Will Consumers Warm Up to Back-to-School Spending?

Small business retailers who have been sweating the looming back-to-school sales season--along with the August heat--should take a deep breath and chill.

Sure, consumers have been cranky, thanks to high gas prices and a slowing economy. But the National Retail Federation (NRF) says back to school spending should jump by a healthy 6.9 percent over last year and top $18 billion in total sales.

Businesses with an online presence have even more reason to be optimistic. One in five parents say they will shop online this year, a 40.8 percent increase over last year. Parents between the ages of 18 and 34 are most likely to shop online; nearly one-third say they will surf the net for back to school merchandise.

The optimistic projection coincides with the latest reading of consumer sentiment. The New York Conference Board, which publishes a widely followed index, reported this week that consumer confidence hit a six-year high in July. "It is encouraging in light of high energy prices, volatility of the stock market and the weak housing market that consumers didn't flinch," Mark Vitner, senior economist with Wachovia Securities told the Associated Press. "My general sense is that the economy is finding its footing."

When consumers are upbeat, they like to open their pocketbooks, and their precocious pre-teens and young teens will be driving many of the spending decisions. Nearly two-thirds of parents say their children influence at least half of the items that are purchased for back-to-school.

"Teen retailers were some of the biggest beneficiaries in July from back-to-school and girls in groups with spending money," Jennifer Black, president of Jennifer Black & Associates, an Oregon-based research consulting firm, told Bloomberg.

The federation is predicting the sharpest increase (13 percent) in spending on electronics (calling Steve Jobs). "Electronics have evolved from luxuries to necessities, not only for college students but also for their younger siblings," says NRF President and CEO Tracy Mullin. "While some students may be pleading with mom and dad for an iPod or a cell phone, parents are also investing in desktop or laptop computers, educational software and printers to support their children's learning."

Families are also expected to spend 10.3 percent more on footwear and 9 percent more on school supplies. Clothing is the only category that is expected to post flat sales, the Federation says.

"This is going to be a tough year for apparel," according to Eric Beder, an analyst at Brean Murray Carret & Co. in New York.

So far, retail sales trends in July seem to support the Federation's projection. Sales jumped 3.1 percent for the month; the biggest increase in four months, according to a survey by the International Council of Shopping Centers.