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Shopping Signals
Dear American Capitalist Reader,
For the past several years, I have always gone to a huge, higher-end mall near our home north of New York City on the weekend after Thanksgiving. Not to shop, mind you, but to gain a sense of the business climate and the intensity with which consumers are parting with their hard-earned money. For my money, it is one of the best things an analyst can do over a holiday weekend. Trolling the big retail malls for a few hours with your eyes open can tell you what people are buying, which stores they are going into, and most importantly, a “feeling” about how frantic they are. It is an effective, if unscientific, glimpse into the health of the overall economy, and has served me very well in the past. For instance, watching the shoppers during the 2001 holiday season told me that fears of a post-9/11 collapse in consumer spending were overblown.
This year, the malls were undeniably full. According to the folks who track these things, American shoppers spent some $9 billion this past weekend -- 6% more than last year. But while the numbers seem strong, in contrast to the past couple of holiday seasons, I noted that shoppers seemed to be carrying fewer bags around. I also noticed a greater proportion of bags emblazoned with the logos of discount retailers such as Target and fewer with the likes of Neiman Marcus, implying that perhaps consumers are shifting somewhat and giving more business to the so-called “upscale discounters.”
Pricing is also playing a greater role this year than in recent years. Many major retailers had dramatically cut prices even before the holiday. But the strong spending is coming at the expense of retailing margins, which implies weaker earnings in the first quarter of 2007. For its part, Wal-Mart -- whose numbers are not part of the 6% total reported above -- reported a lackluster weekend in spite of price cuts literally across the board. Food, electronics, appliances, some clothing, toys, pharmaceuticals, etc., were all marked down in an attempt to spur spending. It didn’t work.
To me, the biggest conclusions from the first weekend of the holiday shopping season are that (1) consumers are still hitting the stores, allaying fears of a buyers’ strike this fall, and (2) prices are lower, but they are not spending at the same stores.
There were fears that consumer spending would evaporate as the housing bubble deflated, and if this past weekend is any indication, this is not happening. But shoppers are clearly shifting from the margins of the industry to the middle. At least in our mall, consumers did not seem to be spending with the same abandon, and are favoring the middle of the segment at the expense of the low and high end. The bottom line: Favor the high-end discounters at the expense of the chains at the top and bottom of the scale.
Best Regards,
Steven Lord
Editor, GRESSOR