Why is Back to School Shopping Slow?

 

SGB Media published an article last week called, “What’s Causing the Delays in Back-To-School Buying?”  Here’s the link to the article.  If you read the article (you should- SGB does a pretty good job), you’ll find a discussion of the factors said to be causing the delays- the usual suspects.

I’d like to offer a different point of view.  The factors they refer to are symptoms.  The overall reason it’s occurring is the condition of the economy- specifically wages.

Take a look at this article from the PEW Research Center called, “For most workers, real wages have barely budged for decades.”  Here’s the link.

The head line is that in constant 2014 dollars (adjusted for inflation) wages have risen only 7.7% from 1964 through early 2014 from $19.18 to $20.67 an hour.  I have seen no data to suggest the situation has improved much since 2014.

The article goes on to say:

“What gains have been made, have gone to the upper income brackets. Since 2000, usual weekly wages have fallen 3.7% (in real terms) among workers in the lowest tenth of the earnings distribution, and 3% among the lowest quarter. But among people near the top of the distribution, real wages have risen 9.7%.”  Again, I don’t think much has changed since 2014.

Your customers don’t have as much money to spend as they used to have- unless you’re selling only to the top five or ten percent by income.  It may be worse than that.  The PEW article doesn’t tell us anything about how they calculated inflation.  However, in 1983 the government changed how they calculated inflation.  If you search around on the internet a bit, you’ll find discussions suggesting that inflation, if calculated as it was before 1983, would be something closer to 9%.

There are strengths and weaknesses to every statistical calculation and data series.  But I think we all know, if only from personal experience, that whatever your customers’ wages are, they are spending more of it on housing, medical care, education and electronics.

So by all means read the SGB article and respond to the tactical issues impacting consumer behavior.  You mostly already are.  But then get a little more strategic and ask yourself, “Is there any way real wages can grow unless the economy grows faster?”

I used to believe that once the unemployment rate fell, wages would pick up as competition for qualified workers increased.  That’s what’s supposed to happen, they teach us in introductory macroeconomics.

Maybe it will still happen.  My guess is that continued low interest rates and the resulting difficulty of small businesses (the drivers of the economy) in getting credit means it won’t.  When will interest rates rise significantly?  Unfortunately, our not in touch with reality friends at the Federal Reserve have caught themselves between the proverbial rock and hard place.  They know they were too late raising rates.  They want to raise them more, but they don’t want interest rates rising too much to cause a recession they will be blamed for (whether are at fault or not).

That recession will come any way, but don’t ask me when.  The business cycle has not been repealed.  After that, I suspect we’ll finally see significant interest rate increases.

Build your balance sheet, control your distribution, cherish your brand, surprise your customers, take lots of small risks and worry about the bottom line more than top.  You will get through this.

SGB wrote a good article, but it highlights the danger of us confirming each other’s preexisting beliefs.  Somehow, get far enough from the trees to see the forest.