Analysts say people are buying necessity items, like furniture and appliances; and those familiar with luxury goods say that precious metals and jewelry are in high demand. However, market researchers have mixed feelings about the upcoming holiday shopping season.
Spending growth so far is better for 2010 — a 2.5 percent increase compared to a 2.7 percent decline in 2009 — but spending levels have not reached those of 2007. On the downside, consumers are planning to spend the same amount — if not less — as last year when it comes to holiday shopping — at least until unemployment numbers go down and the housing market stabilizes.
“There’s lots of uncertainty,” said Scott Krugman of the National Retail Federation (NRF). “From an academic perspective, we are out of the recession, but consumers are not buying into that.”
Scott Hoyt, senior director of consumer economics at Moody’s Economy.com, said that consumers are still keeping their hands in their pockets. “Necessity-oriented items at lower price points are doing better than luxury goods,” he said, noting that retailers could have overstocked on merchandise when economic forecasts were better than they are now. “But we should always expect a shortage of hot items,” he added.
What item will be the biggest seller this year? Besides durable goods, Britt Beamer, chairman of America’s Research Group, said to expect an increase in flat-screen television sales, due to declining prices. “Because price boards continually drop on flat panel and HDTV sets, they will be the hot items this Christmas,” he said.
According to a preliminary holiday sales survey of 1,000 adults nationwide conducted by America’s Research Group, it will not be an extravagant holiday for many in 2010. The survey found that 46 percent of American adults will spend the same amount as in 2009, 43 percent will spend less and 11 percent will spend more. “From my perspective, the number of people planning to spend less is four times the number planning to spend more,” Beamer said. “It’s the worst I have seen in 20 years.”
Higher-income consumers are also planning to curb spending. When the group spoke with adults who make over $75,000 annually, they found that 55 percent plan to spend the same as last year, 25 percent will spend less and 20 percent will spend more. “That’s not good, but at least the upper income is not inclined to drive the pickup truck over the edge of the cliff yet,” Beamer said. “Others at other income levels clearly are.”
When lower-income consumers were asked why they would spend less money this season, 25.2 percent said that things cost more than they want to spend, 22.8 percent don’t want to spend money at all, 17.3 percent said credit cards and bills were preventing new purchases and 14.2 percent said they were not finding what they wanted.
It seems as if Americans are finally trying to reduce their debt. “We are moving away from credit cards and going to cash and debit,” Beamer said, adding that a commitment to spend only “cash in hand and money in the bank” restricts shopping.
The diamond industry looks surprisingly promising. According to Des Kilalea, an analyst at RBC Capital Markets, diamantaires are anticipating a better season due to stable prices for rough diamonds, notwithstanding the increased rough from Zimbabwe in the market. “I’m slightly surprised,” he said, reiterating that it is too early to offer precise numbers. “Low interest rates and low costs of holding inventory are suggesting a better season than last year.”
Carlos Sanchez, associate director of research at CPM Group, also has a positive outlook. “I see increased gold jewelry demand based on the fact that economic activity is expanding, although it’s lower than last year and earlier this year,” he said, adding that record-high prices for gold and silver are also surging buying activity. Sanchez noted that the price of gold will most likely remain “choppy” over the next few months, with demand constantly in flux.
On the bright side, all analysts say that we shouldn’t predict a blue Christmas just yet. Hoyt said that if the stock market picks up, things can turn around quickly.
“It’s kind of a wild card that’s hard to predict,” Hoyt explained. “High-end consumers are keeping their cool in regard to the stock market. If we were to get a stronger run than we anticipate, jewelry sales could go up.”
Beamer agreed. “Right now, consumers are not spending much money but a lot can happen between now and December,” he concluded.
Article from the Rapaport Magazine - October 2010. To subscribe click here.