Retail Fading

Forget forecasting: You can’t even begin to think about the Future if you don’t understand the Present.

Case in point: Holiday Retail sales.

You may have overlooked the Black Friday weekend numbers, as the headline emphasis was on well, how strong they were relative to expectations. On that Friday, we saw an 8.5% gain thanks to huge discounting and door-buster giveaways.

The thinking seemed to be "Sure, we lose money on each sale, but we make it up in volume!"

Amazingly, the cheerleading in the space seems to be abating, as the MSM is now clued into the problem — and reporting it freely. The remarkably sanguinity we have seen over the years is no more.


courtesy of NYT

Consider the following articles, after the jump, on Consumer spending, sentiment, and retail sales :


Media Coverage Holiday Retail Sales

NYT:  It’s December, and America Is Not in a Buying Mood 

AMERICANS have grown much more pessimistic about both their own future and that of the economy, according to surveys being released just as the holiday shopping season gets going.

While it is unclear how much that pessimism will influence shopping, the pollsters are finding that fewer Americans say they are planning major purchases than at any time in recent years, and that the proportion expecting the economy will create more jobs is at its lowest level since 1974…

Most Americans are not pessimistic, with substantial majorities saying they expect economic conditions to remain about the same. But among those who see a change coming, there are now more expecting business conditions to get worse than better and more expecting employment to fall. Americans who foresee their own income rising still outnumber those who expect to see it fall, but the proportion expecting a decline, 11 percent, is the highest since mid-2003."

WSJ: Consumer Gloom Adds to Recession Risk

"Waning consumer confidence in November, reported by the Conference Board, may signal trouble ahead for consumer spending. Another troubling sign: house prices nationwide in the third quarter posted their biggest declines on record — 1.7% from the second quarter and 4.5% from the year-earlier period, according to the Standard & Poor’s/Case-Shiller index. Stone & McCarthy research economist Ray Stone tells Paul Lin the 4.5% decline in the S&P/Case-Shiller home prices data suggests we haven’t seen the bottom in the softening real estate market, which may mean tough sledding for retailers.

The drops in consumer confidence "increase the risks heading into 2008," said Lynn Franco, director of the Consumer Research Center at the Conference Board, a nonprofit business-research group in New York. "But it remains to be seen in the next month or two as to whether these declines are more of a shock or if they’re a recession signal."

Bloomberg: Holiday Sales Miss Forecasts With Discounts in Demand

"U.S. retailers, offering holiday
discounts of 50 percent or more this week, may see profits erode
even as customers flock to stores.   

Wal-Mart Stores Inc. will mark down toys and TVs online
through this week, while Kohl’s Corp., the fourth-biggest U.S.
department store, sold jewelry at 60 percent off during the
first days of the holiday shopping season, which started the day
after Thanksgiving, so-called Black Friday. Analysts said a lack
of "must-have” products in 2007 means retailers will rely on
lower prices, threatening margins in the biggest quarter of the

Sales in November and December may increase at the slowest
pace since 2002, according to the National Retail Federation, as
rising fuel and food prices discourage consumers from purchasing
higher-priced gifts. The NRF said shoppers each spent an average
3.5 percent less this year during the weekend after

BusinessWeek: The coming consumer crunch

"The long-awaited, long-feared consumer crunch may finally be here. That might not mean an economywide recession, but the pain for American households will be deep.

In recent years the U.S. mostly has seen narrowly focused downturns, where a few sectors are hit hard while the rest of the economy and financial markets remain relatively unscathed. In the dot-com bust of 2001, for example, tech companies and stocks took it on the chin, while consumer spending and borrowing sailed through without a pause. This time the positions will be reversed, as consumers tank while much of the corporate sector stays on track.

It’s been a glorious run for the consumer. In the past 25 years, Americans have kept shopping through good times and bad. In every quarter except one since 1981, consumer spending rose over the previous year, adjusted for inflation. The exception was the first quarter of 1991, and even then the decrease was a mild 0.4% dip."


Even the NRF is somewhat chastened:

Black Friday Weekend Traffic up 4.8 Percent as Consumers
Shop for Smaller Ticket Items
–More Shoppers Helps Make Up for Lower Consumer Expenditures

By their standards, that is unusually restrained.


It’s December, and America Is Not in a Buying Mood 
NYT, December 1, 2007

Consumer Gloom Adds to Recession Risk   
WSJ, November 28, 2007; Page A4

Holiday Sales Miss Forecasts With Discounts in Demand
Chris Burritt
Bloomberg, Nov. 27  2007

The coming consumer crunch
Michael Mandel
Business Week 10:43 a.m. ET, Mon., Nov. 19, 2007


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What's been said:

Discussions found on the web:
  1. Mike commented on Dec 4

    Cars… Houses.. and Carpet?? Odd third choice.

  2. W.Edwards commented on Dec 4

    I’m assuming it’s viewed as an indicator of the desire to put money into home improvement.

    I wonder what else would be a good measure for this? Paint? Jacuzzi tubs?

  3. Groty commented on Dec 4

    Abby Joseph Cohen is bullish on stocks for ’08. (Shocker).

    Ben Stein’s head must be spinning after his Goldman hack job in the NYT this past weekend.

  4. TS commented on Dec 4

    The psychology of the run-up to Black Friday — the 4:00Am start times and ridiculous pricing — reminds me of all the “huge discounting and door-buster giveaways” this past summer, in an attempt to sweeten sales of new (and, no so new) homes.

    It’s the same logic: “Sure, we lose money on each sale, but we make it up in volume!”

    And, how’d that work out?

  5. kett82 commented on Dec 4

    If you are in the carpet business…you are in trouble…

  6. ken h commented on Dec 4

    My wife to get some Christmas decorations this weekend and bought most at 50% off already….she had never seen this until after the holidays.

    If it smells like sh!% and it looks like sh!%….it probably is…..even with the likes of Dennis Kneale promising it’s a Baby Ruth!

  7. stewie commented on Dec 4

    Or a Toblerone.

  8. Wayne commented on Dec 4

    Another thing I have noticed in the past couple of weeks are the increasing number of retailers providing free/bonus gift cards with purchases that can be used early next year. An obvious sign that they know they are in trouble after the holidays are over!

  9. Scott Frew commented on Dec 4

    Giving, But Not Gifts

    Yeah, and now we can title it, The Hedge Fund Manager Who Stole Christmas. Ray Dalio, who runs Bridgewater Associates’ $150 billion plus or minus under management, has launched a campaign against the rampant consumerism of Christmas. What would Eddie Lampert say?

  10. David commented on Dec 4

    The average guy is struggling to get by, with inflation, nickel n dine taxes, almost constant alms-giving for everything under the sky, we have little leftover.
    We are beginning to see the cracks in every pension fund, money market fund, and on top of that lower home values, and also CEO’s who were so stupid to get lead into per-SIV CDO etc. etc.. subprime mess.
    Yes, spending, sentiment, and retail sales will be down, because soldiers (Consumers) can only take so much before they say FUBAR.
    However, I do believe most people are optimictic, and our freedoms will win out.

    “I would I could not think it: that thought is bounty’s foe; Being free itself, it thinks all others so.”
    William Shakespeare

  11. muckdog commented on Dec 4

    Love. The. Negativity.

    Consumer sentiment is one of the worst forward-looking indicators in the universe.

    When has consumer outlook for the future been this bleak before? Why, March 2003.

    Was March 2003 a good time or a bad time to be invested in the stock market?

    B Aggressive.

    B-E Aggressive.

    B-E A-G-G R-E-S-S-I-V-E

  12. ef commented on Dec 5

    A few years ago, all the talk was, “where is the demand”, “the demand economy”. Somehow that got shifted into rambo-like, guerrilla marketing mania. If you watch Oprah, there was a household where they removed 75 tons of garbage from inside their 3000 sq. foot home. They literally could not move, couldn’t find the bed, and there were just 2 people in 3k sq ft. She has had similar folks on. But, those of us who experienced a death of a loved one will know, when our parents die, and we die, we’ll look back at those lives, and it won’t be all the clothes or knickknacks bought (that we sold at a garage sale for .25), but our experiences and how we treated people and how they treated us.

    But, if companies are going to give stuff away during the 12th month of the year in some sort of frenzy, why buy anything needed during the 11 other months.

    PS: try to get stuff inexpensively all year round.

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