TOPICS > Economy

Back in Business?

November 28, 2003 at 12:00 AM EDT


TERENCE SMITH: After a disappointing holiday shopping season in 2002, this year retailers are hoping that an improving economy, stable unemployment rates and greater consumer confidence will translate into better sales. Here to discuss the outlook for the season is Nancy Koehn, a retail historian and professor of business administration at Harvard Business School.

Nancy Koehn, welcome. The National Retail Federation, an industry group, is projecting a 5.7 percent increase in sales this year over last year. How does that number strike you?

NANCY KOEHN: Reasonable. Perhaps slightly optimistic, but reasonably optimistic, Terry. Last year retail sales grew at what was regarded as an abysmal 2.2 percent over sales from 2001. 5.7 percent given the economy, stable unemployment, a calming geopolitical situation, at least relative to the possibility of war last year with Iraq and SARS, and, in some kind of sense, I think, on the part of economic indicators that things are turning around, I think we can expect something more robust than that 2.2 percent.

TERENCE SMITH: How important in dollar terms is retail to that overall economic picture that you were just referring to?

NANCY KOEHN: You know, it’s very important. We don’t tend to associate retail with gross national product or prosperity and plenty. But if you think about it, retail sales are well over $1.2 trillion every year. That’s a big chunk of consumption. Consumption itself is the biggest hunk of GDP. So when we talk about retail, what people buy in stores, we are talking very much about an economic issue, an economic indicator, as well as a business issue and a household issue.

TERENCE SMITH: What are the items that you think might do well this year as opposed to other years given, again, all those factors?

NANCY KOEHN: Well, I think we are going to see that jewelry will do well, consumer electronics, housewares I think will do well, a number of luxury goods. And when I say luxury goods, I’m not talking about just, you know large-karat stones or very, very expensive cars. I’m talking about products like those from Tiffany’s or Burberry’s, Coach handbags and leather goods. All of those products, I think we can expect to see very healthy growth, growth in excess, Terry, of that 5.7 percent.

TERENCE SMITH: Why do you say that? Why should luxury– which, by its very definition is something special and hard to reach– why should that be what does well in an economy that is only taking its first tentative steps?

NANCY KOEHN: That’s a terrific question. I think the answer is a little bit counterintuitive and has a lot to do with what savvy, smart retailers are doing, like Burberry and Coach, like Best Buy, like Target, which sells a range of goods which we don’t necessarily think of as luxury, and yet have designer imprints, have a cache and a stylishness to them which defies discount retailing as we usually think about it.

What those businesses are doing is targeting consumers’ hearts and wallets very carefully with a range of goods which have pizzazz and interest and some hopefulness to it. And I think what we are seeing on the consumer side in response to that is an appeal and an interest in having something that does have some zip, that does say “we are coming out of a recessionary or uncertain period, and I need some color. You know, I want a new pair of gloves. I may not be able to afford a trip to Disney World or a new car this year, but I certainly can have that Burberry scarf.”

And so it’s luxury defined a little bit different than we thought of it in the past. It’s luxury as an affordable bit of hope, an affordable bit of style, an affordable bit of self-identity.

TERENCE SMITH: Consumer confidence seems to have so much to do with all of this. You mentioned a factor quickly before– let me take you back to it– the international situation: Iraq, stability, the war on terrorism. I mean, how does that play in?

NANCY KOEHN: You know, I think turbulence in the larger environment has an indirect but important effect. It tells consumers that the future may be less predictable than they thought and that affects our consumption plans and our saving plans. And my own research shows, and many other people have found this as well, that consumers are just a little more cautious, a little more careful when they’re not sure that tomorrow is going to look like today or the next month is going to look like what we thought it did six weeks ago.

And so I think we have a very uncertain situation last year with the war with Iraq pending, terrorism; SARS added another whole layer of uncertainty. And I think while the situation this year is by no means completely stable relative to, say, the way most Americans perceived their geopolitical environment in 1995, it still looks better, easier, a little bit calmer than it did a year ago and I think we are going to see that translate into consumers opening their wallets just a little bit wider this year.

TERENCE SMITH: Does that suggest that if the headlines are bad on a given day or a week, that it could affect it negatively?

NANCY KOEHN: Again, a very good question. It can. It can across the board. What we also see though– and this is an interesting wrinkle, an interesting and ironic wrinkle– is we see that in certain kinds of moments of great turbulence, and here I’m thinking of the aftermath of Sept. 11, for example, consumers spend quite strategically. They buy things that make them feel safer.

So, for example, right after Sept. 11 and continuing well into last year, consumers bought very aggressively, very robustly on things for the home. They bought house wares; they bought consumer electronics; they bought home entertainment products; they bought things that made… they bought comfort food. They bought things that made them feel safer, more secure in a world that was suddenly perceived to be much less safe.

TERENCE SMITH: Let me ask you about the Internet and online shopping. Forrester Research is predicting a 42 percent increase in sales over a year ago to some $12 billion. I mean, is that what you see as well?

NANCY KOEHN: I think that perhaps is a very optimistic estimate. I’m betting on something more akin to 20- 25 percent, which would lower those numbers considerably. Still those are very healthy sales relative to overall retail sales, and what they reflect– very healthy growth, Terry– what they reflect is Americans’ increasing comfort and familiarity and sense of security with buying products online.

They reflect something else, as well, that is quite important in thinking about online sales, and that is consumers’ continuing difficulty with time and its shortage for most American families. The average American will spend about 12 minutes in a given store during the Christmas season. That’s because we are busy, we are time-pressed. We have many, many demands on our hours, and online sales offer consumers flexibility and a way of shopping in their house without the time, transaction, parking and other costs of going to a store.

TERENCE SMITH: So it will go up. All right, Nancy Koehn, thank you very much. We’ll let you go so you can go out and shop and do your part.

NANCY KOEHN: (Laughs) Thank you, Terry.