From Forbes on August 4, 2015:
Shoppers have certainly changed since the recession. Having adopted a “new normal” tenet that focuses on cost-conscious, value-driven approaches to spending, today’s consumers are constantly seeking out sales and promotions, comparing prices, and researching products to ensure they get the most bang for as few bucks as possible. Advances in mobile technology over recent years have only made it easier for shoppers to adhere to this mindset. While many thought that declining gas prices would be the shot in the arm to spending in 2015, cautious consumers defied conventional “wisdom” and instead focused on paying down debt and increasing savings. And so the challenging retail environment continues…
Now we find ourselves mid-year 2015 with the back-to-school shopping season upon us. The National Retail Federation reports that shoppers plan to spend about $630 overall on clothing, shoes, supplies, and electronics for their K-12 students this year, a nearly 6% decline from the $669 average planned budget in 2014. Since the recession, consumers’ back-to-school budgets have consistently followed an up/down pattern as parents restocked one year (“up”) and reused backpacks, digital devices, etc. the next (“down”), so this year’s decline in planned spending didn’t exactly come as a surprise. Of course, this doesn’t make marketers’ jobs any easier in what’s already proved to be a challenging year for ringing up retail sales. Digging into our back-to-school insights a bit further, though, can help us uncover which retailers may be better positioned to gain this season versus those who may end up missing out. And for this installment, we’ll focus on the “Big 3” in back-to-school retailing: Walmart, Target, and Amazon.com.
Although back-to-school shoppers are planning to spend about 6% less this year, both Amazon and (surprise!) Walmart shoppers* buck the overall trend, each posting year-over-year spending decreases of about 3%. Target shoppers, however, fall behind the curve with 2015 spending expectations dropping 13% from 2014. All told, planned spending for these three groups falls in the same relative range at $622, $603, and $622 for Walmart, Target, and Amazon shoppers, respectively. A closer look at our spending insights reveals that Walmart shoppers are most likely to cut back on electronics, Amazon shoppers are trimming their clothing and supplies expenditures, while Target shoppers are cutting back across the board. (Curious about Amazon Prime shoppers? They plan to spend about 20% more than typical Amazon shoppers this year, at $758.)
The Challenge for Target. Target’s main issue for the back-to-school season may be as simple as getting their shoppers to spend. Compared to their Walmart and Amazon counterparts, Target shoppers are more confident in the economy, yet are focusing fiscal energies on savings and debt repayment, not spending. And as a mobile savvy group of consumers, Target shoppers outpace Walmart and Amazon loyalists in intent to research and compare prices using their smartphones and tablets this school year. Bottom line: Target shoppers don’t necessarily lack the capacity to spend on back-to-school; they are instead focused on the thrill of the chase – scouting the best sales and promotions, so they won’t have to spend the hard-earned dollars they’ve earmarked for their bank accounts.
The Challenge for Walmart. It may seem counterintuitive that Walmart shoppers’ back-to-school budgets have declined less sharply than average, but this is likely one of the main groups benefiting from lower prices at the pump. According to Prosper’s Consumer Spending Forecast (a composite look at spending intentions among 20 major retail categories), lower income consumers – Walmart’s core shoppers – have generally had a more bullish outlook for planned spending in 2015 compared to their higher-earning peers. The back-to-school conundrum for the Bentonville-based discounter, though, might be getting Walmart shoppers to spend their clothing and footwear budgets (which accounts for the majority of their back-to-school planned spending) within Walmart. Shoppers continue to be drawn to the big discounter for household staples, particularly groceries, instead of apparel and footwear; Walmart’s cross-shopping issues with Kohl’s as well as Millennials have been previously documented. Bottom line: Walmart appears to have a golden opportunity for back-to-school this year, but its shoppers could take the bulk of their business elsewhere.
Why Amazon Moves to the Head of the Class. Speaking of elsewhere, a discussion on back-to-school shopping wouldn’t be complete without a look at retail’s biggest disruptor, Amazon. While Amazon shoppers are planning to spend less on back-to-school this year, expect the digital player to lure plenty of other customers from competitors. For many, Amazon has become a de facto search engine for product research: the first site they visit to check prices, read reviews, and perhaps commit to purchase. Three out of five Target (66.5%) and Walmart (60.4%) shoppers have recently perused Amazon’s virtual aisles, and according to the Net Promoter® Score metric of customer loyalty and satisfaction, they rave about their experience.** Walmart shoppers who recently visited Amazon rated the site with a 67.2% NPS, more than double the score they gave to Walmart (27.9%). While Target shoppers awarded their home retailer a relatively high NPS (52.1%) for their recent shopping experiences, those who also visited Amazon rated the online dealer with a better score (66.5%).
Bottom line: Amazon will definitely be a distractor for regular brick and mortar retailers this year with consumers ultimately deciding who will pass or fail the back-to-school shopping season.
Disclosure: The National Retail Federation’s 2015 Back-to-School spending survey was collected by Prosper Insights & Analytics.
* Amazon/Target/Walmart shoppers referenced this report are defined as back-to-school shoppers who shop at Amazon/Target/Walmart “most often” for at least one of the 14 major retail categories that Prosper Insights tracks on a monthly basis (unaided, write-in questions).
** Net Promoter, NPS and Net Promoter Score are trademarks of Satmetrix Systems, Inc., Bain & Company, and Fred Reichheld