Back-to-school spending persists despite economic pressure, consumer survey says

PwC's latest survey indicates resilient back-to-school spending, with nearly three-quarters of parents anticipating similar or increased outlays despite broader economic pressures and retailer price hikes, largely driven by essential purchases like school supplies and technology. While consumers are increasingly value-oriented, leveraging AI tools to find deals and shifting towards discount retailers, and some are cutting back on discretionary items like clothing, Gen Z parents notably favor in-store shopping, bolstering brick-and-mortar retail.

Analysis

Despite broader economic uncertainty and recent pullbacks in general consumer spending, the back-to-school retail season appears resilient, with nearly three-quarters of surveyed parents expecting to spend the same or more than last year. This durability is primarily driven by the non-discretionary nature of core educational purchases, such as supplies and required technology. However, this top-line stability masks significant shifts in consumer behavior. A prevailing value-orientation is causing a migration towards discount retailers and increased deal-seeking, with one in five shoppers now using AI tools to find promotions. Retailers like Walmart, Target, and Best Buy face a delicate balancing act, as they have signaled price increases in response to tariff pressures, which could alienate these cost-conscious consumers. Spending patterns are also bifurcating; while essentials remain protected, categories like clothing and technology are the first to face cutbacks. Notably, technology spending is highly polarized, with 25% of parents planning to spend over $500 while 42% will spend under $50. An emergent trend supporting physical retail is the preference of Gen Z parents for in-store shopping, suggesting a potential source of resilience for brick-and-mortar formats.

Key Decisions for Investors

• Investors should monitor retailers like Walmart, Target, and Best Buy for their ability to manage margins amid tariff-related price hikes without losing market share to discount channels.
• Favor retailers with strong private-label brands and a clear value proposition, as consumers are actively seeking discounts and reusing items from previous years.
• Recognize the bifurcation in consumer spending by being cautious on companies heavily reliant on discretionary apparel and mid-range technology, while giving preference to those focused on essential school supplies.
• Consider the long-term strategic positioning of retailers in light of new trends, particularly their investment in omnichannel experiences to cater to deal-finding AI users and the in-store preferences of the Gen Z demographic.