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    NONFOODS: School and Home Office Supplies: Making the grade

    If retailers shift focus away from commodity items and toward specialty products and computer accessories, they can jump-start category growth, according to a SHOPA study.

    Supermarkets that concentrate on selling high-margin items like ink-jet cartridges are beginning to show some sales growth in the school and home office supply category, according to the most recent retailer study by the School and Home Office Supplies Association (SHOPA), based in Washington, D.C.

    According to "2005 Back-to-School Season Retailers' Results and Perspectives," SHOPA's Flash Report released earlier this year, the aggregate comparable-store dollar sales of back-to-school (BTS) supplies for 40 retailer respondents increased an estimated 4.9 percent for the 2005 BTS season, up from an estimated 2.5 percent in 2004 and 2.7 percent in 2003.

    By channel, supermarkets in the survey sample saw the biggest 2005 dollar sales growth, at 8.4 percent, followed by warehouse clubs, at 7.5 percent; discount stores, at 2.9 percent; and drug stores, at 2.7 percent. Comp-store 2005 unit sales growth was 3.9 percent, up from 2.5 percent in 2004 and 3.3 percent in 2003. In 2005, for the first year since 2000, dollar sales growth outpaced unit sales growth.

    The average gain in gross profit margins for all channels combined in 2005 was 1.9 percent, compared with a rise of 1.8 percent in 2003 (when last measured) and 0.7 percent in 2002. The biggest gain in gross profit margin was realized by supermarkets with 3.0 percent growth, followed by discount stores, at 1.5 percent, and drug stores, at 1.2 percent.

    The sales and profit data corresponds with qualitative findings indicating school and home office supply retailers, as a whole, shifted much of their focus toward more profitable and higher-priced, fashion-oriented, and better-quality BTS supplies. Indeed, Progressive Grocer's Hot 10 list by ACNielsen on page 10 shows that ink-jet and toner cartridges have the largest dollar sales growth in the category: 14.7 percent over 2005.

    Key reasons given for realizing higher margins in 2005 were that retailers:

    -Direct-sourced more lower-cost goods and/or expanded their private label assortments,

    -Maintained higher prices,

    -Held off on late-season markdowns and pushed more profitable items such as higher-end backpacks and furniture.

    Overall BTS market trends

    As in the last similar survey, conducted in 2003, the primary overall BTS market trend noted by respondents for 2005 was the extreme and increasingly competitive nature of the market, caused by the loss-leader price wars and high-profile advertising of high-visibility products. Additionally, a few leading discount retailers were cited as having fueled the fire by coming out even earlier this year with their BTS merchandise sets and advertising, as well as maintaining extremely low price points on key items throughout the entire season, unlike years past, when the lowest prices were offered temporarily.

    However, a notable change in retailers' perceptions compared with recent years' studies is that the BTS supply market continues to be considerably more oriented toward higher-priced, fashion-forward, and value-added versions of BTS products. These include such categories as polypropylene and better-made notebooks, binders, and portfolios; locker accessories; stretchable book covers; and backpacks.

    One implication for the market amid these extremely low retail prices is that since prices have gotten so low, more retailers have decided or will decide not to try to match these below-cost prices on the key items, and instead will attempt to step consumers up by promoting more value-added, higher-profit BTS supplies, along with office and computer-related products.

    Followers of fashion

    The great majority of product mix changes discussed by respondents were expansion-related, involving such moves as pushing more fashion and/or better-quality or higher-priced binders, expanding folders, notebooks, and portfolios (especially polypropylene types); backpacks; locker accessories; and dorm room furniture, storage totes, and decor items.

    Forty-two percent of respondents said that they de-emphasized licensed goods for BTS 2005, primarily because they're generally unpredictable, as well as limited in their target markets.

    As in both 2002 and 2003, stretchable fabric book covers was the most often mentioned growing BTS supply category, and it's still probably the fastest-growing category for most retailers, though the growth has slowed. Sales within the category are said to be shifting toward the higher-end, better-quality variety.

    Some other categories that saw unit sales growth for at least some retailers for BTS 2005 were composition books (perhaps at the expense of 70-count wirebound notebooks); extended ranges of dry-erase boards, markers, and bulletin boards; laminated, rewritable wall maps; key computer supplies and accessories such as ink-jet cartridges and CD-Rs; vinyl-ring binders; lunch kits; pencil sharpeners; and desk organizers.

    Products most commonly specified as noticeably slipping in sales in 2005 and, in some cases, for multiple years were 70-count wirebound notebooks; zipper binders; writing instruments, especially midpriced mechanical pencils and pens; filler paper; and paper portfolios, which are reportedly losing share to poly portfolios.

    The primary retail display trends for BTS are ongoing. The most common display change mentioned was to feature more prepacked, corrugated PDQ displays for the ease of setting up the stores initially, as well as that of maintaining and replenishing items.

    Another popular focus for 2005 in-store merchandising was to increase the usage of in-store signage to bolster the shopability of the section and/or make it more cohesive, or tie it into other departments. Central theme approaches to BTS merchandising, based on slogans, color coding, and other catches that tie everything together, continued to be popular as well -- especially among college towns, where retailers offer varsity colors.

    Many retailers are still interested in working with manufacturers on customized display programs that meet unique retail needs and/or help them differentiate. Alternatively, modularity and flexibility within the standard display vehicles offered by manufacturers are well received, and could be an area of opportunity for many manufacturers. Ease of execution has also become increasingly important to retailers, which find that store personnel don't do a good job with displays that aren't easy to set up and maintain.

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