Back to School: Retailers That Make the Grade

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Each year, millions of students crack open textbooks and put on their thinking caps. But more importantly -- to retail investors that is -- the year's newest styles are revealed, the hippest trends are set, and retailers are tested to see which ones will make the grade.

Students aren't the only ones striving to receive an A+. Retailers fighting to survive in the world of fickle teens receive a report card of their own -- the quarterly earnings release. Back-to-school spending this year is expected to reach more than $18 billion, according to the National Retail Federation, and $7.6 billion of that comes from clothing and accessories. Typically during July, students and their parents flock to malls, spending an average of $231.80. And with malls lined with numerous fashionable retailers, competing for each student's back to school spending money isn't easy.

College students have money?
It wasn't too long ago around this time that I was walking through Duquesne University's business school. I had waited all my life to head off to class in sweats but quickly learned this was no longer the trend. Throughout my four years there, it was evident how the way students dressed was evolving. Carrying books in a $300 Coach (NYSE: COH  ) bag and pairing a miniskirt with Decker's (Nasdaq: DECK  ) Ugg boots was becoming a standard. What happened to the JanSport book bag? And where did that stereotypical "poor" college student go?

Thanks, Mom and Dad
I recently read an article stating that the baby boomer population is spending more money than ever on their kids. Rather than leave an inheritance behind, they would rather see their kids spend it while they're still around. From junior high to college, kids have much more buying power in their families than ever before. For retailers, this means creating massive marketing plans to lure students into their brand. Over the years, we've seen which stores have remained at the top of their class and which ones are struggling to keep a passing grade.

American Eagle makes the honor roll
Over the years, American Eagle (NYSE: AEO  ) has become both one of my favorite brands to wear and one of my favorite stocks to follow. I've been a long-term loyal customer as the clothes are stylish and sold at a reasonable price. And the store was usually a place I'd spend my back-to-school allowance at.

Over the weekend, I visited an American Eagle store in my hometown in Pennsylvania to get a first-hand look at their back-to-school efforts. Greensburg consists mainly of a working-class population, so this store's location would be more likely to be affected by the sluggish economy. I questioned some of the employees on how they think the strength of sales this back-to-school season was. While not able to release specifics, they indicated that this year was better than last, though a look at same-store sales in July shows otherwise, with comps falling 6%. However, its latest earnings report shows the company is still sailing above its competitors.

A is for advertising
What's really striking about this company, though, is its ability to market its brand so well to such a large audience, even in times of a struggling economy. The company is phenomenal at creating unique promotions such as its AE All-Access Pass, which allows the shopper to accumulate points in order to gain future discounts. Its credit card also provides 15% discount coupons in the mail. I'm pretty sure I've never received any sort of coupon or promotional material to use at Abercrombie & Fitch (NYSE: ANF  ) or its Hollister concept.

But beyond the everyday incentives the company offers, this year's back-to-school promotion is unlike any other. The store started its own sitcom show, aired on both MTV and its website. The show is quite humorous, and after watching it, you can click on the characters to purchase their outfits. Additionally, in order to promote back-to-school jean sales, the company ran an AE Jeans Fit Challenge. If you purchased the winning style of jeans, you win a free pair for your next visit to the store.

According to the National Retail Federation, online school shopping should rise 40.8% this season, so creating a website that boasts a back to school theme and attracts students shopping for school clothes is becoming increasingly important. However, I'm pretty sure that I could not find the words back to school anywhere on Gap's (NYSE: GPS  ) main website the other day, though its kids site did have fairly creative back-to-school advertising. I'm actually quite perplexed at how Abercrombie's management thinks its R-rated back-to-school film containing naked models promotes clothing for bodies. And as much as I like J. Crew's (NYSE: JCG  ) style, I was quite disappointed that they too have failed to market a back to school concept and instead have a Paris-themed website.

And the valedictorian is...
Whether you're walking the halls of a high school or strolling through a college campus, it's evident that students are acquiring more expensive tastes these days. And even I can attest to the fact that parents are spending more than ever to ensure their kids are dressed to impress when they head back to school. So it's becoming increasingly important for retailers to make their brand stand out during this critical period. Next quarter's results will allow investors to see which companies made the grade in this back-to-school season, as we will be able to better analyze July and August numbers. But seeing which company has already done its homework, I don't think it's too hard to predict who the valedictorian of retail companies will be this year.


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