Retail Reveals Economic Achilles’ heel

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.

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  1. David Bennett commented on Dec 13

    I think you are on the mark except in the assumption that a better economy will end this game.

    Shopping is in many respects a hunter/gatherer activity, “deals” are a big find, a psychological often social victory. Shopping in and of itself is a purpose. More money does not mean that people don’t want deals, those who most focus on such a thing have found a winning strategy. Wait, it works, especially in a climate where retailers believe that they must come close to fully stocking products, that failing to meet the customers desire in this direction costs other sales.

    hose who shop early for Christmas tend to be those who value shopping as an activity. Those who come in late tend to be more price insensitive, they value convenience, but the serious shoppers have played their game. If social shifts change the behavioors of those with the shopping passion, the result is likely to be more towards the current late shoppers, less desire for goods, less focus on purchases, less purchases.

    I suspect that after decades of manipulation the retailers have now learned the consequences. They are being manipulated and I doubt if this acquired skill will quickly go away. Only those who eiher consistently offer low prices or who offfer true service will have much protection.

    On several levels we are moving towards more perfect markets. Probably the rational standard retailer activity is to put the discounts out there at the beginning.

    Lower margins are part of the game, right now certain niches are protected, but consumers are going to find out there are places around most urban areas where you can go in, get individually measured, provide fabric if you don’t like what they offer and have clothing custom made in China. Service is already pretty good and when it acquires a certain “ambience” then a lot of high end fashion will get hit.

  2. Will Sargent commented on Dec 14

    Along the same lines — I assume that the only reasons why coupons and price discounts are effective is because not all customers know about them. The internet has already done a fairly good job of comparing prices, but I didn’t know that coupons were generally available and shared on the internet.

    Are there any sites that you’ve found to be helpful in tracking price movements? I ask partly out of curiosity and partly out of greed — if shopping is a game, I want an edge.

  3. David Bennett commented on Dec 14

    Hi Will:

    There are price comparison engines like One place to keep track of developments is at:

    Currently about the third article down is on price engines, he does a lot of stuff on this various search engines. Also good basics on investment (his other blog is “”)

    The price comparison engines pick up only those who’ve payed, but a number of them do have “reputations engines.”

    Google can find other stuff if you have product name, it also provides clues to non standard products if you can search a while. I assume at Yahoo groups and elsewhere there are probably lots and lots of “frugal shopping” groups.

    One next stage in net evolution is the search engines (and include people in this category) that categorize the many small businesses.

    By the nature of things these may be kind of hidden away, because one wants to help good retailers, but not to bring in so many customers that they run out of stock or lose their charm.

    One trick is to drop names here and there. is the way to go for used books, it’s a collectives of thousands of small sellers.

    For dried mushrooms I’ve had pretty good luck from this guy.

    A quarter pound bag of dried morels (25 bucks) is a good present for the gourmet types.

    is a good place if you want to browse for jade. She takes the time to photo and describe each piece. While relatively clear to naviagate it does lead to other sites (for example in the same format. Prices are significantly less than in Chinatown stores, lots of pieces under $100.

  4. 张家界 commented on Jun 19

    Very good Thank author this article is quite good!

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