An Iffy Outlook For Holiday Sales

  • Share
  • Read Later

Most consumers are of two minds–they want to see the economy improve and they also want to see rock bottom prices (50% OFF) on the things they will be buying for the holidays. The contradiction is one most of us live with, and it’s one reason why retailers can’t seem to get traction. The latest retail sales numbers reinforce this idea . The news from the October retail sales report, which came out Monday, was generally received as positive, though it wasn’t good enough to power a big  stock market rally. Maybe that’s because the numbers, while not bad, weren’t really good, and that has implications for the holiday selling season.

Retail sales rose 1.2% in October, the U.S. Department of Commerce reported. That the biggest monthly gain since March– though a major part of the gain owes to a 5.7% rise in auto sales. Big decisions like car purchases don’t tell you a lot about how loose people are with their everyday spending decisions, and the car numbers also bounce around from month to month. For that reason, the analysts at High Frequency Economics strip out auto sales as well as building materials (which were also up) to get a more useful x-ray shot of consumer health. (Their measure of core consumer spending also excludes two staples, gasoline and food.) After stripping out those factors, HFE analysts conclude that real consumer spending rose about 0.2% in October, which reinforces their view that consumer spending in the 4th quarter of 2010 will rise at a mild 2.5% annual rate.

In the October report we also got a sense of how and where money was flowing. Clothing stores got a nice 0.7% boost in October, while mail order and internet sales rose 0.8%. Furniture store sales fell as did the sales from electronics and appliance stores.

A longer term set of stats is available from the US Census data, and Mark Doms, the Commerce  Department’s chief economist,  had some interesting observations on these stats.  Since 2008, he notes, furniture stores have steadily been losing share of consumer spending– not a big surprise given the collapse in housing. Electronic and appliance stores have also lost share of the consumer dollar since then, though they made a partial recovery in 2010. The big winners in the consumer spending shifts are, first, electronic shopping (i.e., internet) and mail order, which rose 23.7% since the end of 2007. Warehouse clubs were the other big gainer in the consumer world, with their share of the dollar rising 9.2% over that period.

What do these trends say about shoppers?  My read is that people everywhere are more thrifty and they follow the bargains. True, the internet doesn’t always offer the cheapest price, but it does permit easy price comparisons among retailers. Similarly, warehouse clubs offer volume discounts and while that may not save money because people can easily over consume in such clubs, it has illusion of  super-smart shopping. There is no reason to believe these trends will change over the next two months.

There is a bit of hope for high-end retailers this holiday season, according to economist David Rosenberg of Gluskin Scheff, who is examining the consumer confidence tea leaves:

One interesting development in the data is the divergence we are seeing between low and high-income household sentiment measures — the former edged up to 65.0 from 63.7 and the latter turned in a much more decisive increase, and to a higher level too, to 77.3 from 74.9. This would tend to support the increasing view that luxury retail sales will be an outperformer heading into the holiday shopping season.

 Of course, as Rosenberg  notes, that thinking only holds up if the stock market hold up. Should we hit a big air pocket in the market–such profit taking often occurs after a big rally–high-end consumers would quickly tighten the purse strings. Rosenberg crunched some interesting stats on this sensitivity: He finds an 82% correlation between the stock market and high-end retail sales (think jewelry), a 70% correlation between stock prices and clothing purchases, and just a 60% correlation with food.  

Advice to high-end retailers: Keep one eye on inventories and the other on the Dow.