US consumers reduce back-to-school expenses due to rising inflation

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US consumers are anticipated to reduce their back-to-school supplies budget by double digits, signaling that inflation is impacting discretionary spending in the largest economy in the world.

Deloitte’s forecast reveals that the average family will spend 10% less per student this summer compared to 2022. This situation will test the resilience of the retail sector in the face of a more cautious consumer sentiment.

According to Deloitte’s survey of 1,212 parents, shoppers are projected to spend $31.2 billion, averaging $597 per child. This period is traditionally when parents stock up on children’s clothing and stationery. While this amount is lower than the expected spending during the peak holiday season from November to January, back-to-school sales historically provide insights into retailers’ expectations.

Although US inflation is easing from recent highs, households are still grappling with prices rising faster than their incomes. Out of the surveyed parents, 30% reported being in a worse financial situation compared to last year, and half predicted a weakening economy in the next six months.

According to the US Bureau of Labor Statistics, the cost of school supplies has surged by 23.7% in the past two years. Consumer awareness of this increase is evident, with 80% of those surveyed by the National Retail Federation anticipating higher prices during this year’s back-to-school season.

Americans have become more discerning in their shopping habits since the easing of Covid-19 restrictions, leading to increased spending on experiences that were previously unavailable during the pandemic.

Nick Handrinos, vice chair of Deloitte, stated, “Consumers will likely prioritize their spending as they replenish their savings accounts and invest in experiences like summer vacations, rather than material goods.”

Deloitte mentioned that price-sensitive consumers are seeking deals during this back-to-school season. They are shopping earlier and turning to online platforms, particularly for tech products. According to Adobe, online prices have been on a downward trend for the past 10 months, and analysts expect strong growth in purchases during Amazon’s Prime Day promotional event this year.

Big retailers are also emphasizing bargains. Target is advertising a 20% discount on college supplies, while Walmart is offering school supplies at the same prices as last year, including notebooks for as low as 50 cents.

Despite US consumer spending showing greater resilience than anticipated, with retail sales increasing by 0.3% in May, recent earnings reports indicate that retailers and suppliers are facing a slowdown in discretionary spending due to inflation.

In the fiscal fourth quarter, Nike reported a mere 5% increase in North America sales, down from much higher growth rates in the previous two quarters. Levi Strauss warned of weakness in wholesale and announced plans to reduce prices on certain items.

This week, Moody’s Investors Service cautioned that the sector could experience more defaults as retailers grapple with rising product costs, freight expenses, interest payments, reduced consumer spending, and ongoing supply chain disruptions. Already, a dozen US retailers, including Bed Bath & Beyond and Christmas Tree Shops, have filed for bankruptcy this year.