It’s probably no surprise to Financial Armageddon readers that many media outlets are trumpeting this weekend’s jump in retail sales, with some even suggesting (praying?) that it means consumers are finally emerging from their recessionary funk:
Buyers are expected to log in for online sales on Cyber Monday.
Retail sales broke records during Thanksgiving weekend, hitting an estimated $52 billion in stores and online and more records the National Retail Federation said Sunday.
This year’s sales are up from $45 billion last year. A record 226 million shoppers visited stores and websites over Black Friday weekend, up from 212 million last year. The average holiday shopper spent about $400 this weekend, up from $365 last year.
Big Black Friday weekends aren’t always a sign of consumers’ confidence in the economy: The previous top weekend was in the depths of the recession in 2008. But this year’s holiday shopping was more of a splurge than a scrounge for cheap necessities.
But as is usual nowadays, there’s less there than meets the eye.
Among other things, there are a multitude of costly factors that helped bring about this “splurge,” including:
Emily Findley, 12 weeks pregnant, set up camp outside a Best Buy Co. location in Greensboro, North Carolina — 32 hours before the store was scheduled to open at midnight on Black Friday.
Sleeping on a makeshift bed of blankets on the sidewalk under the yellow Best Buy sign, the 24-year-old teacher and her husband Charles were determined to get their hands on a 42-inch, flat-panel Sharp Corp. television for $199.99, a savings of about $300, she estimated.
“I compare this to extreme couponing,” said Findley, who plans to spend about $500 on holiday gifts this year, up $200 from 2010. “It’s worth it. I want to save money.”
From Mall of America in Bloomington, Minnesota, to The Galleria in Houston, retailers unleashed a blizzard of deals as Black Friday — the biggest shopping day of the year — got off to its earliest start ever. The discounting has been more widespread than last year as retailers tried to woo shoppers spooked by global economic uncertainty and stagnant job growth.
Earlier sale times, longer store hours
“Black Friday Draws Younger Shoppers” (Bloomberg)
Retailers may have lured more shoppers on Black Friday as an earlier start to their bargain bonanzas drew younger consumers.
Toys “R” Us Inc. opened at 9 p.m. on Thanksgiving, an hour earlier than last year. Wal-Mart Stores Inc. (WMT) started offering its deals one hour later, followed by midnight openings at Macy’s Inc. (M), Best Buy Co. and Target Corp. (TGT) that drew young consumers to the biggest retail day of the year for the first time.
“It was definitely a younger customer, under 20 for the most part, and they were shopping in groups of friends, four and five at a time,” Macy’s Chief Executive Officer Terry Lundgren said yesterday of the crowd of 10,000 that waited at the chain’s flagship store in Manhattan. “It was almost a continuation of whatever social experience they were having hours before.”
Easier credit terms
CBS News correspondent Tony Guida reports that shoppers say they worried about over-extending themselves in these tough times, but retailers are ready for them with an old favorite.
The layaway is back.
Born in the Great Depression when people had little spending money and no credit, layaway is tonic for today’s great recession.
Retailers, fearing empty aisles, are turning to an old gimmick to rev up holiday sales.
“It shows that retailers are desperate to get people to spend money when they don’t have much money,” says Jack Otter, executive editor of CBS Moneywatch.
The Myles family, for instance, is buying bikes for the kids on layaway at a New Jersey Toys-r-us, saying they’re doing so because layaways let you “not overextending yourself.”
Walmart – the nation’s largest retailer – revived layaway for electronics and toys a month ago. It’s been a big hit.
“We’re getting new customers. We’re getting great layaway purchases,” says Laura Phillips, senior vice president for Toys and Seasonal Merchandising at Walmart.
“Free Shipping Erodes US Retailers’ Profits” (Financial Times)
Free shipping for online purchases is eroding the profitability of US retailers as they are compelled to offer the service – pioneered by Amazon – by fierce competition for the dollars of seasonal shoppers.
With end-of-year sales starting after Thanksgiving this week, on the day known as Black Friday, retailers including Walmart, Target, JC Penney and Macy’s have already reported reduced profit margins after introducing free shipping.
The proliferation of free shipping, albeit with restrictions, is a sign of retailers’ anxious attempts to woo consumers on tight budgets who have been hit hard by the weak US economy.
It also reflects the ability of Amazon – the dominant online-only retailer – to set a bar for price and other services that squeezes bricks-and-mortar rivals trying to capture a share of growing online sales. Wall Street expects their margins to shrink further before Christmas.
“The cost of getting the customers’ attention is going up, whether it’s because of free shipping, marketing or promotions,” said Adrianne Shapira, managing director at Goldman Sachs.
Increased advertising and marketing spending
“Holiday Outlook: A Boost In Ad Spending” (Media Life Magazine)
Strong retail spending will lift the ad economy
After a big slowdown in ad spending during second quarter of this year, it looks as though the media economy will be getting a retail-fueled bump to finish out the year.
Several ad categories stand to gain from what’s expected to be a good, though not great, holiday spending season.
Those categories include spot television, which lagged during the first half of the year following a decline in automotive spending, as well as spot radio and internet, which has been strong all year long.
“I’d definitely say holiday spending is up,” says Scott Kushner, vice president and associate media director for local broadcast and network radio at RJ Palmer in New York.
“I think it will be stronger than last year.”
Adding extra services
“Retailers Pulling Out the Stops For Holiday Season” (Gazette.Net)
More midlevel department stores, which have lost customers to discount retailers, are offering personal shoppers to attract consumers who have used the service at upscale stores, Hamilton said.
“Advertising these services also makes these stores, like Macy’s and J.C. Penney, seem upscale,” she said. “Like expanded store hours, this additional service is made possible by the high number of job seekers. Plus, personal shoppers may work mainly on commission, meaning that their cost to the stores is relatively low.”
Pressures on household budgets
“For Black Friday First-Timers, Not a Night of Conversion” (New York Times)
Some first-time Black Friday shoppers said the tough economy had made getting deals a necessary part of buying Christmas gifts and for everyday staples.
In Dawsonville, Ga., Meredith Blinder, 23, a photographer, met her sister, Elizabeth McDermott, 21, and a cousin at an outlet mall. All first-time Black Friday shoppers, the women said they wanted to watch the frenzy, and liked the late-night opening time.
Ms. Blinder, who recently got married, said she and her husband cut coupons and used generic goods instead of name-brand items. She said the deals she got at the mall, like 40 percent off on a sweater and scarf from Ann Taylor Loft, helped her budget, too.
“If you’re saving money on shopping, you can reallocate that to other things,” she said.
At the Times Square Toys “R” Us just after 10 p.m. on Thursday, Yasmin Santiago and Dexter Valles were trying to fit several boxes of diapers into a small hand cart. The couple, parents of twins, said the special on diapers was worth the late-night trip, since Ms. Santiago was on leave from her job as an assistant teacher.
“We have twice the children, and half the income,” Mr. Valles said.
The truth is, while revenues may have seen an uptick that makes for breathless headlines, odds are that profits will have suffered equally as dramatically over the past few days as retailers pulled out all stops and competed head-to-head for cherry-picking and cash-constrained customers who are still in no position to spend like they once did.
I would also point out an ironic twist to this weekend’s “positive” turn-of-events. As ShopperTrak founder Bill Martin notes in “Black Friday Sales Rise 6.6% to Record: ShopperTrak,” the end-of-the-week increase was” the largest year-over-year gain in [that firm’s] National Retail Sales Estimate for Black Friday since the 8.3 percent increase we saw between 2007 and 2006.” For those with short memories, that weekend arrived just before the economy and just after stocks began to careen into a dark abyss.
Déjà vu all over again?