Back-to-school offers a warning for holiday retail

CHICAGO — U.S. consumers are continuing to spend, but Circana says shoppers are becoming increasingly selective about when and where they open their wallets, a shift that is shaping the back-to-school season and could carry into holiday shopping.

Overall retail sales revenue increased 1% in July compared with a year earlier, while unit sales declined 2%, according to Circana. The divergence reflects continued consumer caution as well as the shift of major early-summer retail promotions from July last year into June this year.

Circana said spending growth is increasingly being driven by deliberate purchases based on need rather than promotional events.

“Consumers are still spending, but they are increasingly doing so through prioritization rather than expansion; driven by purpose rather than promotions,” said Kiara Barrett, global head of thought leadership at Circana. “Promotional activity remains important, but broad discounts alone are generating less incremental demand.”

The pullback is particularly evident in discretionary categories. For the four weeks ended August 1, nonedible consumer packaged goods dollar sales declined 0.9% from a year earlier, while unit sales fell 3.6%. Discretionary general merchandise dollar sales dropped 4.3%, with unit demand down 3.9%.

Lower-income households continue to pull back on discretionary purchases, while growth is increasingly concentrated among higher-income consumers and categories offering clear value, convenience, health benefits or affordable enjoyment, according to Circana.

Essential categories are proving more resilient. Food and beverage sales revenue increased 0.5% during the period, while unit sales rose 1.6%.

Those patterns are playing out in back-to-school shopping. Rather than concentrating purchases around large promotional events, consumers are buying products as needs arise and balancing their search for value with essential purchasing requirements.

Retail promotions in June successfully pulled some overall demand forward, Circana said, but had less of an effect on back-to-school purchases.

Circana expects the traditional back-to-school season to be moderate at best, with weak unit demand and any spending growth driven largely by higher prices. Shoppers are expected to focus on core necessities and make purchases deeper into the season as specific needs emerge, including after the first days of school.

Even higher-income households are showing signs of caution, suggesting retailers may need to rely on more targeted strategies rather than broad discounting to generate incremental sales.

The implications extend beyond back-to-school. Circana said the current spending environment could offer retailers an early indication of how consumers will approach the critical holiday season.

“As marketers look toward the holiday shopping season, the back-to-school experience offers an important lesson: promotions alone may not be enough to stimulate demand,” Barrett said. “Retail success depends on reaching the right shopper with the right product, the right offer, and in the right channel — all at the moment of need.”