Labor Day outlook soft, but positive

Labor Day is an increasingly important sales weekend for many in the retail industry, marked by summer-ending sales, back-to-school pushes and a foray into the holiday season.

The three-day weekend, signifying the end of summer and beginning of fall, brings customers back into reality—school is upon them. Because many consumers are still finishing up back-to-school shopping, the holiday can be an opportunity for retailers to make a final push. Although college students have already returned to campus, many younger students still have a chance to purchase school supplies, apparel and electronics.

As of mid-August, a National Retail Federation survey reported that the average family had only completed 49.9 percent of their back-to-school shopping.

"The cultural significance of back-to-school shopping has diminished over the past few years," said Edward Hertzman, founder and publisher of The Sourcing Journal, an industry publication that focuses on the apparel and textile industry. "Starting the school year with a whole slew of new clothing is not as important. Instead parents are staggering their purchases. They're waiting for sales. They are buying only what they need to start the school year. That being said, once parents are in the stores to buy school supplies, there's a good chance they'll pick up other items. Back-to-school will be a catalyst for other purchases."

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Sanjay Arora, CEO of Nextopia, an e-commerce site search and navigation provider, explained that Nextopia has helped many of their customers set up specialized marketing campaigns and promotions. Arora said he hears more and more about the importance of the holiday every year.

"By looking at their site search data, our customers found that Labor Day is quickly becoming one of their growth periods, and has gone from being a small blip on the radar to something that they need to be prepared for," Arora said, adding that Labor Day can be a great opportunity that retailers need to capitalize on, especially when it comes to reeling in certain vertical consumer groups.

"For our customers in the clothing, sporting goods and outdoor equipment industries, for example, Labor Day is the perfect time to clear out their summer stock at discounted prices while simultaneously introducing their brand new fall and winter products. With parents and students also doing their last-minute back-to-school shopping over the weekend, it's an incredibly busy time for online retailers."

Robin Lewis, author of The Robin Report, had some predictions of his own. "North Face is an example of a retailer that's on top of the changes we're seeing," he said. "Other VF Corporation brands like Vans and 7 For All Mankind, and fast fashion brands like H&M and Forever 21 will be winners in the apparel category, while Apple is the all-timing high performer, a branded specialty chain with 400 to 500 stores now, the most store productivity per square foot in the history of retail. Tiffany's is second and comes in at about half of Apple's $5,800/SF in sales. Trader Joe's, as a small food retailer, is another winner—all private label, well-controlled, and offering one big, festive, exciting shopping experience."

"Best Buy is still being beaten to death on price by Amazon on the one side and Walmart on the other for basic commodity-type items like flat screen TVs," said Lewis. "They are still in a very painful process of downsizing and building up their Geek Squads, creating a powerful experience in their stores like Apple, and moving toward finding more exclusive private brands or building their own brands. Big-box stores, whether Macy's, Target, Kohls or Best Buy, will have to break down those massive buildings into boutique-like shops that will be a destination for entertainment, restaurants, and so on. But people will also be able to shop in branded boutiques within those buildings. That's the future—a demassifaction of everything, smaller stores, more proximaty to the consumer. Like Walmart's small store strategy—no more superstores."

What could ultimately affect the weekend sales? Weather. "It's the last week of summer and everyone prays for rain," said Al Ferrara, partner and national retail and consumer product practice leader at BDO USA.

Rain means consumers are leaving the beaches, distancing themselves from their pools and backyard grilling, and, ultimately, spending money. However, Ferrara said that even if the forecasts are sunny, closing more sales isn't a lost cause and retailers can make up for the disadvantage.

"When you look at the results, you really need to take into consideration the first and second weeks of September," he said, adding that customers who forego shopping for back-to-school or other fall items will just put it off, perhaps until Tuesday or Wednesday. "So you don't lose that business, it just gets pushed back."

Everybody comes late to the party, according to Ferrara. Consumers are now buying necessary products later and later, whether it's back-to-school items on Labor Day or Christmas gifts on Black Friday. Shoppers know if they wait and stores still have inventory, the items will go on sale.

Ultimately Ferrara predicts that sales conversions will be slightly up from the rate during last year's Labor Day weekend, but most analysts and retailers aren't expecting a huge jump in profits.

While there are still consumers who are living paycheck to paycheck and struggling over the rise in food ticket sales and gasoline prices, Ferrara said there are also upper-middle class consumers who will buy items they need when and where they want them.

"If we look at retailers and what's happening, the forecasts for the first six months of the year were not spectacular," Ferrara said. "So they are setting expectations for the next half of the year real low." He added that America is "over-stored," meaning too many options, creating high margins and extreme pressures on many retailers—not to mention the addition of increased competition from e-commerce.

Ferrara was optimistic, saying consumer confidence is at its highest since 2007, adding that though most of the promotions will occur during the three-day weekend, they will likely continue until the next week if the inventory is still there and the items still enjoy shopper demand.

"I believe sales will be slightly higher this year over last, but at the cost of promotional sales that will drive shoppers into the stores," Hertzman said. "We will see an uptick in sales, but as a result, margins will be compressed. In regards to apparel sales, off-price sectors like T.J. Maxx, Burlington and Ross will do well, as well as fast fashion retailers Forever 21 and H&M, and discounters like Target."

Looking beyond fall as winter inevitably approaches, Labor Day signifies retail's foray into the holiday season.

"Labor day sales kick off the countdown to Black Friday, just two months away, and is a good proxy for consumer confidence as well as retailers fine-tuning their holiday plans," said Doug Chavez, global head of marketing research and content for Kenshoo. "As usual, we're already seeing lawn and garden deals online and in-store, as well as retailers starting their deep discounts on back-to-school and summer fashions."

There is a noticeable push to integrate omnichannel strategies this summer as well, especially with the promise of attracting parents and younger shoppers preparing for school.

"We're also seeing more retailers engaging in social commerce sales tactics, as consumers are using sites like Pinterest and Houzz as starting points for product and sale searches," Chavez added.  

E-commerce retailers are going to post significant savings to consumers in order to clear out inventory and attract the younger demographic. According to a study conducted by Nextopia, the best e-commerce sales for consumers began the week before Labor Day and end Sept. 2. Online discounts on clothing, accessories and movies will be around 48 percent off original prices on average. That is an even steeper discount than those predicted for Black Friday and Cyber Monday, which will hover around the 42nd percentile.

Nextopia recommends that if retailers want to be noticed online, websites should start emphasizing sales on barbecue equipment, picnic materials, outdoor equipment and travel accessories.

Ferrara ultimately expects sales to be as they were for the quarter, up 2 or 3 percent from Labor Day weekend last year. "The days of mature retailers experiencing double-digit growth are over," he said. "Labor day will be fine, modest growth, long past major exceptional growth... The new norm has set in."

Of course, unexpected variables affected shopper turnout will always arise. In the run up to Labor Day 2013, fast-food chain employees went on strike in 50 cities to demand a raise in wages.

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Will sluggish back-to-school doom the holidays?
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This article initially incorrectly stated Apple's productivity per square foot was $1,500. It has been updated to reflect Apple's correct productivity per square foot.