ELIZABETH FARNSWORTH: Yesterday retailers slashed already marked-down prices in what is expected to be one of the worst holiday shopping seasons in a decade.
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. Sales at mall-based department stores and specialty clothing stores ranged from flat to slightly down. In a bid to lure shoppers, retailers extended their hours and offered steep discounts much earlier in the season than usual. For example, the nation's largest apparel chain, the Gap, marked down some items as much as 70 percent well before Christmas. But even that wasn't enough for many shoppers..
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.
The DVD players that once filled these shelves were all sold. There was also a surge in shopping on the Internet. Online sales rose a reported 30 percent to 40 percent over the same period last year. Still, many people said the events of the last several months had affected the way they think, and thus how they consume.
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.
ELIZABETH FARNSWORTH: And for more on this holiday shopping season, we're joined by Tracy Mullin, president and CEO of the National Retail Federation; and Sandra Shaber, senior economic advisor at DRI.-WEFA, an economic consulting firm in Philadelphia. She focuses on the retail economy. Tracy Mullin, what are the latest figures showing? Has this been in fact the worst shopping season in a decade?
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.
And when consumers go out and look at some of this stuff all over the stores, it becomes a commodity to them. And of course if you think it's going to be on sale tomorrow, why buy it today? That's been a long-running process. And I guess on top of that, people are trying to not do the trivial things, not do frivolous things, in a kind of sober mood after the terrorist attacks.
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.
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?
TRACY MULLIN: Well, retailers knew this was going to be a bad year, so even before September 11, they were trying to keep their inventories very lean. They've done that. They've done it very successfully.
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.
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.
Record numbers of cars have been sold in recent months, the housing market is strong. Consumers have done their share in contributing to overall economic activity, even though the retailers have been rather disappointed.
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.
TRACY MULLIN: Well, I think a lot of consumers were a little nervous about going out into the malls, frankly. And the wonderful thing about retailing is that there are now three strong channels, brick and mortar, catalog and on-line sales. And we saw consumers taking advantage of all three channels.
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.
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?
SANDRA SHABER: There was an interesting bounce-back in October because, after all, in September consumers virtually stopped buying anything. But there was a big bounce-back in October, and the curious thing is that most of the consumer confidence surveys show that people are still pretty depressed and worried.
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.