The Retired Investor: Back-to-School Season

It is not an easy decision. On one hand, consumers want to go out and shop for their children's upcoming school year. But at the same time, they are concerned that if they do, they might catch the coronavirus. There is no easy answer.

 

This 2021-2022 school year was supposed to usher in a new beginning. As such, retailers are still expecting sales of clothes, school supplies, and college dorm décor items to increase by 5.5 percent from last years' depressed COVID-levels. Even so, that still won't match 2019's 6.7 percent increase, but it is getting close, or was until the Delta variant arrived.

 

I thought that parents have the extra cash to spend, given the rounds of government stimulus checks, enhanced unemployment benefits, and the child-tax credits that have been arriving in the mail over the last few months. The question will be whether those parents go out and splurge during the back-to-school season (mid-July through early September), or hold back.

 

If they splurge, then apparel will likely lead the list of items most in demand, and understandably so. Last year, during the great shut-in, you could wear the same sweat pants and T-shirts all week long and no one would be the wiser. But today, more families are hoping to go out, impress classmates, or start going back to the office, and if that is the case they want to look good.

 

Retailers are hoping that the desire to look fresh and fashionable will convince consumers to venture out, and browse the malls and department stores once again. It is those brick-and-mortar stores that suffered the "ground zero" economic impact (along with restaurants) during last year's closing of the economy.

 

However, weighing against these expectations is the upsurge of the Delta variant Coronavirus mutation. As the number of cases rise, more consumers are beginning to throttle back their plans to visit stores. Shoppers are once again growing wary of dressing rooms, public bathrooms, and the food courts. New shoes, dresses, and denim purchases might not be worth the risk of infection, at least for the time being.

 

That would be a blow to the shopping season. In just one area, industry experts were expecting back-to-school spending for children in grades up to K-12 to reach $32.5 billion, which would average about $612 per student. But the Delta strain of Covid-19 is not the only risk facing retailers.

 

Labor shortages are a problem throughout the economy. The scarcity of sales clerks and cashiers, for example, could translate into long check-out lines, especially for those who worriy about safe-spacing within confined spaces. To make matters worse, there may also be a lack of popular merchandise due to supply-chain bottlenecks.

 

The novel coronavirus Delta case surge throughout Asia has caused shipping bottlenecks. COVID-19 cases have created labor shortages in the main export ports, and in the apparel trade. That could be a problem for U.S. retailers. Just a few countries in Asia supply most of the apparel consumed by the U.S. fashion industry. China, Vietnam, India, and Bangladesh account for more than 40 percent of U.S. apparel imports.

 

It is still too early to predict whether consumers' desire to outfit their kids and themselves will win over the continued presence of the coronavirus. The verdict, like so many outcomes today, will depend on how bad the health issue becomes in the next few weeks.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.