Back-to-School Stocks for Your Portfolio

September may mark the beginning of school for many students, but it's August when parents are busy buying school supplies.

Back-to-school shopping has historically been a big deal for retailers' bottom lines. Consumer research firm NPD Group reported that in the United States, back-to-school season represents 41% of annual retail dollar sales and 33% of annual unit sales for apparel. This makes it the second-largest season of the year for retailers and manufacturers.

Both Deloitte and the National Retail Federation conducted surveys on how much money parents spend on getting their kids ready to head back to the classroom. Both groups show total spending for 2024 is expected to rise for K-12 students.

Deloitte, which surveyed more than 1,200 parents, forecasts they will spend $661 per student, up from $597 in 2023. Total back-to-school spending is expected to reach $41.5 billion this year for K-12 students.

The National Retail Federation, which has conducted its survey since 2003, has substantially larger numbers. The group expects parents to shell out an average of $918, up from $890 last year—a record.

The top spending category for parents remains electronics—such as computers, calculators, and phones—at $325.96. Not far behind in the spending categories are clothing and accessories for the K-12 student, with parents expected to drop $257.12 to outfit their progeny. Shoes come in third at $166.59, while school supplies like paper notebooks, pencils, backpacks, and lunch boxes round out the list at $140.39.

Teens are spending money on themselves too. This year it's likely they'll spend $46.46, and pre-teens are forecast to spend $39.19, with both of those numbers up from last year.

Deloitte noted 65% of parents are using their smartphones to research deals, while 58% are using personal computers, up from 49%. Thirty-five percent of parents use social media to find products and sales.

Not surprisingly, Deloitte pointed out where a family shops depends largely on the deals they're offered. Sixty-nine percent of parents say sales and discounts help them decide, and 57% use competitive pricing.

Deloitte noted parents still hit the mass-merchant stores for back-to-school shopping, with nearly 90% of respondents planning to visit these stores. The NPD Group remarked that in 2023, the average parent made three trips to physical stores to purchase back-to-school items. These sales accounted for 89% of office supply spending during the season.

That isn't to say e-commerce doesn't have a share of parents' wallets, and it appears to be growing. NPD Group expects that for 2024, 15.9% of back-to-school sales will be online versus 11% in 2023 Deloitte's survey showed online-only retailers have replaced dollar stores as the number two destination, however. Nearly 45% of consumers prefer to shop brick-and-mortar stores, and the hybrid model of buy online and pick up in-store is continuing to be popular.

NPD Group said Amazon's (AMZN) Prime Day, which took place in mid-July, seems to continue to pull back-to-school sales earlier in the season. Amazon has run Prime Day as a two-day event since 2019. The full rundown of Prime Day data hasn't been released as of writing, but after the close of the event, Amazon called it the "largest shopping event in Amazon history."

Ben Watson, senior manager of product management and marketing at Schwab, suggested investors can think about back-to-school shopping and back-to-school stocks in a few different ways. To start, consider the mass-market retailers like Dollar Tree (DLTR), Walmart (WMT), and Target (TGT), which offer the gamut of supplies in nearly one stop.

A lot of kids' school supplies include products like pens, lunchboxes, and insulated mugs. Watson remarked Newell Brands (NWL) makes a number of these items, with brands like Elmer's Glue, markers from Mr. Sketch and Sharpie, Paper Mate pens, food storage brands like Rubbermaid and Sistema, and other consumer-focused goods.

For electronics, parents may go to Best Buy (BBY) to check out tablets, laptops, and smartphones kids need for class, Watson noted. However, many parents may search for online deals after viewing products in stores.

Because clothing is a big part of returning to school, individual apparel retailers, particularly in the athletic-wear segment, can be part of investors' research lists. Upscale brands that appeal to the mass affluent and have significant online presence include Nike (NKE), Lululemon Athletica (LULU), and Gap (GPS), Watson pointed out.

There's been much evidence detailing the death of malls as part of the demise of physical retail stores, but Watson remarked that there might be a resurgence. In a report published in June, Coresight found foot traffic in top-tier malls was up by 12% in 2022 compared to 2019, while traffic in lower-tier malls was up 10%. The research firm defines "top-tier" centers as those located in affluent areas "where a typical shopper has an annual income of over $200,000" and which tend to feature newer brands and luxury retailers.

"Malls are seeing a bit of a resurgence because they're part of nostalgia again, especially for Gen-Z shoppers who are rediscovering the mall experience," he said.
Late summer—it's a time of ringing: the alarm clock, the tardy bell, and the cash register. Consider ringing in a little back-to-school research for your portfolio as well.