RAPAPORT... Holiday 2009 is officially underway and the early numbers may shed light on some longer-term trends. Consumers are ready to shop again, but only for what they have on their lists. Foot traffic was up more than expected, but shoppers were spending less. The net result: Consumers spent $41.2 billion over the Black Friday weekend, according to the National Retail Federation (NRF). That was a 0.5 percent improvement from 2008.
The NRF says 195 million shoppers visited stores and websites. That is 23 million more than in 2008. The increase in traffic is a positive sign that the American consumer may be slowly coming out of hibernation. Consumer spending makes up 70 percent of the U.S. economy. But the recession, unemployment and fall 2008’s global financial crisis have had a profound effect on Americans’ spending and saving habits.
The savings rate has increased dramatically. Today’s personal savings rate of 3 percent is nearly double that of a year ago. Retail analysts fear Americans could save too much and spend too little, creating a cycle of reduced spending that leads to more job losses. “Jobs, dropping housing and investment values mean, ultimately, consumers don’t feel good, so they are more guarded.” says Edward Yruma, vice president and equity research analyst, KeyBanc Capital Markets. “The good news is, with all of that, we aren’t worse than last year.”
Budget Shopping “Though retailers should be encouraged by strong traffic and sales over the weekend, consumers are still being cautious,” says Phil Rist, executive vice president of strategic initiatives, BIGresearch. “Weekend shoppers indicated that they are still sticking to a budget and thinking carefully before making any holiday purchases.”
One sign of that may be the success of the door-busters. The NPD Group, Inc., a market research company, reports that 36 percent of shoppers were in stores because of the door-busters. And 35 percent purchased the door-buster on their lists.
“This shows the power of the door-buster,” says Marshal Cohen, chief industry analyst, The NPD Group Inc. “Those consumers that went out to get deals, found them and purchased them. I think we will see retailers continuing to offer them throughout the holiday season.”
“The customer this year is very researched and very methodical,” James Fielding, president of Walt Disney Co.’s Disney Stores, told The Wall Street Journal. “I don’t think there’s a lot of impulse shopping going on. People are just being realistic about their personal situation and the economy.”
On average, consumers spent $343.31 per person versus $372.57 a year ago. But in 2008, shoppers came out for Black Friday and didn’t show up again until prices were slashed 60 to 70 percent. This year, retailers are better prepared for the price-conscious shopper. Besides stocking inexpensive gifts like the hot Zhu Zhu pet toy that sells for under ten dollars, retailers are doing targeted and attractive discounting early, to avoid deep discounting in late December. Women’s Wear Daily reports that apparel markdown levels were around 40 percent, much less aggressive than the 70 percent of 2008, but enough to persuade shoppers to spend. The big electronic retailers say the super-cheap flat panel TVs that got shoppers waiting in line before dawn on Black Friday this year won’t be around by mid-December. Consumers waiting for a better deal will find themselves empty-handed.
Online Spending GrowsOther signs of strength so far include the continued growth in online spending. On Cyber Monday, the official start of the ecommerce holiday shopping season, 97 million people were expected to shop online, versus 85 million last year, according to a survey for Shop.org conducted by BIGresearch. In the month of November, comScore reports that more than $10 billion was spent online, a 3 percent increase from 2008. On Black Friday alone, spending was up 11 percent as Amazon, Wal-Mart and others kicked up their marketing efforts earlier. Amazon was the most-visited online retailer on Black Friday, with traffic up 28 percent from a year ago.
Apparel retailers and jewelry retailers reported the biggest jumps in the average dollar amount consumers spent per online order, up 28.6 percent and nearly 25 percent, respectively.
Zales Chief Executive Neal Goldberg says the company will put more emphasis on web-based promotions this holiday. Online orders are up 17 percent this year. He also said shoppers should not expect the fire-sale prices of last year. “We will not offer the same level of broad discounting this holiday season as we did in 2008, which will help us expand our gross margin.”
KeyBanc’sYruma agrees. “Last holiday, we saw hundreds of mom-and-pop jewelers going out of business and liquidating their inventory. We are out of that now, which means we should create a better pricing environment for jewelers.”
More than 1,500 mom-and-pop jewelry stores went out of business in the past year. Less competition has created an opportunity for larger chains and shops with strong balance sheets. The holiday is the make-or-break period for jewelers, with up to 100 percent of their annual profits booked in the November through January period.
If Tiffany & Co. is a barometer for the industry, it could be a merrier Christmas than 2008. The upscale jeweler boosted its earnings forecast for the year after a stronger-than-expected November. In a conference call, Mark Aaron, Tiffany’s vice president of investor relations, said the improved outlook “reflects some improvement in underlying demand in some markets.”
In 2009, it looks like “less bad” is reason to celebrate. But to get consumers to let down their guard and buy a little more than what is already on their lists, the job picture has to improve. In its Black Friday study, The NPD Group asked those who shopped but didn’t spend what may be the most important question of the season: “ Why not?” The number one answer, 27 percent, was “no money.” Until wallets get fatter, retailers will have to be smart about inventories and promotion, and carefully manage the balance sheet. For now, less bad is pretty darn good.
Article from the Rapaport Magazine - December 2009. To subscribe click here.