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Jefferies: Apparel, department stores lose in back-to-school shopping

Teen apparel companies and department stores are losing out during this year's back-to-school shopping season, according to a note released by Jefferies on Aug. 8.

"This reflects shifting priorities amongst millennials who are gravitating toward non-apparel spending categories like travel, health and beauty," the analysts said. "Department stores and teen apparel retailers are feeling much of the brunt of this shift."

Overall, the Jefferies survey found that back-to-school shopping should continue to grow at about the same rate it did the previous year. Of 500 shoppers surveyed, 24.6% plan to spend more on back-to-school shopping this year, compared to 25.5% of those surveyed in 2016. Roughly 50.4% plan to spend about the same as last year.

But department stores and teen apparel retailers should not expect to cash in on that trend because clothing and accessories are becoming less of a priority for families' back-to-school budgets as share of wallet becomes "increasingly allocated to inflationary categories like rising health care costs and housing," the analysts said in the note.

"Purchase anticipations of college-aged students are indicative of a shift in consumer behavior within the broader millennial generation which more recently has gravitated toward non-apparel spending categories," the analysts said.

Apparel, accessories and electronics saw the largest percentage changes as fewer respondents said they intended to increase spending in those categories for back-to-school, according to the note.

Some 42% of those surveyed said they planned to increase spending on apparel and accessories, compared to 48.3% of respondents in the same period in 2016. Roughly 16.1% of shoppers said they planned to increase purchases on electronics, compared to 22.8% in the year-ago period.

Kohl's Corp. lost the least share of increased spending on apparel and accessories, with 39.7% of shoppers reporting they planned to increase spending, compared to 41.7% in 2016. Sears Holdings Corp., however, saw a significant drop in the percentage of shoppers who said they planned to boost spending on those categories at its stores. Only 7.9% of respondents said they planned to spend more on apparel and accessories this year, down from 14.4% in 2016. But the analysts said store closures may explain the drop for Sears.

The Jefferies analysts said they were particularly concerned by the results at Sears and Macy's Inc. because of the markedly sharp, and consecutive, declines in purchase intention.

Similarly, most teen apparel companies dropped in popularity, especially Aéropostale Inc., only 12.7% of whose shoppers said they plan to spend more on apparel and accessories at its stores, down from 20.5% in 2016. These declines "are not surprising with brand power weakening despite merchandising and store remodel initiatives, exacerbated by an increasingly competitive landscape with market share gains from fast fashion retailers," the Jefferies team said in the note.