With American consumer confidence seemingly stuck in neutral, the back to school season can be an insightful view into the state of consumer spending, as well as a precursor to what retailers can expect for the upcoming holiday season. The Nielsen Company forecasts a modest increase in dollar sales on Back to School items, up 1.7 percent to $2.6 billion, although unit sales are projected to drop.

“Unlike the holiday season, many consumers view back to school shopping as required versus discretionary purchases,” said James Russo, vice president, Global Consumer Insights, The Nielsen Company. “Kids need back to school supplies as they start the school year. That said we see an extremely modest sales increase for this year’s Back to School season. While more U.S. consumers feel the country is coming out of the recession, they still feel the weight of a stubbornly weak labor market. Look for consumers to spend their money carefully and focus on purchasing the essentials.”

Back to school study guide:

• Units on the Decline: Nielsen forecasts Back to School unit sales for the office/school supply category to drop 5.25 percent to 1.04 billion.
• Critical Season for Retailers: The July – September Back to School season is important for the office/school supply category, generating nearly 40 percent of annual dollar sales and more than 50 percent of annual unit sales for the $7 billion office/school supply category.
• Shop Now, Shop Early: Many prices for Back to School items are up in 2010 compared to 2009. Nielsen’s research shows that the lowest prices are available in July (down 55 percent) and August (down 50 percent.)
• Back to School Winners: Gains are expected for supercenters, dollar stores, drug stores, and to a lesser extent, club and grocery stores.
• Bring Me Some Water: Nielsen forecasts bottled water, a related Back to School category, to grow 3.57 percent on a dollar basis, outpacing juice sales. Once considered a discretionary item, bottled water is increasingly consumed as a staple, driving its growth.

“Back to School prices are up this year,” said Russo. “With consumers applying more pressure for lower prices and promotions on basic consumable items, retailers are looking to make up margins in seasonal categories. Those retailers offering strong discounts and appealing to consumers’ desire for savings and value will be this year’s Back to School winners.”

About the Nielsen Back to School Forecast

Nielsen’s Forecast is based on office and school supplies, including office, school, artist/hobby supplies, scissors, tape and glue purchases in U.S. food, drug, mass merchandiser stores (including Walmart), dollar, club stores and online sales for July – September 2010. Nielsen’s research is based on more than 110,000 UPCs in the school supply category, and more than 400 million school supply transactions.