Fox Xmas Retail Discussion

Today’s discussion about 2003 holiday retail sales on Fox (what I jokingly refer to as the “Christmas Calvacade of Jews“) will be on between 3 and 4pm. The discussion is tentatively titled “Whether the retail Grinch really stole Christmas.”


Its tough to cover so broad a subject in only 5-7 minutes, here’s what I hope to touch upon:

First, this has been the best Christmas season for retailers since 1999.

The final numbers may have disappointed some overoptimistic analysts, but they really were quite respectable. I think some observers got carried away by a few data points, and set their expectations way too high. Mostly, this was due to the 3rd Quarter GDP data, and they way people extrapolated it.

Looking at the actual sales and shopping habits of consumers in 2003, we take note of these three trends:

1) Luxury goods were far and away 2003’s best performers:
The reasons? Luxury shoppers are feeling particularly flush in ’03: The stock market rally has a wealth effect, holiday bonuses were respectable this year, and, of course, the tax cuts this year all put alot of money into the hands of the luxury goods shopper.

The flip side of this was the weaker than expected performance from the Discounters. Two reasons for this: Price sensitive shoppers are not feeling as flush; Their tax rebate checks from the summer has long been spent, and as a group, they are still a little nervous employment wise.

Additionally, too many stores played a game of chicken — and lost. They waited too long to cut prices. They did eventually cry Uncle. Between WalMart, Target and the outlet centers, and of course, comparison price shopping engines on line, we’ve become a nation of very price savvy shoppers.

Finally there’s a trend towards New American Luxury — i.e., “Trading Up”. A couple of marketing guys from Boston wrote a book that focuses on the middle market — why buy mediocre? If it matters, buy the best, and pay for it by buying the cheapest you can find in everything else. Perfect example: The NYTimes had an article about how rear projection TVs ($2,000 – 5,000) are sold out across the nation. From Sears down to local chains, the retailers and manufacturers completely underestimated demand.

Believe it or not, in this category, its not the premium item. The flat panel Plasma screens — at $10 – $20,000 — are the luxury item in his category.

2) Gift Card purchases increased:
Last year’s trend toward Gift Card purchases has accelerated. Solves a lot of gift selection issues, and avoids the dreaded Seinfeldian problem of “regifting.”

Retailers expect to sell $45 billion worth of gift cards — more than 5 percent of total retail sales this season. Recipients often spend 15 to 20 percent more than the face value of the card, another 10% — $4.5 billion worth — are never redeemed.

From a corporate accounting perspective, stores can not record sales of gift cards until they are redeemed for goods. (Recall how a few years ago, software companies got into trouble for treating new contracts as revenue — before the goods shipped; That’s improper). So this trend somewhat understates holiday sales — And, it also creates a nice spillover effect into January. It extends the holiday retail season somewhat.

3) On line stores continue to grow rapidly (more so for the “non pure-plays”):
37 of the 50 largest internet stores are also Brick & Mortar retailers. Wal-Mart, Sears, Best Buy, Target, Radio Shack, J.C.Penneys, Starbucks, William Sonoma, all did a brisk business on line.

We saw a continued increase in online sales this year; That’s part of the reason we weren’t put off by the Snow on 2 consecutive weekends in the North East . . .

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