If you want to garner insights about the underlying state of the macro-economy, look no further than the behavior of holiday shoppers.
Sales are varying dramatically, depending upon venue. The dichotomy between the discounters and luxury goods sellers remains sharp as ever. After Wal-Mart Stores became more aggressive with their pricing, their disappointing start to the holiday season improved. Sears used early bird specials on Saturday in order to lure customers into their stores, while Macy’s 20% off coupons were in every paper. Both tactics generated "good customer traffic," and increased sales.
On the other end of the retail spectrum, business at luxury stores continues to be robust. The Associated Press reported "designer handbags, jewelry and items like $1,200 massage chairs being snapped up by well-heeled shoppers." A large mall operator observed "business on Saturday at luxury chains was up in the high single-digit to double-digit percentages from a year ago. For the rest of the merchants, sales were even with last year or rose a modest single-digit percentage from a year ago.”
The strongest retail products in November were building materials, whose sales jumped 1.1%, followed by Gasoline. Electronics and furnishings continuing their torrid pace, while winter wear remains somewhat soft, in light of the warmer than usual weather. Auto sales slid lower.
All this comes as no surprise: Retailers have "trained" consumers to keep their wallets closed until they hear Pavlov’s bell ring. This was evident last year, when the economy was noticeably slower than today. After playing and losing a game of "Discount Chicken" in 2003, the retailers ultimately cried "Uncle!" They dropped prices to avoid getting stuck with inventory post-holiday. Like a good trader, shoppers quickly learned the virtue of patience.
The annual dance between retailers and consumers has become an uncomfortably familiar ritual. It is a minuet that holds little risk for the buyers, but has become very high stakes for sellers. Their seduction routine is now well established: Consumers act coy. Retailers that hold off cutting prices get punished. They panic, drop prices, and run specials to generate additional traffic and sales. Shoppers reward them by snapping up discounted goods. Wait another year, and repeat.
I suspect this cycle is likely to be repeated until the economy becomes much more robust. “Time” is a luxury good beyond the reach of most shoppers. Until they value it more than their dollars, the hunt for bargains will remain an annual rite. This year’s holiday shopping season makes it apparent that we are not there yet.
UPDATE: December 14, 2004 6:59a.m.
Two additional sources which may shed some light on the "what do the retail numbers mean to the rest of the economy."
First, an entire NYT section on Retail
Second, a front page WSJ article, Behind the Dollar-Store Boom: A Nation of Bargain Hunters
click for larger graphic
Both are worth checking out.