Which Companies Make the Grade With Back-to-School Shoppers?
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Despite school not starting for two months, we are already being inundated with back-to-school deals. Expectations for this year’s back to school shopping season are high, with retail sales numbers for June coming in strong for several companies.
For back-to-school shopping, money savvy parents armed with their back-to-school checklists head to office supply stores since these retailers historically offer some of the lowest prices, but which retailers are positioned to make the grade with back to school shoppers and what does that mean for investors?
Staples has momentum
After hitting a new 52-week high of $16.64 on July 11, Staples (NASDAQ: SPLS) is going into the back-to-school shopping season with strong momentum. According to Demos Parneros, president of North American and online stores at Staples, the company is targeting flashy neon stationery for kids along with headphones and Samsung Chromebooks for older students. The company intends to lure shoppers into the stores with their bargains on packs of erasers, index cards and pens for a penny in the hope they will make more expensive purchases like tablets and mobile devices.
The back-to-school shopping season (which runs from the middle of the July through Labor Day) accounts for $84 billion in sales and is retail’s second most important selling period. It is an intensely competitive time for retailers and often sets the tone for the all-important Christmas holiday season. Revenues may be high for many companies, but margins are typically slim. Many shoppers do not care what brand of school supplies they buy, so retailers have to compete on price which squeezes margins.
Staples is taking steps to reduce costs and improve profitability by reducing store sizes to an ideal 12,000 square feet and adding online kiosks in stores. These adjustments are imperative considering that the company continues to see negative growth in its stores. On the upside, Staples is experiencing accelerated growth online which is where the greatest potential lies for retailers. Staples intends on capitalizing on its growth in e-commerce by adding thousands of new products online.
Amazon continues it’s dominance
One of Staples’ largest competitors is Amazon (NASDAQ: AMZN). Coming off strong retail sales numbers in June, same-store sales increased by 30.6%. This was an improvement from 25.6% in May, and an increase of 29% for the quarter. Amazon will likely continue its e-commerce domination during the back to school season. The company is already running back to school promotions on everything from backpacks and tablets to cleaning supplies for college students. As with Staples, Amazon is expecting strong sales on newer technology namely tablets like the Kindle Fire HD and mobile devices. The company’s recent move to slash prices on the Kindle Fire HD by a whopping $30 from $199 to $169 will to help spur this growth.
Amazon will continue to deliver value and build brand loyalty with its "Amazon Student" program which includes perks like free two-day shipping for six months and exclusive deals and promotions. The company has also established a new education and teacher supplies store that offers lesson books, cubbies, graders and other teacher supplies.
Office Depot and OfficeMax are trying to survive
Office Depot (NYSE: ODP) is another company that is incentivizing shoppers during the back to school season with attractive perks. The company recently announced its new rewards program that will offer members the flexibility to personalize its benefits by allowing them to earn points and get rewarded monthly for shopping, connecting and recycling.
Another major development from Office Depot is the company’s decision to merge with competitor OfficeMax (NYSE: OMX). Now that the merger has been approved, the newly-formed company will focus on cutting costs and increasing sales by closing stores that either are not performing well or are in close proximity to each other. Office Depot has 1,675 stores worldwide, mostly in the U.S. and Canada. OfficeMax has approximately 900 stores in the U.S. and Mexico. The new company will combine their online efforts in an attempt to remain competitive in a changing industry largely impacted by the growth of the Internet. With the rise of e-commerce, the Office Depot and OfficeMax merger is more about survival than anything else.
Who makes the grade?
The big winner this back to school shopping season will be the Internet. With e-commerce still only making up a small percentage of sales for most businesses and with the rapid growth in recent years, few argue there is tremendous potential online. Those companies best positioned to capitalize on online shoppers will come out of the back to school shopping season ahead.
With big-box discounters like Amazon offering the same products as office supply stores but for less money, it is wise for companies like Staples, Office Depot and OfficeMax to reduce their store presence and focus on an online strategy. They need to do something to compete with the likes of Amazon to make an impact, however.
Kelli Bhattacharjee has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com and Staples. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!