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Students Trim Budgets, but Won't Give Up Their iPhones

Friday, 6 Aug 2010 | 12:09 PM ET

If you think of college students as impulsive, you may need to rethink your view, at least when it comes to making back-to-school purchases.

Jupiterimages | Getty Images

It seems, they are doing their homework. Faced with a limited back-to-school budget, college students are putting the bulk of their dollars toward must-have electronics items, even if that means scrimping in other areas.

“People are buying fewer items—buying a laptop but not a printer, an iPhone but not a digital camera, or people are looking for those electronics (items) to be on sale,” said Ellen Davis, vice president at industry trade group the National Retail Federation.

Total spending on back-to-school items by college students will exceed that of younger students by $12.42 billion, with electronics making up the largest portion of college students' expenditures, a National Retail Federation survey found. Total back-to-school spending by college students is only expected to rise slightly this year compared to last year from $616.13 to $618.12, the NRF said.

However, the average college student will spend about $30 less on back-to-school electronics items, including cell phones, MP3 players, and laptops, than last year.

Still, retailers should expect to see “pent up demand” for the latest electronics, but to get the most for their money students will start comparison-shopping early and easing their way back from an economic recession, Davis said.

Sticking to the Budget

Jeet Patel, a sophomore at St. John’s University in Queens, N.Y., started comparison-shopping for a cell phone in early July. After doing research, he and his family decided to order Sprint's EVO, one of the newest touch screen smartphones this summer.

“I want to stay within the budget because my parents are paying for it,” Patel said.

For college students like Patel, buying the latest technology doesn't necessarily mean blowing their budget. More college students than high school students splurge on expensive electronics items and cut back in other areas such as spending on apparel.

“You can connect to the outside world, and you get more utility out of (an iPhone) over two years than spending $100 on a pair of jeans that could go out of style next year,” said Brian Sozzi, an analyst at Wall Street Strategies.

High-end electronics companies like Apple may have the upper hand over other retailers as college students invest in popular items like the iPhone or iPad.

“The consumer is willing to pay for popular products even if they are expensive,” said Van Baker, research vice president of Industries at Gartner, an information technology research company. “This is evidenced by Apple’s recent results, which were very strong.”

But discount stores such as BJ's Wholesale, Costco and Target, won’t experience a noticeable boost in sales as students spend selectively.

“For the past several months, BJ’s, Costco and Target generally have noted weaker than average trends in consumer electronics,” said Joe Feldman, senior retail analyst at Telsey Advisory Group.

In comparison, specialty retailers such as Best Buy are expected to increase sales by 1 percent comparing last year's second quarter to this year's second quarter ending in August, Feldman said.

“The big wrinkle is that the three main discounters, their product offering, is more commodity-oriented than Best Buy,” Feldman said. “Best Buy has a better offering that caters to a more upscale crowd. Just because trends have been weak at discounters doesn’t mean it’s weak at Best Buy.”

Fewer Discounts

During the third quarter in 2008, electronics sales increased 11.6 percent from the third quarter of 2007, the Census Bureau reported. In 2009, sales of electronics in the third quarter were only up 6.2 percent compared to the same period in 2008.

The downward sales trend will keep the increase this year in the “low-to-mid-single digit area” this fall, Feldman said.

Students also shouldn't expect big discounts on electronics such as laptops and netbooks this back-to-school season compared with last year, said Stephen Baker, vice president of Industry at NPD Group.

But laptops are a “must have” back-to-school item.

Hand using mouse with laptop
Altrendo | Getty Images
Hand using mouse with laptop

“Notebook sales tend to be a very specific back-to-school purchase,” said NPD Group’s Baker said. “Students need a laptop for college. It tends to be a product you can’t postpone buying.”

The trade off for less aggressive pricing on electronics is that more students are purchasing the lower-priced netbooks, which are smaller than a notebook, said Angela McIntyre, research director at Gartner, an information technology research company.

Apple’s iPad—which lends itself to competition with the netbook by sheer size—won’t be in high demand even though it’s a popular electronics item among students.

“The iPad pricing starts at about $200 more than most netbooks, which will dissuade college students on a tight budget from purchasing the iPad,” McIntyre said. “The iPad costs $499 and up, which is comparable to the price of a mainstream PC with a more powerful processor than is in the iPad.”

Even though companies such as Amazon.com provide cheaper prices and lighter versions of electronic readers like the Wi-Fi version of the Kindle, students are still hesitant to invest in them.

“The pricing of electronic versions of most e-Textbooks is high enough that there is no cost advantage over printed books, and students can’t refer back to e-Textbooks next year after the subscription expires,” McIntyre said.

Instead, laptops and smartphones will be among the top two important electronics purchases this back-to-school season for college students.

“When you think about what you need for school, laptops and smartphones remain a major piece of the puzzle for the teen and college kids,” Feldman said. “As that demand continues and with all the social networking, (laptops and smartphones) will remain a showing category.”

Questions? Comments? Email us at consumernation@cnbc.com

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