Holiday Relief May Emerge as Mirage

Chicken Little might be right this time.

Every year, after the National Retail Federation makes its annual prediction about holiday season sales, which this year were pegged to gain about 2%, some one or more statistics alarm observers who immediately predict that the sky is falling on retailers. As a result, retail stocks decline and consumers, conditioned to see retail weakness as a prelude to bigger bargains, wait for prices to bottom out, a factor that has pushed a larger proportion of holiday shopping into the days immediately prior to Christmas.

NRF acknowledges that the late season sales push has become critical to seasonal success for retailers. On Dec. 19, it announced results of a study conducted the week before Christmas that said 20 percent of consumers hadn’t begun their seasonal purchasing and that holiday shoppers on average had bought only about 65 percent of what they intended.

Take those nuggets of information and add the results of another NRF survey suggesting that consumers had spent about seven percent more on Black Friday weekend this year than they did last, and the idea that a late sales push may salvage the holidays for retailers seems plausible.

It’s not only NRF talking up holiday prospects. Economist Craig Hovey, of online college Kaplan University and author of The Complete Idiot’s Guide to Global Economics, used Black Friday sales gains to make the case that the U.S. economy is in better shape than it appears.

NRF and Hovey seem to be overlooking a number of important facts, though. This year’s holiday season was shortened by a late Thanksgiving, allowing consumers less time to shop. The NRF’s own numbers demonstrated a Black Friday shift away from specialty stores where consumers pursue the latest, pricey, high-margin products to supermarkets and drug chains where they can purchase alternative, less expensive, lower margin gifts. Also, consumers have been more practical in purchasing, choosing gifts that can be used every day, which may put a crimp in post holiday sales as fewer folks will have to replace the little luxuries that brighten their lives.

Couple that with just-released government statistics demonstrating that November was the fifth straight month when consumers cut back on spending and that jobless claims gained more than was expected in the week ended Dec. 20 and things look darker.

Even the supposed gain in Black Friday sales may betray hopes for brighter-than-expected holiday sales. Final NPD Group figures from the week including Black Friday indicated that at least two product categories that drive holiday sales, small appliances and home electronics, came up short. Small appliance sales declined by 9.3 percent, and Peter Goldman, an NPD analyst, said the shift to more practical gifts was evident. For example, consumer spent more money on upright vacuums and drip coffee makers than any other small appliances, and those aren’t gift items in a typical year.

Home electronics sales in brick and mortar stores experienced their first-ever decline during this Black Friday week, with revenues down eight percent, according to NPD. A consumer shift to bargain hunting online hurt store sales.

Except for doorbuster TV deals, electronics discounting seemed lower this year, NPD asserted. Yet existing technology such as LCD TVs always experiences a price squeeze over time, leaving less effective discounting room. Also, NPD noted that little new and exciting had emerged to drive the market. So shallowness of early season price cuts may necessitate fire sales later for retailers who gambled on demand but got left holding inventory.

All things considered, the Chicken Littles may have a clearer vision of retail prospects in this holiday season than the Pollyannas.