RAPAPORT...Many analysts of the retail sector of the U.S. economy report that consumers’ behavior during this critical holiday season is showing greater caution than in years past. Consumers are not automatically responding to the special incentives floated by chain and independent stores alike, such as steep discounts and “buy X, get Y free” bargains. This hesitancy reflects not merely caution, but also a growing shrewdness and buying savvy that are helping consumers save money and still get gifts for all the people on their lists in a difficult economic climate.
But hesitancy is not the only reaction experts are seeing. Near the end of November, Black Friday and Black Saturday saw a very impressive turnout, according to analysts at ShopperTrak, a Chicago-based research firm that monitors the movement of customers into and out of 25,000 retail outlets across the country. Total sales for the two days reached $10.3 billion and $6.1 billion, respectively, a 7.2 percent increase over sales for the same two days last year. According to Bill Martin, cofounder and executive vice president of ShopperTrak, the decision by some stores to open at 4:00 a.m. or 5:00 a.m., instead of midnight as in past years, helped keep sales strong much further into the day. As for the dramatic increase over 2006, Martin called it “a surprising weekend result — a well-organized, well-planned shopping event.”
Online sales for Cyber Monday increased 21 percent to $733 million, with amazon.com, Wal-Mart and Target drawing the most online customers, according to the network watchdog comScore. The number of buyers during the day showed a 38 percent increase from a year ago.
What forces are producing such a mixed market?The Consumer’s PerspectivePhil Rist, a senior analyst at Ohio-based BIGresearch, sees a widespread reaction by consumers to the subprime credit crunch, the drop in housing values and soaring gas prices. He describes the typical consumer’s reaction as follows: “Okay, this is the world I have to live in. I have a list of loved ones I have to take care of first for Christmas or Hanukkah.” Rist estimates that the average family will spend $620 on gifts this season, with decorations bringing the figure to $817, but price-consciousness will be paramount in the consumer’s mind. While strolling the aisles of one store, the consumer can use an iPhone to check prices on the same items at another store.
“The consumer is very price-conscious this year,” Rist notes. With disappointing sales results for October from many sectors of the retail market, it is easy to accept the “cautious” label — especially when Wal-Mart Stores, Inc., and other stores are engaging in heavy discounting this holiday period.
Countervailing ForcesThe grim forecasts should be weighed against other factors buoying retail, and particularly luxury retail, sales this season. Kathy Grannis, a spokesperson for the National Retail Federation (NRF) in New York, concedes that “A majority of consumers feel that it’s necessary to pull back on their spending, and the level of discretionary spending has shrunk.” But Grannis notes that wealthy consumers are not affected nearly as much as the discount shopper. Although Rist’s scenario of consumers using many means to vet shelf prices at different stores before buying may be true for bargain shoppers, Grannis says merchants of luxury goods know their customers quite well, and the cost-conscious web surfing or aisle cruising does not apply in this segment. “It’s the type of store where personal shopping is really given a new meaning,” Grannis says. “The retailers hone in on what customers like and what they don’t like.”
“Overall, the holiday season will be a solid season. We’re going to see luxury outperform some of the other sectors,” says Dana Telsey, chief executive officer and research chief of Telsey Advisory Group (TAG) in New York. Given the socioeconomic status of many tourists in the United States, tourism often helps the luxury sector to a far greater extent than other segments of the market, and Telsey sees the influx of tourists as making a decisive difference in the current season.
Gift CardsThe negative forecasts that question the effectiveness of retailers’ current marketing strategies do not take into account one ploy that analysts expect to have a huge impact — gift cards.
The recently released fifth annual NRF Gift Card Survey found that the cards are growing in popularity and projected that consumers will spend a total of $26.3 billion on them this holiday season. The comparable figure for 2006 was $24.8 billion. Moreover, the study found the individual consumer is expected to spend more on gift cards than he did last year — $122.59, compared to $116.51 in 2006.
Michael P. Niemira, chief economist and director of research for the International Council of Shopping Centers (ICSC), estimates the gift card market at between $15 billion and $20 billion for 2007.
While they may be a boon for retailers, gift cards also “create additional stress” for retailers, says Eric Beder, an analyst at Brean Murray, Carret & Co. in New York, because they move so much holiday traffic to the period after Christmas. Niemira estimates that 30 percent to 40 percent of all gift card redemptions will take place the week after Christmas and in January, totally changing the meaning of “stocking up for the holidays” at retail stores.
In the view of NRF spokespersons, 2007’s holiday sales growth may be the slowest since 2002, but growth will take place nevertheless. Sales will rise 4 percent to $474 billion, with luxury retailers in a “bright spot” as their customers maintain an impressive level of spending.
Article from the Rapaport Magazine - December 2007. To subscribe click here.