Fresh Start | Back to school 2021 podcast

Joe DeProspero:

After one of the most non-traditional years of learning, there are signs that 2021 will be returned to normalcy, with students planning to attend school in person. And this is welcome news for retailers.

The recently launched KPMG consumer pulse survey, which surveyed 1,000 consumers, sets out to uncover the key demand drivers of back-to-school shopping preferences. It dives into the data on the anticipated shopping habits for the return of the school year, giving insight into what retailers might expect in the coming months.

One of the big questions is, will 2021 be a familiar back-to-school shopping year? Or are we seeing a new baseline of consumer behaviors that are going to continue in the future? We'll get into that on this episode of Advice Worth Keeping.

Hello everyone. I am Joe DeProspero and welcome to another episode of Advice Worth Keeping. Join me today to discuss the survey results and some opportunities for growth in the consumer and retail sector are Julia Wilson, advisory managing director of strategy and KPMG's consumer and retail practice. And Ken Kim, senior economist in KPMG office of the chief economist. Julia, Ken, thanks for joining me.

Julia Wilson:

Thanks. It's great to be here.

Ken Kim:

Happy to be here, Julia and Joe.

Joe DeProspero:

Great. So Ken, if we could start with you with the first question. So, over the past few months, we've been seeing an increase in retail sales numbers. What is the data telling us today and what is expected for back-to-school shopping?

Ken Kim:

Yeah, Joe. Retail sales have been really topsy-turvy this year. They have been highly sensitive to the timing of relief checks received by households, jumping in the month in which they are received and then eating it off in the month in which when no checks arrive.

But looking forward, starting next month, as part of the American Rescue Plan, qualifying families will receive up to $300 per child starting on July 15. So, if you have a family of, let's say three children over age six, the family receives $750 in additional income per month. This substantially enlarges the consumer wallet just in time for back-to-school spending.

Joe DeProspero:

Great. So, Julia, in your recent consumer pulse survey, did survey respondents suggests they were planning to spend more this year?

Julia Wilson:

Yeah, thanks for the question. And to respond to it, they did. In our most recent survey, they suggested a very strong back-to-school period as many students are returning to the classroom for the first time since the pandemic. And our headline message is basically that we expect back-to-school spend to be up around 9% compared to last year.

Joe DeProspero:

So 9% sounds like a really strong growth number and a positive sign for retailers. What do we see as driving this lift and spend and in what categories?

Julia Wilson:

Yeah, I agree, definitely. This could be a good sign for retailers. And when we analyzed our survey data, we looked at it a couple different ways. Obviously, by geography, by income level and age of students, et cetera. And what we found was pretty interesting. As the spend per student overall is expected to go up well, what's really driving the increase is on the two bookends of the spectrum.

So in our survey, we found that spend is highest for preschool students who are expecting to spend up to 32% more per student. And then on the other end of the spectrum, you see college student spend. And that's expected to be up 13% year over year. So, when we started thinking about what this could actually mean, we think it relates directly to the larger than average number of students that are going to preschool and college for the first time.

On the preschool side, many parents kept their children out of daycare or school because of health concerns during the pandemic. But now we see enrollment is quite strong. And on the college side, students might have been enrolled in college, but they attended virtually or they even waited the semester out. So now, I think these categories are playing a bit of catch-up, specifically in these age brackets.

To answer your second question, the categories where consumers expect to spend more are really those traditional categories that you expect for back-to-school, like footwear, apparel and basic school supplies. Some of you might recall that last year, basic back-to-school was a bright spot for the economy as parents stocked up on somewhat unusual items, like furniture or computers and electronics.

These categories, we don't think are going away. We actually found in the survey that spend is expected to be up year over year, but it's just not as much as those categories like apparel, shoes, footwear, and school supplies.

Joe DeProspero:

So Julia, you mentioned electronics are going to continue to play a role in back-to-school spend. Does that say something about how parents are expecting the return to the classroom will look like? And that is to say, how has COVID-19 fundamentally changed education delivery? And as a result, back-to-school spending?

Julia Wilson:

That's a really perceptive question, Joe. Thanks for that. We did ask our survey respondents what the classroom format would be. And as we see the vast majority of parents are expecting a return to the physical classroom, either fully or partially in the fall.

Many did cite that they will continue to deploy digital content of some sort. The most common forms of digital content where either school-provided content or live streaming of classes. But I think it's really important to point out that e-learning was also a frequently cited factor. So, definitely there'll be a blending of in-person physical learning with some of these new and innovative digital solutions.

Joe DeProspero:

Interesting.

Julia Wilson:

When we think about the... Yeah, no, definitely, very cool. School has changed permanently. When you asked about the spending and how online will contribute to shopping. Consumers do expect to return to physical stores, but online will continue to be higher than pre-COVID levels.

According to our survey online, as a percentage of spend, will be roughly 10 percentage points higher than pre-COVID at 44% share of spend, compared to just 34% of spend online prior to the pandemic.

Joe DeProspero:

Great. So Ken, back to you. What are some of the recent economic considerations here?

Ken Kim:

Yeah, so it's great to see the survey results that Julia mentioned and the optimistic front in terms of spending. But also, we're hearing a lot of inflation in the news on a daily basis. And for example, housing prices are accelerating. Lumber costs are through the roof. And used car prices are currently up 30% from a year ago. The US economy is experiencing signs of inflation. And part of that has to do with the quick bounce back in the economy, as well as supply chain bottlenecks. So, it's due to both a demand and supply shock.

Now, some inflation is okay and it reflects a sign of an improving economy. As long as the Federal Reserve can adequately manage inflation through monetary policy and inflation does not get away from us, which would inhibit consumer purchases. This would result in a more durable and long-lasting economic expansion.

Our view from the office of the chief economists is that the recent higher readings in inflation are transitory. And this is also a view that the Federal Reserve also shares.

Joe DeProspero:

So Ken, what is your outlook for consumer spending for the rest of this year after back-to-school passes?

Ken Kim:

Well, the American Rescue Plan is the gift that keeps on giving. The child tax credit mentioned earlier, this continues through the end of 2021. So, each and every month starting in July, families can receive up to $300 per child. While some of this will obviously go into savings, we believe a good portion will be directed to shopping by consumers.

Joe DeProspero:

So Julia, back to you. What can the back-to-school season tell us about future retail seasons?

Julia Wilson:

Well, Joe, there are still a lot of unknowns of what post-pandemic retail will actually look like. But I think what we saw, the acceleration that we saw and spending and what changed in retail during the pandemic, for example, five to 10 years of digital migration happened basically overnight. We're seeing a bit of the opposite effect now. So, flood gates are open. People are creating experiences and that includes experiential retail.

So, basically, we don't exactly know. But I do think there are a couple of consumer dynamics that we feel relatively comfortable saying are sticky. So the first one is online shopping. I think we know that it's here to stay in ways that it didn't exist pre-pandemic. Models like curbside pickup, buy-online-pickup-in-store or buy in-app, pick up in-store, are here to stay.

I think the second point though, is that brick and mortar is not dead. We've seen that recently, as soon as stores opened, that foot traffic has increased tremendously. But at the same time, in-store shopping will be different.

And one of the things that we've noticed is that, while the consumer is looking for experiences, purchases that require some sort of experience will be likely and more likely to draw the shopper back in-store. But essentials that were more basic in nature. We often use the word utilitarian. Those are things that might have ultimately a stickiness factor online.

The last point that I'd probably make here is that while we're seeing pent-up demand come back into stores, given Ken's comments on inflation, we do think at some point, consumers will start to follow the basic supply and demand rules. And as there are more constraints on their budget, ultimately we think consumers will go back to being a bit more price conscious and start looking for value for money.

Joe DeProspero:

So last question here. Thinking about these trending patterns in retail sales, what are the most critical areas consumer in retail organizations should focus on to capture demand?

Julia Wilson:

Well, I think that's a really good point and basically, the key question all retailers are asking right now. And I think the most critical thing, if I were to boil it down into one key message for this podcast, is to truly leverage a data-driven approach, to identify and uncover the changing signals in the market from customers. That will ultimately drive your business decisions around price, assortment, inventory, and customer experience.

Joe DeProspero:

Julia, Ken, I want to thank you so much for joining me today on the podcast, for your insights, and for your knowledge on the subject. As a father of three school-aged children, I have a vested interest in this, and I'm certainly excited about the idea of a returned in-person normalcy for our kids. So, thanks again.