• Wall Street Journal, Monday, August 2, 2010 10:46 AM

Elizabeth Holmes writes that with U.S. consumer confidence at its lowest level since February, retailers are preparing for price wars and big discounts to pull in shoppers as the back-to-school season gets into full gear. The annual ritual is second only to the Christmas season in its importance to retailers' bottom lines.

"We anticipate the back-to-school season to be very promotional this year and our competition to be very aggressive," Kevin Peters, Office Depot's president of North American Retail, told investors last week.

While other retailers declined to comment on their plans, analyst Eric Beder, managing director of equity research at Brean Murray, Carret & Co., says many were overconfident earlier in the year and have too much inventory. But Sherif Mityas, a partner in the retail practice at A.T. Kearney, says there's still time to test targeted promotions that could head off the need for clearance sales.

The sliver lining is that total back-to-school spending is expected to increase 16% over the horrific performance last year, according to the National Retail Federation, a sharp rebound from a terrible year-ago season. "But the increase masks what retailers say is still a very cautious shopper and shifts in what they are buying," Holmes writes.

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