'Cash for clunkers' could wreck back-to-school spending

Danny Johnston / AP
Amanda Griffin shops for school supplies with her daughter at a Little Rock, Ark., Wal-Mart store in July. Surveys have indicated that parents plan to cut back their back-to-school shopping this year.
Nati Harnik / AP/ file
A shopper carries her child in Omaha, Neb., at the end of July. Back to school shopping may take a hit from 'clunker' spending.

US retailers were expecting disappointment from the summer of 2009 – and in June and July, that's exactly what they got.

Now, the wildly successful "cash for clunkers" program is threatening their August, too. Instead of buying back-to-school dresses for Sue and shoes for Justin, many families are picking out a new car for Mom or Dad.

In normal times, those two categories would not be related. But this year, with funds so tight, they are.

"If you take on a new $400-a-month car payment, that money just doesn't materialize out of a vacuum," says Ken Perkins, founder of Retail Metrics, a retail-industry research firm in Swampscott, Mass. "It has to come from somewhere."

Even before the clunkers program, parents were signaling that they would pare their back-to-school spending. In June, sales at stores that had been open at least year fell 4.3 percent from a year ago, according to Retail Metrics. In July, they were down 4.7 percent, the biggest decline since March.

Another survey by Thomson Reuters found that sales fell 5.1 percent in July from a year ago.

There are some factors that will help. Back-to-school spending, even if restrained, will provide a catalyst to get shoppers into stores – something retailers haven't had for months. Many states are doing their part by offering tax-free shopping days during August.

That could shave August's decline to 3 or 4 percent, Mr. Perkins says. "It's going to be hard to see any significant increases in consumer spending until sometime next year."
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