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| HOLIDAY SHOPPING | |
December 27, 2001 |
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Two views on the state of consumer spending during this year's holiday shopping season. |
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A surge of last minute shopping has helped slightly; but low prices
has left profit margins low and nonexistent. The combination of a shrinking
economy, a spike in unemployment, and post-September 11 uncertainty
dampened consumer spending in the critically important selling period
between Thanksgiving and New Year's; usually about 25 percent of annual
sales. SHOPPER: We're trying to trim whatever we're purchasing and we're limiting the number of gifts and the number of people we invite over to our house. ELIZABETH FARNSWORTH: Some chains bucked the trend, though. Wal-mart and Target reported stronger sales than expected-- up as much as 6 percent. As people traveled less and stayed home more, consumers spent big on items like high technology entertainment systems and video games.
SHOPPER: Actually in our family that we talked about ratcheting down the number of gifts that we're going to buy, thinking a little bit deeper about life and what's important, and running around and buying a whole lot of things isn't necessarily the best way to celebrate the season. Maybe thinking about some other things that are a little more important: Family, and where you're going. |
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| A slow shopping season? | |||||||||||
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TRACY MULLIN: Well, there's no question it's been very challenging for retailers. First, the economic slowdown and then of course September 11. So it's been a big challenge for the retail industry. We're expecting about a 2.5 to 3 percent increase in holiday sales over last year, which is a very small increase. ELIZABETH FARNSWORTH: But Sandra Shaber, it could have been a lot worse, couldn't it? SANDRA SHABER: It's not as bad. It's not as bad as expected. And it depends on who you are. If you're selling, as Margaret pointed out before, if you're selling DVD players, if you're selling home theaters, if you're selling electronic games, you probably did pretty well. On the other hand, as you also pointed out, if you're a traditional department store selling sweaters and scarves or a specialty retailer selling other kinds of apparel, it was a pretty bleak season. ELIZABETH FARNSWORTH: Sandra Shaber, the spike in unemployment, the shrinking economy and the post 11th uncertainty all played a role. What else? SANDRA SHABER: Well, there are certain long-term trends, too, that perhaps were reinforced by the events of September 11. For example, there has been deflation, which means this constant decline in prices, for a lot of retail goods, particularly soft goods, for years now.
ELIZABETH FARNSWORTH: And Tracy Mullin, what else do you see as factors in this slow shopping season? TRACY MULLIN: Well, we've seen the consumers change the way they think, the way they act. They're buying more of what they need, not what they want. And that's a fairly radical shift in consumer spending. And we actually saw it begin early in the year, and we've seen it continue. People are very cautious about what they buy. They want to make sure they have things that are going to last for quite a while -- nothing frivolous. |
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| Some successes | |||||||||||
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ELIZABETH FARNSWORTH: And Ms. Mullin, we just heard what stores and what products were doing well and why. Add a little bit to that and explain why Wal-Mart and Target did so well. TRACY MULLIN: Well, the discount retailers have really been leading the pack now for five to ten years. The consumers used to shop at discounters only for certain bargains. Now everybody is shopping at discounters. It's very cool to shop at Target these days. And everybody's taking advantage of that. ELIZABETH FARNSWORTH: And Ms. Shaber, were the discounts that were announced even before Christmas, in many cases very high discounts, are they going to cut significantly into price... Into profit margins? SANDRA SHABER: Oh, earnings will look pretty poor once they're announced in the weeks and months ahead. Those margins have been shrinking in retailing, and certainly this was a very bad year for profit margins -- again, in much of retailing, but particularly in soft goods, apparel and things like that. ELIZABETH FARNSWORTH: And Tracy Mullin, on that, on the profit margins and how serious it'll be?
But of course September 11 was unknown, and it's put certainly more pressure on them to move their goods out of their stores. And that's really what you're seeing in the stores now. Everything is marked down dramatically so that they can move the goods out, even if their profits are not going to be very strong. ELIZABETH FARNSWORTH: Are they succeeding in moving the goods out? TRACY MULLIN: They are, indeed. What great deals there are. This season, retailers are Santa Claus, and they haven't put away their Santa Claus suit yet. |
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| Pushing merchandise | |||||||||||
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ELIZABETH FARNSWORTH: And Sandra Shaber explain why they need to get those goods off the shelves. It's really important this time of year to do that, right? SANDRA SHABER: Yeah, you have to make way for the spring merchandise. And so a lot of that will be put on sale at even lower prices, and some of it will be pushed out to off price merchandisers. I would like to add, though, that from the point of view of the economy as a whole, consumer spending hasn't been all that bad.
ELIZABETH FARNSWORTH: Can you explain why the car sales are so good and it's been so bad for retailers? SANDRA SHABER: Well, I think part of the reason for certainly home sales and car sales have had surprising strength considering we're in a recession, but we have extraordinarily low interest rates. No inflation, very low interest rates, and that has contributed, for example, to all the 0 percent financing we hear about, from a historical point of view, very low mortgage rates. Those things will help. I mean people are still buying houses, they're going to buy more furniture. We may see weaker car sales next year, but still, I think what we're seeing is consumers still willing to spend, but a lot more cautious perhaps, a lot choosier in what they spend their money on. ELIZABETH FARNSWORTH: And Tracy Mullin, I'm going to come back to how this all fits in the bigger economy in a minute. But before we do, that explain why some of the on-line sales were so good this year. Put it in the context of the rest of the sales.
On-line sales, as we heard earlier, have grown somewhere between 25 and 40 percent this holiday season. That's a very strong performance for a very new channel. And we think that's still going to grow significantly. It still represents only about 5 percent of total retail sales. |
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| An economic snapshot | |||||||||||
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ELIZABETH FARNSWORTH: All right, now, let's talk about, Tracy Mullin about how all this fits into the overall economy. I know that the holiday shopping is really important for the retail sector. How important is it for the economy as a whole? TRACY MULLIN: Well, a lot of people say that retailing really drives the economy. Consumer spending represents two-thirds of the Gross Domestic Product. We had over $3 trillion,.$3.4 trillion in retail sales last year, so it's a huge factor in the economy and in economic growth. For the retailers, the holiday period represents about $200 billion in retail sales. And usually a very significant percentage of their total annual profits. So it is very, very critical. ELIZABETH FARNSWORTH: And Sandra Shaber you've addressed a little bit of this earlier, but go on. How do you see it in the economy as a whole?
But they're still buying things. Again, the car market has been phenomenally strong, just phenomenally strong for a recession. And the housing market is still quite alive and well. So I think there's a certain disconnect between the impact of the terrorist attacks on confidence, and yet I think people feel enough confidence in the economy, and maybe even the job market, to go on spending for some really pretty major purchases. ELIZABETH FARNSWORTH: Well, Sandra Shaber and Tracy Mullin, thanks for being with us. TRACY MULLIN: Thank you very much. |
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