Back-to-School Spending to Reach Record Highs As School Returns to In-Person

After a year of virtual learning at the kitchen table, millions of students are heading back to the classroom this fall, driving notable shifts in consumer behavior and back-to-school (BTS) shopping trends. 

The child tax credit payments may act as a new round of stimulus that could boost spending on food, school supplies, and apparel.

Parents are eager to have their kids return to a sense of pre-pandemic normalcy. However, tech integration will likely continue to play a significant role in the learning experience. 

Concerns over inflation and supply chain constraints have some parents opting to play it safe and shop sooner rather than later, pulling the back-to-school shopping season earlier into the summer months. 

As August draws near, more school districts are releasing updated guidance on what to expect for the return to in-person learning this fall, helping to boost consumer confidence and enthusiasm for the school year. 

The Center for Disease Control and Prevention (CDC) recently issued new recommendations, “calling for a return to classrooms in the fall and recommending that masks remain optional for fully vaccinated students and staff,” according to The New York Times. As was the case in fall 2020, many details have been left up to state and local governments to iron out depending on local circumstances. Though students will be back in the classroom, analysts expect tech to play a substantial role in the classroom. As Morning Brew reports, a year of virtual learning resulted in a 37 percent increase in tech spending for K-12 students, with a 16 percent jump for college students. This year, spending on tech hardware like computers and tablets is expected to reach $11.8 billion.

According to Deloitte, 2021 back-to-school spending will hit its highest levels in recent years at $32.5 billion for K-12 students, or roughly $612 per student. Spending for college essentials will net out to $26.7 billion or $1,459 per student. Of the households surveyed, 44 percent plan to purchase fewer “traditional” back-to-school supplies, with 58 percent planning to spend more on online resources. Regardless of tech’s more substantial role in the classroom, MasterCard SpendingPulse found apparel sales are expected to rise about 78 percent compared with the back-to-school season in 2020 and 11 percent from the 2019 season. According to a National Retail Federation and Prosper Insights & Analytics survey, families are planning to spend more on K-12 students in every category, with electronics and clothing seeing the biggest increases.

As more consumers are eager for a fresh start after the events of 2020, factors such as a return to the office, enhanced child tax credits, and burgeoning savings rates are driving a surge in consumer spending. As mentioned in a recent briefing, NPD Group reports that apparel sales are up 46 percent this year compared to the same period in 2020 and up seven percent compared to 2019. 

In a new forecast by Mastercard SpendingPulse, back-to-school sales are expected to grow 6.7 percent from 2019 numbers and 5.5 percent from last year’s total. Analysts are paying particularly close attention to consumer spending trends during the next 90 days as they can serve as a good barometer for measuring consumer confidence and economic recovery heading into the back half of the year. 

Starting earlier this month, roughly 39 million American households began receiving the first of monthly payments for each of their children. As part of the American Rescue Plan passed earlier this year, these enhanced child tax credits are designed to fight child poverty and may serve as a tailwind for retail recovery. Child tax credits have been around since the 1990s and the rescue package allowed for a few changes to the program that essentially permits families to receive more money per child. Payments are expected to run from July to December of this year, and for families that get the full amount, a monthly payment of either $250 or $300 per child can be expected. 

JPMorgan estimates that the child tax payments could lift retail sales by 0.7 percent from July to December, which is less than the impact of stimulus checks and enhanced unemployment benefits, though substantial nonetheless. According to CNBC, retailers like Walmart, Target, Costco, and dollar stores will be among the biggest beneficiaries of the child tax credit. Of course, it’s too soon to measure the impact of these tax payments, as the enhanced child tax credits will be a wild card and challenging to measure in economic forecasts, especially as other government benefits — like enhanced unemployment assistance — phase out in the months ahead. 

Retailers can expect to see consumers continue to utilize conveniences like buy online, pick up in-store and curbside pickup for their back-to-school shopping this year, as digital engagement becomes more essential throughout the customer journey. Though consumers are ready to spend, concerns over inflation and supply chain constraints have dampened consumer sentiment as prices on homes, household essentials, and more hit all-time highs. 

Analysts noted that consumer prices jumped 5.4 percent in June from last year, “accelerating at the fastest pace since 2008.” Fed Chair Jerome Powell stated that he expects any rise in inflation to likely be a one-time price increase as the economy rebounds. Yet, for lower-income households, a spike in costs can undoubtedly make a big difference. Much like in 2020, retailers will need to remain agile and anticipate that demand may fluctuate as the American economy wrestles with divergent forces, such as increased demand and rising prices amid supply chain constraints and increasing travel demand, despite renewed mask mandates in some parts of the country.