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| SLUMPING SALES | |
 December 26, 2000  |
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After a slow holiday season, retailers hope to recoup disappointing sales with post-holiday discounts. Paul Solman reports.
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PAUL SOLMAN: 'Tis the week after Christmas, when all through
the store, they're praying this year that you'll come in for more. MAN: I just think that people are very careful because they think that the economy is going to get tight. PAUL SOLMAN: Consumers, that is, bought a kerchief or cap, then settled
back down for a long winter nap. |
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| Heavy discounting | |||||||||||||||||||||||||||||
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PAUL SOLMAN: And the analysts are: In New York, Kurt Barnard, president
of "Barnard's Retail Trend Report," an industry newsletter;
and here in Boston, David Wyss, chief economist at Standard and Poor's,
a financial services company. Gentlemen, welcome. DAVID WYSS: Poor. I don't think it was terrible but it's not as nice as we would like to see and not as nice as we've seen for the last eight years. PAUL SOLMAN: Kurt Barnard, the adjective?
PAUL SOLMAN: So, what are the data? Kurt Barnard, give us some numbers here on sales compared to last year at the same time, say. KURT BARNARD: Well, last year, same store sales grew approximately 6.5 to 7 percent of the year before. We estimate that this year, it may have been no more than 2.5 percent to 3 percent, which is really quite a come down if you take that into consideration, but it still is growth. But, you see, we have been... we've become sort of accustomed to those high figures that we saw last year, and we are not seeing them this time. So it's the slide down that is felt by everybody, and a lot of people are a little unhappy about it. PAUL SOLMAN: 2.5 percent, David Wyss, what does that mean if you take inflation into account, for example? DAVID WYSS: Inflation is almost nil in this sector. We're just not seeing any price inflation. In fact clothing prices are generally down from where they were a year ago. So 2.5 percent is pretty much you get what you see. PAUL SOLMAN: 2.5 percent is a real 2.5 percent. DAVID WYSS: Pretty close to it. PAUL SOLMAN: I read somewhere in the clips today preparing for this that 2.5 percent was what retailers consider break even. I mean, is that - DAVID WYSS: I think that's true. Part of the problem is of course that retailers are putting on a lot of heavy discounting. So even though they're moving the goods out of the store, it's not clear how much profit they're making on it.
KURT BARNARD: We are seeing discounts that we have never seen before or certainly after Christmas and even in the days before Christmas. PAUL SOLMAN: Right. That's what I meant. KURT BARNARD: It's what I would call literally promotional gymnastics. PAUL SOLMAN: Promotional gymnastics. KURT BARNARD: That's really what we saw. It's just incredible. We saw some companies, some retailers doing things that we never expected them to do. But, you know, we have to keep one thing in mind: Last year consumers didn't spend money at all. They threw money at almost anything that was for sale. This time it's quite different. And last year, you know, there are two words that come to mind: Last year spending was irrationally exuberant as Mr. Greenspan would say it. And this year, we've come down back to earth and at a far more sustainable level. I would imagine that the first half of next year is in all likelihood going to give us sales results of 3 to 4 percent on a same-store basis. |
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| Buying on credit | |||||||||||||||||||||||||||||
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PAUL SOLMAN: David Wyss, we've heard about consumer credit which we've heard a lot about in the last few years. It's incredibly high, people are buying on credit and so forth and consumer confidence.
PAUL SOLMAN: How long have we been keeping these.... DAVID WYSS: Since the '50S. The only bigger drops were right before the '80 recession and right before the '90 recession. Consumer debt is at record levels, and I think everybody is getting a little bit nervous that we're living a little too far beyond our means. PAUL SOLMAN: Kurt Barnard, are you getting a little nervous? You don't look nervous. KURT BARNARD: Oh, yes. I am a little nervous here. You have to remember one thing, as we're speaking here right now total credit card debt in the United States, the amount of money that you and I and everybody owes to our credit cards amounts to 650 billion dollars. That's billion with a "b," as in big boy. That is 10 percent more than it was a year ago. Yet at the same time, keep in mind the following: After-tax income has increased only by about 5 percent. So we are really deep in debt, and if that bubble should ever burst, God help us all. PAUL SOLMAN: God help us all. What about online? Before we appeal to God, online sales, they're up, right? DAVID WYSS: Online sales were up. We don't have the number yet but it looks like 30 percent. That's a good number by any normal standards but by online standards where they're used to doubling every year, they didn't do it this year. That means frankly there are going to be fewer e-tailers around next year than there were this year. PAUL SOLMAN: Yeah. I've seen the Priceline ads where they say, we'll be here in 2001. It makes me wonder what they're trying - DAVID WYSS: Maybe in January. December remains to be seen.
KURT BARNARD: Well, there's another point that should be considered also. We are seeing more and more Internet business, Internet retailing, moving over to the traditional department stores and traditional specialty stores. They are beginning to shine in terms of e-commerce sales, rather than the so-called pure- play e-tail operations, which really are no longer quite in such good repute as they used to be. |
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| Consumer confidence down | |||||||||||||||||||||||||||||
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PAUL SOLMAN: Why the drop off in consumer spending, David Wyss? DAVID WYSS: I think the main thing is confidence. People are getting nervous. They're seeing a little rain on the horizon. They're thinking it's time to start saving for a rainy day. PAUL SOLMAN: Is that right, Kurt Barnard? What about the stock market, the so-called wealth effect that economists talk about -- you have less money in your IRA or your 401(k) and then you spend less. KURT BARNARD: Well, remember about a year ago, we all gleefully gloated over the Wall Street wealth effect. Well, the Wall Street wealth effect is dead, absolutely dead. Today, people have come to realize that it is far more prudent to make one self dependent when calculating for budgeting for expenditures, to make one's self dependent on reliable sources of income rather than on Wall Street home runs and the reliable sources of income obviously is salary and not millions or hundreds of thousands of dollars. PAUL SOLMAN: Can the American economy sustain the boom that we've experienced if what you both describe begins to happen -- that is, consumer confidence erodes, people spend less because of what you're saying, Mr. Barnard, the wealth effect turning in the opposite direction? David Wyss, what happens to us in this boom economy?
PAUL SOLMAN: Is that what you meant before when you were talking about the bubble bursting, Kurt Barnard? KURT BARNARD: Yes, pretty much so. PAUL SOLMAN: Explain what you think. KURT BARNARD: Let me go a step further and say that we don't really see a recession at this time. The only time that we would see a recession would be if you suddenly found that there were a lot of new job lay-offs. That could hurt. But besides that, there is still something else. We're hearing politicians talking about recession, and that doesn't help really because a lot of people are getting very worried about a recession when in actual fact there's nothing they can do about it. Let the politicians deal with a recession if and when it comes about, which I don't think is going to happen. PAUL SOLMAN: You mean you're talking a self-fulfilling prophecy on the down side? KURT BARNARD: You're absolutely right. PAUL SOLMAN: And that's what you're worried about. David Wyss, are you worried that even by talking about this we somehow start the ball rolling? DAVID WYSS: Economics is a confidence game. And when you see everybody talking about recession, it hurts people's confidence. There is no question that that can cause things to spiral downward. I think, however, people are fairly resilient to that kind of problem. The bigger problems are the declines in the stock market, the general slowing of the economy, the increase in lay- offs. And any kind of outside shock, like the Middle East exploding, could turn us from that slowdown into the recession. PAUL SOLMAN: Gentlemen, we'll leave it there. Thanks very much and happy holidays to you both. |
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Though
visions of sugar plums danced in their head, retailers faced dismal
numbers instead. 
of
hooves on their ground. 
KURT
BARNARD: The adjective is that we saw growth but far more muted than
we had hoped for, but there still is growth so it isn't really all that
bad. 
PAUL
SOLMAN: Is that right, Kurt. Barnard? I heard that at the Arsenal mall
right near where we're doing this live at the moment. A week ago they
said they had never seen discounts like this this soon. 
DAVID
WYSS: Well, people are getting nervous, there's no question. Consumer
confidence has dropped. Last month was the fourth largest drop we've
seen in our history. 
PAUL SOLMAN: Kurt Barnard, online sales?
DAVID
WYSS: We're going to slow down. There's no question. The question is
does it turn into a recession or is it just a slowdown? I think that
the Federal Reserve can keep it under control. We're going to see things
slowing at the 2.5-3 percent pace, soft but not terrible. But there
is a risk that if this starts to snowball on the down side like it did
is on upside, it could turn into a recession.