As Back-To-School Shopping Begins, Consumers May Turn Frugal

Aug 1, 2013
Originally published on August 2, 2013 5:01 pm

As August begins, retailers are stepping up sales promotions to attract back-to-school shoppers. And several states are offering tax-free shopping to encourage purchases.

But most economists say this year's sales will be slower than last summer's because consumers have been coping with more expensive gasoline and higher payroll taxes.

"This year's back-to-school shopping season appears slightly weaker than last year," economist Chris Christopher, with IHS Global Insight, said of the retail period that ranks second only to the holiday shopping season.

To get consumers in the mood to shop, many retailers started back-to-school advertising and sale pricing weeks ago. The data aren't in yet to show the final impact of those early promotions on July sales.

But traditionally, August is the key month for sales of kids' backpacks, shoes, clothes, lunchboxes and notebooks. Those sales are expected to total $635 for the average family with school-age children, down from last year's $689, according to the National Retail Federation.

Spending is higher for college-bound students, who need more expensive things like computers and textbooks, as well as bedding and beanbag chairs for dorm rooms. This year, the average family with a child in college will spend $837, down from last year's $907, the trade association estimates.

The NRF says school and college shopping combined will add up to $72.5 billion.

Looking To Cut Corners

"As they continue to grapple with the impact of increased payroll taxes, Americans will look to cut corners where they can, but will buy what their kids need," NRF President Matthew Shay said in a statement on the season's outlook.

Examples of corner-cutting include shopping for generic rather than brand-name goods, he said. Roughly 1 in 3 shoppers said in a recent NRF survey that he would do that, as well as wait for sales.

And more people will be heading to discount stores, according to the New York-based International Council of Shopping Centers. A survey done in mid-July by that group showed 9 in 10 consumers plan to shop in discount stores this year, up from 83 percent in 2012.

To give shoppers yet another way to reduce the hit to their pocketbooks, 18 states are offering sales tax holidays this summer.

Typically, the state will name a weekend in August when consumers can buy clothes, shoes and classroom supplies without paying sales tax. The states place dollar limits on the amount they exempt from taxes. The caps vary from state to state, but most run around $100 per item.

The idea of offering a sales tax holiday began in New York in the late 1990s and then spread to other states.

Tax Holidays

The tax break is popular with shoppers, especially where sales taxes are high. In Houston, for example, state and local sales taxes total 8.25 percent. So a family spending, say, $600 on back-to-school shopping for the kids can save $49.50 in sales taxes.

And the tax break is well liked by bricks-and-mortar retailers, who say it provides them with the one opportunity each year to compete on a level field with the online retailers who don't collect sales taxes.

On Wednesday, Massachusetts lawmakers renewed that state's annual tax break, making it effective Aug. 10-11. House Speaker Robert DeLeo said in a statement that "the sales tax holiday will provide relief to consumers and encourage residents to shop locally."

Ed Wulfe, a Houston real estate developer who specializes in building retail stores, says brick-and-mortar retailers appreciate any help in getting shoppers walking through stores instead of hunkering down at home. "If the customer traffic is in the stores, they're going to buy, and they're going to buy more than just the back-to-school merchandise," he said.

Debating The Tax Break

Still, many economists say the policy makes little sense. For one thing, failure to collect tax revenues reduces the amount of money going into state coffers to help pay for the infrastructure, such as the roads and bridges needed by all businesses. Moreover, it doesn't target aid to the poorest shoppers, according to the Institute on Taxation and Economic Policy.

"You're really distorting your tax system," said Steven Craig, who teaches public sector economics at the University of Houston. "The whole purpose of the tax system is to raise money for the government, but to have as small [an] impact on the economy as possible. Is there any reason that we want to help retailers of clothing more than retailers of electronics, just for example? No."

And of course, not every customer can be drawn into stores by a tax break set for just one specific weekend. Busy parents often have to decide between saving money and saving time.

Jessica Vasquez was hitting a Target store in Houston this week with her sons, ages 5 and 7, and a niece, age 10. She said that the state's mid-August tax break would have no impact on her. "I like to get my shopping done ahead of time," she said.

Andrew Schneider is a reporter for KUHF in Houston.

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As much as we don't want to admit that summer will be over soon, it is time to start thinking about back-to-school shopping. That's the second most important season of the year for retailers next to Christmas. And consumers - depending on where you live - you might be able to keep a little more in your wallet than you expected.

Some states are offering sales tax holidays - which can benefit both families and retailers. In Massachusetts yesterday, lawmakers approved a two-day tax holiday for later this month. Another state offering the benefit is Texas.

From member station KUHF in Houston, Andrew Schneider reports.

ANDREW SCHNEIDER, BYLINE: The front of Target's Houston Central location is bustling. There are plenty of mothers shopping with children in tow. A jumbled display area next to the cash registers stands crammed with notebooks and assorted paper goods. And hanging overhead, visible from one end of the store to the other, are dozens of giant pencil-shaped signs advertising back-to-school sales.

Patrick Lopez is the manager on duty.

PATRICK LOPEZ: You're going to see popular items such as like patterned backpacks. So we have some school-handy headphones, which have been ever popular. More technology-based items, such as the USB sticks for the computers that students may need this year as compared to previous years.

SCHNEIDER: Lopez says he expects sales to pick up the weekend of August 9. That's when Texas's sales tax holiday kicks in. For three days, shoppers don't have to pay sales tax on clothes, shoes and many school supplies - as long as they cost less than $100 each.

In Houston, the combined state and local sales tax comes to eight and a quarter percent. A break on that tax can make a big difference for low-income families. Of course it's helpful to retailers as well.

ED WULFE: The back-to-school holiday is probably second only to Black Friday, which occurs after Thanksgiving and kicks off the holiday season.

SCHNEIDER: That's Ed Wulfe. He's a real estate developer who specializes in Houston retail stores. He knows how much storeowners need strong customer traffic to keep registers ringing up sales.

Texas is one of 18 states offering late-summer tax breaks to attract more shoppers. Retailers estimate that this year households will spend about six to seven hundred dollars apiece on back-to-school merchandise.

But if store owners are counting on tax reductions to help boost overall sales, some economists say they may be disappointed.

Steven Craig teaches public sector economics at the University of Houston.

STEVEN CRAIG: You know, the question is: Does the sales tax holiday stimulate total sales, or does it just move sales from a couple of weeks, one side or the other?

SCHNEIDER: Then there's the question of what counts as a back-to-school item. In Texas, the tax break covers items like backpacks, but not more expensive goods like computers.

CRAIG: You're really distorting your tax system. The whole purpose of the tax system is to raise money for the government but to have as small impact on the economy as possible. Is there any reason that we want to help retailers of clothing more than retailers of electronics, just for example? No.

SCHNEIDER: The retailers that tend to benefit the most from sales tax holidays are department and discount stores. Again, retail store developer Ed Wulfe.

WULFE: The stores have all kinds of promotions and sales. And if the customer traffic is in the stores, they're going to buy, and they're going to buy more than just the back-to-school merchandise.

SCHNEIDER: Of course not every customer can be drawn in by tax breaks and back-to-school sales. Busy parents sometimes have to decide between saving money and saving time.

Jessica Vasquez was hitting the Houston Central Target store this week. She was shopping with her sons, ages five and seven, and a niece, age 10. She's trying to keep her cool before the shopping rush heats up in coming weeks.

JESSICA VASQUEZ: I don't like the hustle and bustle. I like to get my shopping done ahead of time.

SCHNEIDER: For retailers, the key will be to get her to spend money now, and then somehow persuade her to come back for another round of shopping later this month.

LOPEZ: For NPR News, I'm Andrew Schneider in Houston. Transcript provided by NPR, Copyright NPR.