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Tickers in this Article: WMT, TGT, AMZN, AAPL, ANF, ARO, GPS, KSS, HPQ, BBY, AEO, WTSLA, BKE
Across the country, a traditional rite of fall has either begun or is soon coming - the resumption of school. With the return to school goes an annual pilgrimage to the malls and shopping centers to equip the little tykes with the clothing, electronics and other supplies that they need to start the school year. For many retailers, this is the second-biggest shopping event of the year (after Christmas), but ongoing economic malaise may make this a tougher test this year. (If you have to do back-to-school shopping, check out Best Back-To-School Deals.) TUTORIAL: Fundamental Analysis

Another Sluggish Season?
According to surveys from the National Retail Federation, this is not looking like an especially robust year. More specifically, it looks like per-family spending may dip slightly from last year (by about half a percent) to about $604. While this is certainly better than the 2009 malaise of $549 per family, it marks another year where retailers cannot rely on fatter wallets to boost their own profits.

Absent more money sloshing around the market in general, retailers will have to pull out the stops to lure shoppers into their stores. Going back to the NRF survey, customers are saying that they will rely more on discount stores, online shopping and sales, but they will not necessarily abandon the name brands and up-market products altogether.

That sounds like incrementally positive news for Wal-Mart (NYSE:WMT), Target (NYSE:TGT) and Kohls (NYSE:KSS). The trouble for Wal-Mart, though, is that it pretty much is the proxy for consumer spending in the United States these days. So if spending is not robust in general, it is hard to say with any confidence that Wal-Mart is poised to do well. While it has been popular to posit that Wal-Mart benefits from economic troubles (as people abandon more expensive stores), it is also true that current Wal-Mart customers are even more squeezed (sometimes squeezed out of the Wal-Mart price range altogether). All in all, then, Wal-Mart is not likely to be a breakaway winner.

Electronics Taking a Bigger Bite
It should surprise no one that electronics continue to make up more and more of the back-to-school budget. Some readers may even remember when laptops were not only optional in college but relatively rare (or, for that matter, computers in general). Whether MP3 players, smartphones, video consoles and tablets have any real business as "school supplies" is a debate for another day, because parents are looking to buy them for their kids all the same.

Given that Hewlett-Packard (NYSE: HPQ) sees so much promise in personal computers that it is looking to get rid of this business, this likely isn't the play for investors. It seems more probable that companies like Best Buy (NYSE:BBY), Amazon (Nasdaq:AMZN), New Egg and Apple (Nasdaq:AAPL) will see the lion's share of the benefit from back-to-school electronics spending. (To help you save money this time of year, read 15 A+ Back-To-School Shopping Tips.)

Name Brands Not Completely Dead
More shoppers spending more money at Wal-Mart or Amazon is not necessarily the end of the story for retailers like Abercrombie & Fitch (NYSE:ANF) or American Eagle Outfitters (NYSE:AEO). There's a give-and-take with shopping, and the more expensive store-based retailers will not see utter abandonment. Lower-priced alternatives like Gap's (NYSE:GPS) Old Navy will probably pick up some incremental sales, but the fact remains that many parents will still aid and abet the brand competition that takes place at most schools.

The key here is playing the names that have the momentum in the fashion cycle. Names like Abercrombie and Wet Seal (Nasdaq: WTSLA) seem to have some momentum here, but investors should not sleep on "value fashion" ideas like Aeropostale (NYSE:ARO), Buckle (NYSE:BKE) or Hennes & Mauritz (H&M).

The Bottom Line
Discussion about the back-to-school retail environment will likely be much ado about not very much. Spending may be fairly stable relative to last year, and it is worth mentioning that these are still all-time highs for per-family spending, but the momentum is lacking. Given that Wall Street is not impressed with earnings that are basically the same as last year, this is setting up for some fairly brutal competition among the retailers.

Cost consciousness should play well for names like Amazon and Kohls that thrive on offering customers a little more for their money. For store-based teen retailers, though, this will be a challenging season. The money and the desire are there, but merchandising and promotion missteps will carry a heavy price. Investors should look back at the recent same-store sales numbers and position themselves accordingly; this is a time to play the hot hands and not make big bets on turnarounds. (For more on investing in retail stock, check out The 4 R's Of Investing In Retail.)

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