What? No Espresso Machine?

College gear is getting more complicated, and the back-to-school season appears recession-proof

by Elizabeth Woyke

To prepare for his freshman year at Georgetown University, Arjun Mehta packed the basics: clothes, a basketball, a 32-inch LCD TV, and an Xbox 360. A quick game of Halo, he explains, makes for a perfect study break. A few floors down, freshman Molly Henningsen's room is color-coordinated (aqua and green) and outfitted with a laptop, printer, digital camera, flat-screen TV, Wi-Fi router, and compact fridge. "I wanted everything to be really bright and really functional," she says, BlackBerry in hand.

Gone are the days when going to college meant picking up a calculator, shower tote, and the cinder blocks and boards for a bookshelf. The National Retail Federation predicts that back-to-college sales will increase 9% over last fall, to $956.93 per student, or $47.3 billion overall—the most since the organization began tracking such spending in 2003. Small wonder then that the back-to-school season now ranks second only to the winter holidays in sales volume for many retailers—and appears just as recession-proof. "It's one of those life events that the traditional swings in the economy don't get in the way of," says Michael Brown, a strategist at consultants Kurt Salmon Associates.

Driving the trend: This generation's predilection for the latest technology and dorm decor, and the rationalization among many boomer parents that splurging on the latest gadgets and gear is an "investment" in their children's education. And just as merchants now put Christmas decorations up by Halloween, retailers like Staples (SPLS) and Circuit City (CC) began aggressive back-to-school ad campaigns in mid-July. "School ends, there's a couple weeks' break, and then it's right back to school shopping," notes Circuit City spokesman Bill Cimino.

And many now target their marketing not at parents, but at the teens who are the true arbiters of what's in. Apple (AAPL) has been giving free iPod nanos to Mac buyers, while J.C. Penney (JCP) launched an online reality-based "Webisode" starring four teens to showcase its new fashions.

Redefining What's Essential

Retailers' success also stems from their ability to reposition yesterday's luxuries as today's esentials—items such as portable grills, "gaming chairs," memory-foam mattresses, and countertop dishwashers. School tech extends beyond PCs to digital voice recorders, Webcams, TiVo's (TIVO), and even GPS systems. "These products are seen as necessary, rather than discretionary," notes Marie Driscoll, an analyst at Standard & Poor's (which, like BusinessWeek, is a unit of The McGraw-Hill Companies [MHP]).

The investment plays here aren't lost on Driscoll and her team. S&P currently rates 11 retail stocks, including Best Buy (BBY) and Staples, that it expects to benefit from brisk back-to-school sales as "buys" or "strong buys." If parents invest now, perhaps they'll generate returns strong enough to cover next year's back-to-school bill.

Woyke is a staff editor at BusinessWeek.