RAY SUAREZ: As far as the shopping industry was concerned, Santa chose to be stingy this holiday season. Many consumers said they spent less this year than they usually do.
WOMAN: We shopped a lot less this year. Basically, the children got to choose three gifts, and that what we got them.
WOMAN: My husband was actually laid off for a while and recently got his job, so I would have to say that I cut back a little bit for our shopping.
WOMAN: A little less. You know, income is not going up, but prices are going up. I look for the bargains and all the sales and stuff.
RAY SUAREZ: According to the financial firms U.B.S. and Bank of Tokyo-Mitsubishi, shoppers this season spent 1.5% more than they did last Christmas. It's the smallest jump since the index started being tracked in 1970. The National Retail Federation, an industry group, is more optimistic. It estimates a 3.5% boost. Still, that's lower than expected, and the worst showing since 1996. It's not what Wal-Mart had in mind when it hosted mad dashes like this the morning after Thanksgiving.
RAY SUAREZ: Last week the company said it would not meet sales expectations, joining a chorus of bad news this season from Target, Macy's, and Bloomingdale's, and FAO Schwartz, among others. Still, the year may end with a slight boost. Chain stores reported a retail surge last week. And online retailers, a small fraction of the overall industry, showed a big increase this season. For those who did spend their money, many said they were undeterred by the soft economy and talk of war.
MAN: I don't think it's swayed us one way or the other.
WOMAN: We didn't have money before the war, and we didn't have it after the war.
WOMAN: Christmas is Christmas. I mean, no matter if it's terrorists, no matter what it is, you've got to buy presents for your family. You make the money, you got to spend it; you can't take it with you, darling.
MAN: We've pretty much been given our marching orders by the kids as to what they want, so we can go directly for it.
RAY SUAREZ: Final retail numbers for 2002, which will include year-end sales, will be out early next year.
RAY SUAREZ: Here to help us take stock of this less than merry Christmas for many of the nation's retailers are Rick Gallagher, vice president of the National Retail Federation, which represents the major chain retailers, including Bloomingdale's and target; and Nancy Koehn, a retail historian and professor of business administration at the Harvard Business School. Professor Koehn, how shall we view this season? What numbers should we and professor, how should we view this season? What numbers should we look at and pay attention to, to take stock of how it went.
NANCY KOEHN: Well, I think the numbers that you've mentioned are really quite important and quite representative of a range of short-range trends, Ray-- a shorter shopping season, no must-have toy or apparel item, a lack of differentiation in many stores at least in the middle of the retail landscape -- of shorter-term issues such as consumer uncertainty about the geopolitical situation, unemployment, the stock market, as well as representative of some longer-run issues around consumer values, what consumption means in a time when values such as security, comfort, community, connections with other people, are taking on renewed importance. That 1.5 estimate from U.B.S. and the 1.5 estimate from the Bank of Tokyo as well, as the NRF's 3.5 estimate, are really right in the ballpark. What's interesting, I think, is why those numbers are lower than they have been in many a year. That's really where our concern should be focused.
RAY SUAREZ: Rick Gallagher, before the final numbers come in early next year, how are your members looking at what happened over the past five weeks?
RICK GALLAGHER: I think what we saw in the holiday selling season is that going into the season retailers knew it was going to be tough. There were two reasons. First of all, consumers who had been spending throughout the economic downturn really began to pull in their spending in the back-to-school season. So that was the first bad sign we had. The other problem, and the problem they tried to get over with a lot of sales around Thanksgiving, was that there were six fewer shopping days between Thanksgiving Day and Christmas Day. What that did is it took about 20% of the whole shopping season off the table. And the consensus is that that really when you add that up, that shaved probably about 2% off of all of retail sales for holiday.
RAY SUAREZ: An accident of the calendar kind of doing you in.
RICK GALLAGHER: Accident of the calendar, but as Nancy said, I think that we have some important long-term issues that we need to look at here. As I said, we had sales beginning to struggle in September with back-to-school. It has been the consumer spending that has been keeping the economy afloat here while businesses have pulled back their spending. We don't see any indications that businesses are going to increase their spending, so I think we need to be concerned if indeed the consumer is going to continue to rein in spending as to what the implications are for the larger economy.
RAY SUAREZ: Professor Nancy Koehn, that strong finish won't be strong enough to change the outlook for the overall season, will it?
NANCY KOEHN: I don't think so, Ray. I mean, we are seeing over the years... in the last three years, we've seen a consistent increase in the percentage of holiday sales that are cashed in or rung up in the week after Christmas: 31% in 2000, 34% in 2001 with the explosion in gift cards, gift certificates, which aren't counted as part of retail sales until they're cashed in. This year, we can expect a big push, a big, you know, a big bump to sales in the week after Christmas. That's important, as well as online sales by brick-and-mortar retailers getting chalked up in that week. But I don't think it's going to be enough to get this year, in terms of holiday sales into a place where it isn't a significant change from the last ten years.
RAY SUAREZ: The heavy discounting, Rick Gallagher, that started earlier in the shopping season than it has in many years past, does that sort of overstate the shopping trend a little bit, maybe just as many sweaters and slacks were moving off of shelves but just that at lower-dollar price points so that it kept that 3.5% number lower?
RICK GALLAGHER: Clearly, this was a strategy to try to bring people into the stores early and address the fact that there were fewer shopping days. But again, what we are seeing is that the items that really suffered the most this season was apparel. Apparel is frequently "the" most common gift that people give to each other around holiday. Also, apparel is one of the places and one of the few places on the consumer side where we're seeing true price deflation. So you're right. What you could do is you could sell as many units, as many sweaters as you did last year, and ring up fewer dollars. What we saw in the story of individual stores this holiday season is that those who are heavily apparel dependent, especially the department stores, were the ones that are really reporting price decreases from the previous year. And apparel has been suffering now for a good 18 months. We saw a blip back in apparel sales in October, and there had been some hope that that was going to be a longer term trend but clearly that was not the case through holiday.
RAY SUAREZ: Professor, also reporting less than cheery sales were book sellers and recorded music sellers. If people were pulling back a little bit, why wouldn't they have done better? Those are often cheaper gifts, stocking-stuffers, that sort of thing.
NANCY KOEHN: Well, I think we have to answer that question, Ray. I think we have to look at some longer-term issues in consumers' hearts and heads, issues of: Does more stuff, another record, another book, constitute meaning in the post-September 11 world? Does it constitute what we want to say when we give a gift? I think there is real reason to look at that question. A book, a record, a sweater: All lovely gifts, all very traditionally robust sellers, may mean something very different, especially in a season of gift giving when people are really taking issues like security, community, home and hearth, much more seriously, much more to heart in the year after September 11; especially in a moment when geopolitical uncertainty and caprice seems so heightened as they do right now.
RAY SUAREZ: Okay. So if you make that point, did you see any growth in gifts that might reflect that kind of turning away from the sweaters and the CD's and that sort of thing?
NANCY KOEHN: We would expect to. It's a little early right now in terms of the numbers coming in to have specific chain store numbers from specific specialty or department stores in that regard. One thing that's very interesting to look at is what's happened to restaurant sales during December. They were very robust. That seems to fly in the face of consumers concerned about unemployment, a shaky stock market, a possible war. But what is really a restaurant experience? It's a chance to be with other people, a chance to connect with others. I think when the numbers come in on a range of gifts that are around experience, including issues that have to do and products that have to do with home and hearth and being together with family and friends, I think we're going to see some good substantiating evidence in regard to shifting consumer values.
RAY SUAREZ: Rick Gallagher, let's talk a little bit about some of the fallout that might be seen. Are we going to see effects from a slow Christmas in transportation, in service employment? If they have a bad season, who suffers down the line?
RICK GALLAGHER: Well, one of the major people who suffer more than anything else are overseas vendors who provide apparel; that clearly this is a market that is struggling right now and continues to market. That is going to be a continuing problem. One of the things that we are seeing though, and as the professor said though, is some up-tick in those home-and-hearth merchandise. We would expect people seeing more value there. After September 11, interestingly, we saw a lot of important jewelry, jewelry that had an emotional significance that sold very well at that point because people wanted to make an emotional connection. I think it's important to distinguish here that what we are not seeing is that people are not really saying they're going to cut back their buying as much, as much as they're changing their shopping patterns, really to go along perhaps with their changing emotional view as to what a gift is.
RAY SUAREZ: Professor, was this a make-or-break season for any retailers? Were there any big names on the bubble that really needed to do better in December?
NANCY KOEHN: Perhaps for K-Mart, which has spent the year 2002 struggling with a whole range of issues on the demand side and on the supply side, connecting with their customers and getting their business model in some kind of profitable shape -- but K-Mart's story really transcends the holiday season of 2002. For most other retailers, including a few that really soared during the season, like Sharper Image and like J.C. Penny, whose preliminary numbers are very robust, I don't think this holiday season will go down as a kind of inflection point.
RAY SUAREZ: Professor Nancy Koehn, Rick Gallagher, thank you both very much.