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School shopping starts strong, but will it last?

This fall shoppers will face higher price tags as retailers try to pass on higher labor costs in China and higher prices for raw material - even though they’re apt to be looking for bargains. This fall shoppers will face higher price tags as retailers try to pass on higher labor costs in China and higher prices for raw material - even though they’re apt to be looking for bargains. (Frank Franklin Ii/Associated Press)
By Anne D’Innocenzio
Associated Press / August 5, 2011

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NEW YORK - The back-to-school season got off to a strong start as discounts and high temperatures in July drove shoppers to air-conditioned malls. But merchants worry the momentum won’t continue as the weather gets cold and the deals dry up.

Despite bad economic news that kept consumer confidence shaky, a number of retailers reported July revenue that beat estimates, including discounter Target, department store Macy’s, and luxury chain Saks.

The International Council of Shopping Centers’ preliminary tally of retailers’ revenue at stores open at least a year - a key indicator - was up 4.6 percent, a slower pace than June’s 6.9 percent gain.

While the numbers, reported yesterday, offer encouraging signs for the second-biggest shopping period of the year, there are concerns that shoppers will stick to the habits of the Great Recession by focusing on necessities and waiting for sales. That could be a big problem for retailers, which are raising prices to offset rising fuel, labor, and other production costs.

“Early going, July looks like it’s shaping up to be a solid month despite all the economic headwinds,’’ said Ken Perkins, president of RetailMetrics LLC, a research firm. “But the concern is whether shoppers will buy back-to-school items at full price.’’

The season accounts for 16.1 percent of annual retailers’ revenue, according to the council. It’s also an opportunity for retailers to gain insight into consumers’ shopping habits heading into the biggest shopping season of the year, which starts on the day after Thanksgiving.

Retailers will get a better sense of how consumers are spending in August, when the bulk of the purchases are made. But so far, analysts and retail trade groups are sticking to their forecasts, ranging from unchanged to up 3 percent compared with a year ago. The National Retail Federation expects families to spend $603.63 on back-to-school items, from clothing to supplies, down slightly from last year’s $606.40.

The concern is that while the recession officially ended in June 2009, many shoppers, particularly in the low-to-middle income bracket, feel like it never ended. For many, wage gains have not kept pace with higher costs for food and gas. Home values remain depressed, and companies are not hiring.

Adding to that, this fall shoppers will face higher price tags as retailers try to pass on higher labor costs in China and higher prices for raw materials.

Surveys from the National Retail Federation, Deloitte LLP, and others show that customers plan to buy only what the family needs, focus on fat discounts, and reuse last year’s items.

Retailers that cater to higher-income shoppers have fared the best. Saks Inc. led the luxury pack with a 15.6 percent increase for the month, much higher than the 8.5 percent increase analysts forecast.

Costco Wholesale Corp. also attracted higher-income shoppers and others who like the treasure-hunt experience in its stores. The company said revenue from stores open at least a year climbed 10 percent in July, compared with the 8.6 percent analysts surveyed by Thomson Reuters had predicted.

Stores catering to low- and middle-income shoppers have been hurt the most. Still, many posted sales gains during the month, though analysts say some have benefited from a boost in spending by their wealthier shoppers. Furthermore, the biggest sellers have been basic merchandise.

Target, which has been beefing up its grocery business, said revenue at stores opened at least a year rose 4.1 percent in July. The discounter said shoppers picked up more groceries and health and beauty products and spent more per transaction. Back-to-school revenue is off to “a solid start,’’ the company said.