owed $1.364 billion and had assets of $755 million. The company exited bankruptcy last October, eliminating $900 million in debt and announcing it was closing and liquidating 330 underperforming stores.

"We have spent the past year building the team and laying the foundation to meet the expectations of the modern parent and to begin providing a relevant experience in today's retail environment. We have taken the time to learn exactly what parents want and kids are looking for and have used these learnings to create the products and experiences that will resonate," said President and CEO Daniel Griesemer. "We are confident we have a bright future for our company and the children who wear our clothing."

According to Deloitte, while people plan to visit price-based retailers more frequently, those who shop at traditional retailers like department stores, home electronics and office supply stores make larger purchases at these locations compared with other venues like mass merchants.

“Back-to-school shopping tends to be price-focused as parents look for promotions and mass merchants for the best deals,” added Sides. “But when we look below the surface, we notice several distinctions between high and low-income households and the way people shop for specific items like clothing, technology and supplies. The lesson for retailers is that back-to-school is more than competing on price alone or trying to sell across all categories. It’s about delivering the best possible experience to customers in specific product categories.”

Sides added, “This behavior is a continuation of a trend that we uncovered in our earlier research on The great retail bifurcation.That study revealed that price-based and premier retailers are far outperforming their competitors in the mid-tier, largely due to a widening income gap among American households that is forcing a behavior shift in how and where people shop.”

Back-to-school shopping is expected to peak during late July and early August.

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