MARGARET WARNER: It’s been a year since the recession first took hold in the U.S., and its impact only seems to be growing in size and scope. Tonight we look at the latest fallout for both business and the states.
First, a look at how retailers fared during this pivotal holiday shopping season. Jeffrey Brown has that story.
JEFFREY BROWN: And for that, I’m joined by Dana Telsey, a retail analyst and head of Telsey Advisory Group, a research and consulting firm in New York City.
Well, Dana, I know hopes weren’t too high, but it’s turning out even worse than expected?
DANA TELSEY, Telsey Advisory Group: Yes, it was a very difficult season. It began on Black Friday with a heavy amount of markdowns. Those markdowns continued all the way through. And the only strength we really saw was the pickup in traffic right before Christmas Day.
JEFFREY BROWN: For some perspective here, how far in advance would retailers be doing their orders? I mean, would they have known how bad the economy was going to be? Or how far in advance do they have to plan for a season?
DANA TELSEY: Typically, retailers plan anywhere from six to nine months in advance in ordering their goods. As a result, they were all ordering merchandise for what seemed to be a better Christmas season.
When the events of September and October began to unfold, whether it was the volatile stock market, the lack of access to credit, declining home values, and rising unemployment, it just really made it very challenging for the Christmas season and the only response from the retailers was, “Promote, promote, promote,” in order that the shelves remain clean by the end of the holiday.
JEFFREY BROWN: Now, for more perspective, when I was looking at the number today in the drop, if you take out the gas prices, it was something like a drop of 2 to 2.5 percent in retail sales. Now that doesn’t sound like a lot when you compare it to, you know, what we’ve been seeing in the stock market, for example.
But I gather in the retail world any kind of drop at this season is bad, right?
DANA TELSEY: We haven’t really had a holiday season sales decline. The lowest we’ve seen since 1985 was 0.5 percent gain in 2002. So given that this will probably be the first decline, it is of significance.
Decline in luxury sales
JEFFREY BROWN: So what sectors were hardest hit?
DANA TELSEY: The luxury goods sector was definitely hard hit. We saw the high end to the low end be weak, but the amount of the decline in the high end and, frankly, just the rate of decline came in greater than expected.
Women's apparel also suffered big declines. And we've been seeing women's apparel be weak, but now it's even weaker than originally expected, with many women's apparel retailers taking markdowns of as much as 60 percent and 70 percent off.
JEFFREY BROWN: And consumer electronics, always big this time of year.
DANA TELSEY: Always big this time of year, but televisions were tough. The sub-$300 category is what was doing well. And today it was just announced that Wal-Mart will be selling the iPhone at a bit more of a competitive price than others.
JEFFREY BROWN: And were there any bright spots?
DANA TELSEY: The bright spots were the discounters. Wal-Mart, Dollar Tree, every income level went a little bit lower. And, therefore, Wal-Mart was able to gain share.
Those consumable items really helped. In addition, the warehouse clubs, while not as strong as they had been, are getting better quality, brand name goods.
JEFFREY BROWN: And what about online? It's something we've been watching over the last decade or so, as it creeps up and takes more of the percentage, more of the share. What happens as other things go down? What happens to online shopping?
DANA TELSEY: Online sales also went down. Online sales were slightly negative. They were less negative than the mall sales, but it certainly seems they were negative, too.
In today's announcement from Amazon, which announced their best season in I think 14 seasons, it was interesting. We got the number of units sold, but not the dollar volume.
And one of the elements of that is the fact that probably a lot of goods had to be promoted. And we'll see everyone's dollar volume less than it was last year, while everyone moves more units.
JEFFREY BROWN: And let me ask you, as we look forward now, you know, there were already some retailers and chains in trouble, already some declaring bankruptcy. Would you expect to see more of that going forward?
DANA TELSEY: I would. So far, year-to-date for consumer companies, there have been a total of 34 bankruptcies. That's more than we've seen for the entire year, many other years, where the latest total was around 29.
As we head into 2009, the fact that some retailers have lack of access to credit, the competitive nature of the discount stores taking share, and the fact that many of these retailers just aren't getting the sales volume enough to pay their rent is leading to many retailers shutting their doors.
JEFFREY BROWN: One last thing. I'm just curious about consumer expectations at this point. You mentioned that we're all familiar now with the promotions, the deep discounts, and it looks like they'll continue on. Are we at the point where that's all that consumers will buy and no one wants to pay full price going forward?
DANA TELSEY: It seems that everyone has been trained that 50 percent and 60 percent off will happen. I think what we're going to see retailers do is their entry price points will be adjusted downward and, by the second quarter, retailers will have ordered much fewer merchandise and, as a result, at some point, equilibrium will come back into balance, where there will be a full price, but it may not be the same full price as it had been just six months ago.
JEFFREY BROWN: All right, Dana Telsey, thanks very much.
DANA TELSEY: Thank you.