Retailers face challenging back-to-school season

U.S. retailers on Thursday reported better-than-expected June sales results, providing some relief to merchants, particularly discounters. In fact, Wal-Mart raised its earnings outlook based on robust results. But even the extra cash from the government's stimulus checks failed to spur major splurges, leaving experts to predict a return to overall sluggish sales when the last of the checks are mailed this week.

Parents are expected to stick to the basics like notebooks and jeans. That may mean no $100 suede backpacks, fewer new tops for the kids and $2 pens might seem like too big a splurge. More children may have to wear hand-me downs passed down from their older siblings.

"I don't think people are looking for the luxuries--expensive pens or fancy new computers," said Janet Hoffman, managing partner of the North American retail practice of Accenture."They are going for the basics and they are on a treasure hunt for value."

Retailers are responding with enticements to try to grab limited dollars.

Starting this weekend, Wal-Mart Stores Inc., the world's largest retailer, is rolling out a new round of aggressive discounts on back-to-school and products across the store. It hopes to grab shoppers who want to consolidate their trips to save on gasoline.

"Shoppers are going to do the math on the whole picture. They are going to look at supplies, electronics and apparel in the entire basket," said Melissa O'Brien, a company spokeswoman.

Office supply chain Staples Inc.'s vice chairman and chief financial officer John J. Mahoney said that its back-to-school campaign focuses more on price than in past years. Shoppers, he said, are being "more careful" with nonessentials like cool-looking pens, but he is hoping they'll be attracted to new doodads like magnetic wallpaper for childrens' lockers.

Late next week, J.C. Penney Co. will launch a back-to-school campaign tied to the popular '80s movie "The Breakfast Club," to highlight six new teen brands, including a dorm furnishing collection called Dorm Life and a denim-inspired collection for teen girls called Decree.

"The worst possible thing we can do is to repeat last year's stuff. There's a fine line between playing to win and playing to not lose," said Michael Boyslon, Penney's chief marketing director.