Retail winners and losers emerge amid back-to-school season, inventory clearing
Justin Sullivan

The retail sector is active with the back-to-school season in swing full and major chains facing a battle in clearing inventory with markdown strategies. A more cost-conscious consumer and lingering inventory issues are driving sustained discounts for back to school shoppers and stratifying retailer performance into the fall.
Despite a turn to virtual learning in the wake of the pandemic, both back to school and back to college spending has surged in the past two years. While total expected spending in the back to school season declined by over $3B in the course of 2017 to 2019, that has rebounded to increase over $10B since that 2019 low, according to the National Retail Federation. Per the same report, back to college spending has increased by an even larger degree.
Overall spending appeared to have been resilient throughout the summer, according to the National Retail Federation.
âRetail sales grew in July, supported by declines in prices at the gas pump and moderately lower inflation," noted CEO Matthew Shay recently. "Consumers are adapting to higher prices by prioritizing essentials like food and back-to-school items, and retailers are working hard to absorb the impact of higher costs."
The NRF observed that school supplies are among the most protected segments in retail as consumers reorient spending habits. As such, demand remained intact throughout the summer as back to school sales began in July and, according to forecasts, continue into the fall. For example Foot Locker (FL), Target (TGT), Ross Stores (ROST), The Gap (GPS), and Best Buy (BBY) executive teams each offered commentary on a back to school season that is lasting longer and is likely to continue strength into September and the close of the third quarter.
"It's following a trend that was really more pertinent prior to the pandemic, which is people were shopping later and later,â Best Buy (BBY) CEO Corie Barry said, speaking to a longer shopping season. "Youâve probably got parents and kids who are just kind of really trying to figure out; how do I gear up for a year that at least is starting out much more in person and especially at the collegiate level much more on-campus.â
Clearing inventory has been a major challenge for retailers this summer and necessitated significant promotional activity. âBeyond our assortment of value-priced owned brands and leading national brands, we're offering a one-time 20% off Target Circle deal for college students to get those dorm rooms prepped and ready,â Target (TGT) CEO Brian Cornell said during a mid-August earnings call, speaking to the sustained discounting. Cornell said the retailer extended its teacher prep event to nearly eight weeks of discounts on supplies and more.
Similarly, Walmart (NYSE:WMT) indicated discounts on back to school merchandise are set to persist into the close of the current month.
"Weâre taking additional pricing actions in Q3 to improve inventory levels in the back half of the year, and we built in more conservative category mix assumptions within our guidance,â CFO John David Rainey told analysts in August, adding that this applies to merchandise beyond back to school items as well.
In addition, Kohlâs (KSS) and off-price retailers with above-historical-average inventory levels like Burlington Stores (BURL), TJX Companies (TJX), and Nordstrom (JWN) are being forced to pursue significant discounting activity. Even for those without inventory issues, the downward pressure on prices from the major players is rippling through the entire retail space. âWe feel good about our inventory in terms of quality and newness and think it puts us in position for a strong back-to-school season, but we do have to compete in a more promotional environment,â Foot Locker (FL) CFO Andrew Page said in August. "Therefore, we are factoring in more pressure.â He estimated margins were due for a 320 to 330 basis point decline into the third quarter as a result of the promotional pressure. 
Not all things are equal this summer in retail with the ability of select retailers to deal with inventory and inflation issues creating some separation in terms of execution. For example, Dillardâs (DDS) proved capable of promoting stronger than expected sales into August, while Nordstrom (JWN), The Gap (GPS), and other mall-linked retailers were not able to hit the mark. Kohlâs (KSS) has been an exemplar in this right, with both company executives and analysts indicating some disappointment in back to school sales and a hit to margins that the beleaguered retailer can ill afford. âWe're seeing strength in categories like backpacks, kids footwear, and those younger kids sizes,â CEO Michelle Gass told analysts in August.
"I'd say where we have not yet seen the pickup in our business in areas like denim, kids uniforms or those older kids sizes. So again, a little bit of mixed results here in line with our expectations. But I think, most importantly, we're doing a lot to drive that value message during the back-to-school."
KSS management lowered margin expectations into the year-end as promotions are anticipated to move remaining inventory into the close of the back to school shopping window. The slower sales appeared to vindicate the bearish expectations put forth by Gordon Haskett analyst Chuck Grom ahead of the earnings. Grom had highlighted that the inventory management issues were also indicative of the company stocking inventory that consumers were simply not keen on. On this front, Kohlâs was certainly not alone. Urban Outfitters (URBN), which saw its own earnings day decline amid margin pressure, admitted that some of its back to school stock was not a good match for consumer tastes.
"For Urban, the downfall in their home business really centered around the soft goods and again, the back-to-school bedding category,â CEO Richard Hayne told analysts in late August. "I would say that the problem we had there was, again, relying a little bit too much on the old and not concentrating enough on the new and not buying enough of the new and better style," he added.
Read more on full-year prospects for Macyâs.