November 28, 1997
Phil Ponce and guests look at the economic significance of the holiday season ahead.
KWAME HOLMAN: On this traditional first day of the holiday buying season many retailers opened their doors hours early. This year's buying surge is spurred by government and private economic reports of strongly positive news, including rising incomes and low inflation and unemployment. Consumer confidence is at a 27-year high.
MALE CONSUMER: From my own experiences I have to say that the economy is stronger now than it was even last year. Where it's going, it only seems to be getting better.
FEMALE CONSUMER: I was very proud of myself last year for not charging a single item, but--and I feel like I'm going to be able to do that again this year.
SECOND MALE CONSUMER: I think the economy drives people as to what they should and shouldn't spend. And things look pretty promising.
KWAME HOLMAN: Some retailers share the optimism.
ELLEN NOONAN, Manager, Crate & Barrel: Well, we're definitely above numbers last year. You know, we're above our budget. We're expecting really good things this Christmas. People are really spending cash. You know, they're not as much charging. You know, there's a lot of big bills in the drawer and checks in the drawer, so people are really out there spending.
KWAME HOLMAN: Still, it is not clear the strong economy will be a boon to retailers and shopping malls. For most of those merchants the holiday shopping season accounts for half their annual profits. An Associated Press poll released this week did not bring good news. Nearly a third of respondents said they'll spend less on gift items this holiday season than last. 56 percent said their retail spending will be about the same as in past years. Experts say Americans who are working harder and longer are devoting more of their rising incomes to travel and dining out, cutting into retailers' profits, despite overall favorable economic trends. Many economists predict the U.S. economic expansion, now in its sixth year, could continue through 1998. One of the few clouds on the horizon is the fear recent financial instability in Southeast Asia eventually will have negative implications for the flush American economy. Already, the downturn there means Asian consumers have less money to spend on American products, eroding the profits of U.S. exporters. On the flip side devalued Asian currencies mean their products will be cheaper for the American consumer.
PHIL PONCE: We get four perspectives now on the season ahead and the broader picture of the U.S. economy. Sandra Shaber is an economist and executive vice president the WEFA group, a retail consulting firm; Jim Oesterreicher is the CEO and chairman of J.C. Penney; Jerry Kalov is president of Cobra Electronics Corporation and chairs the Electronic Industries Association; and Harry Alford is the president of the National Black Chamber of Commerce. And welcome all. Sandra Shaber, what kind of Christmas season are businesses expecting?
SANDRA SHABER, Economist: Well, the economy certain has been doing well, and this has led to great expectations on the part of the retailers. Maybe those expectations are a bit too high.
PHIL PONCE: Mr. Oesterreicher, what are your expectations?
JIM OESTERREICHER, J.C. Penney Co.: Oh, my expectations are for a strong holiday season. The customer is in good shape; however, they do have lots of options for their buying choices. But Christmas comes every year, and we're very excited about being able to serve them well.
PHIL PONCE: Jerry Kalov, that sounds like pretty rosy predictions. Do you agree?
JERRY KALOV, Electronic Industries Association: I do agree, indeed. The consumer electronics business has been growing steadily all year. And the trend coming into the holiday has been up in the range of 8 to 9 percent. And we're looking forward to that continuing.
PHIL PONCE: Mr. Alford, what kind of Christmas are the business constituents of your organization expecting?
HARRY ALFORD, National Black Chamber of Commerce: I think it's going to be brisk, but I tell you, in looking at all of the newspapers, local newspapers, black radio stations, and such, there is an encouragement to buy locally in the local neighborhoods, as opposed to going out to the malls. Some of the larger churches here in D.C. today open up retail outlets on their properties for the Christmas shopping season. So you're going to see a trend. And I see Sears and others starting to look at inner cities replacing new stores. But you're going to see a trend of those dollars, those $85 billion in the inner city communities staying closer to the neighborhoods than before. So the shopping will certainly be there.
PHIL PONCE: Sandra Shaber, there's high consumer confidence. There's low inflation and low unemployment, and yet, consumers are cautious about spending their money in the next couple of months. Why is that?
SANDRA SHABER: Well, there is good reason for consumer caution. There's also some good reasons for retailer caution. Consumers probably are a little bit concerned about high levels of debt, and personal bankruptcies of course have been rising for sometime now. Also, while most of the news about the U.S. economy is really terrific, I think for some people what's going on in Southeast Asia, the effects on the stock market have been a little bit rattling. But there's also other reasons for some caution here. There are levels of debt, as many of the lenders have cut back on lines of credit. That's one of the reasons why consumers are using their credit cards more cautiously than before. I think it's also important to point out, as we noted a few minutes ago, that increasingly people are buying things that aren't sold at stores, experiences like travel and education, recreation and so forth. That continues through the holiday shopping season.
PHIL PONCE: Mr. Oesterreicher, how do you explain why consumers are cautious in light of all this wonderful economic news?
JIM OESTERREICHER: I think I'd use the word discriminating, instead of cautious. The consumer is absolutely going to find the best value of all their choices, and if that's apparel, the business that we're in, they're going to be certain that they're getting the very best value that they could get.
PHIL PONCE: Mr. Kalov, your take on consumer caution this Christmas season.
JERRY KALOV: Well, there may be caution out there, but it's not displaying itself in the electronics industry. We've just entered sort of the digital revolution. And there are an awful lot of people out on the market buying computers, and cordless telephones, communications devices of various kinds, of course, video games, digital display devices for their TV sets. So it appears that it's going to be a family Christmas. There seems to be a lot of electronic products being bought for the entire family use, and we see great growth in that area, so I don't know if there's caution in general, but it's really not in our industry at the moment.
PHIL PONCE: Mr. Alford, are some of the members doing better than others, depending on the nature of the businesses that they're in?
HARRY ALFORD: Yes. I think that those in the electronic industry and the high-tech industry, those businesses are certainly booming. We're in the food chain where we run behind General Motors or General Electric. If they're doing well, we're doing well. I think there is some concern on this globalization of the marketplace. General Motors is building four high-tech, state of the art motive plants in India, Thailand, China, and in Brazil right now. Where do we fit in that mix? That's a little scary. I think next week the global climate treaty that's going to be in Kyoto, Japan, is going to have a serious impact long term on our economy, and that's going to relate to jobs. And, of course, that's going to relate to retail.
PHIL PONCE: Do you agree that some of these global issues--what's happening in Japan and that sort of thing--do you think that has an impact on consumer spending?
HARRY ALFORD: It has a great impact when you start putting the factor of jobs in the way of it. The global climate treaty, where we are going to have to hold our energy output, whereas, China, India, and Brazil can go all night long, the sky's the limit, that's going to encourage some of our U.S. steel type manufacturing facilities to build there and put jobs there, take away those jobs from the United States. Take away that money, the costs, those are going to end up in consumable dollars, less here, more over there.
PHIL PONCE: Mr. Oesterreicher, speaking of jobs, what do you make of these reports that some retailers--let me ask you if it's happening with your company--some retailers are having trouble finding workers this holiday season, is that so?
JIM OESTERREICHER: Oh, unemployment is at an all time low. I believe it's 4.7 percent. And so everyone is searching for that additional Christmas help, which for us is over about 20,000 additional people that work at the holidays. But you become more innovative, we make a lot of use of retired Penney associates, referral of associates that currently work with us, job fares, working with schools, and so it's difficult. But we're finding sufficient help for this holiday season.
PHIL PONCE: Ms. Shaber, why is it that some retailers, according to reports, at the very high end are doing well, and some retailers at the discount end are doing well, but some people who are sort of positioned in the middle may not be doing so well this Christmas?
SANDRA SHABER: That's an ongoing trend, and I think it's the result of two factors. One is there's been a polarization of income for some years now, and there are all sorts of explanations as to why that's going on. But certainly this buoyant stock market has helped. At the same time many goods look like commodities to consumers, and so if they can buy them at a discount store, you know, that's really very good. And they'll do so.
PHIL PONCE: Mr. Kalov, do you find a lot of people who seek your products are anxious to find them in a discount setting?
JERRY KALOV: Well, surely, there is a lot of business being done in discount centers, but I would counter the point that was just made. There's also movement underway to get more service-related retailers to revive the elements of service that are needed. Some of our products are fairly technical; they do require some assistance. I know a lot is true of that in the computer business, where you can buy a computer and get lots of software, but you still have to learn how to operate it. Surely that's true as we get more complicated with our audio and video equipment. We are seeing a resurgence of specialty retailing in electronics. That's not to the exclusion of discount stores but surely is in addition to it. And it seems to be satisfying a need that the consuming public is asking for. For example, some of the main growth that we're seeing is in high end audio and video equipment, where clearly there's a service factor involved with the installation of those products. And that has experienced very good growth this year.
PHIL PONCE: Mr. Alford, you agree with the observation of some people that there may be a sea change underway in which people are spending less on things and more on experiences, more on maybe entertainment or eating out?
HARRY ALFORD: Well, I think so. I know in my household that's the case. And when you start talking about looking for the best price and the best product, my two sons want a certain item this Christmas, and they've been studying all of the retail outlets for the last forty-five/fifty days, where the best value, best buys are going to be. Service is also a concern.
PHIL PONCE: Ms. Shaber, continuing concern about over-capacity, too much inventory, is that something that is on the minds of people in the industry this Christmas?
SANDRA SHABER: There certainly is a problem that's going to be made worse by what's going on in Southeast Asia. First of all, many of these countries now are much more competitive in world markets because their currencies have fallen. Second of all, some of them have just produced goods, whether cars or semiconductors, or polyester fibers have continued to produce goods no matter what the demand is. So there may be some over-capacity in the United States. We've seen inventories rise in some areas, but however bad that's been, it could get very much worse if all of these goods from Southeast Asia start entering world markets through 1998.
PHIL PONCE: How about too many stores, Ms. Shaber, are there too many stores in the United States?
SANDRA SHABER: There still are. I mean, that's been a continuing story now for 10 years. There have been too many stores, too many malls, and we've seen over the years a shakeout here with many very famous retailing names bite the dust. It also means for consumers that they must be very discriminating. We heard that comment a few minutes ago, and I think that's absolutely right. Consumers are going to look for the best products, the best price. This Christmas retailers have to provide a reason for consumers to walk in their door and not somebody else's.
PHIL PONCE: Mr. Oesterreicher, is over-capacity, too many stores a concern of yours?
JIM OESTERREICHER: Well, there's about 20 square feet of retail space for every man, woman, and child in America today, and that's certainly a lot greater than it was in times past. That competition should make every retailer absolutely focus on what they do best and provide the services that are needed for their customer base.
PHIL PONCE: Mr. Kalov, do you ever worry about producing just too much of the stuff that you make?
JERRY KALOV: Well, we always worry about producing too much if we don't sell enough, of course, but that hasn't been the case. If I may, I'd like to comment on this whole Asian situation. I had an office in Hong Kong, and I'm there very frequently, and although it is true the currency situations in Asia and the stock markets there have changed dramatically, there does not seem to have been any impact of any consequential way on the American marketplace. Many investors here in the United States of all walks of life have done quite well here in the American market. And though it is true that some of the costs are coming down in Asia by virtue of the currency exchange issues, they also correspondingly have some of their costs going up because they have to import a lot of products from other countries using their devalued currency to make their products, and so there seems to be, at the moment, an offset there. Overall capacity issues and retailing and being over-stored is a phenomenon that's true in this country. And, again, I'd make the argument that those who are going to add some additional levels of service are going to find some happy hunting grounds here this Christmas season.
PHIL PONCE: Mr. Alford, do you ever worry that if the economy is as good as it is--low in inflation, low unemployment, and yet there are a lot of people who aren't participating fully, or getting some of the benefits of these good times, is that a concern of yours?
HARRY ALFORD: Well, the chamber, the National Black Chamber's concern, of course, is in the urban areas, in most places where there is a double-digit unemployment. The economy is great overall but there are still some special concerns that we have So there's different standards and different reactions, I believe.
PHIL PONCE: Does that trouble you, that if this is as good as it gets, it's still not very good for a lot of people?
HARRY ALFORD: No, I don't think so. When self-employment levels for black communities is at 3 percent of total and Hispanic is 16 percent, Asian is 20 some odd percent, we probably can improve a lot without even making a dent on the meter just by learning capitalism, learning entrepreneurship, and learning what this country is based on--capitalism, money. And that's what's missing in urban communities.
PHIL PONCE: Ms. Shaber, what is 1998 shaping up to be?
SANDRA SHABER: The events in Southeast Asia so far don't look as if they're going to have a major impact on the United States as a whole. I think, for example, it may shave 3 percentage--three-tenths of a percentage point, perhaps even a half a percentage point off the U.S. economy. But one thing we need to keep our eye on is the regional impact. That's very, very important. For example, the Pacific Northwest and California, half or more of the exports in those parts of the country are destined for Southeast Asia. So for parts of the country that are dependent on that trade next year could look a lot less optimistic than this year.
PHIL PONCE: Mr. Oesterreicher, how does 1998 look to you?
JIM OESTERREICHER: Well, the economic fundamentals that are evident in this fourth quarter, we are planning to continue into next year. That doesn't mean there couldn't be some surprises like was just discussed with certain parts of the country.
PHIL PONCE: Mr. Kalov, your take on 1998?
JERRY KALOV: Well, if unemployment continues low, which it appears that it will, there's plenty of opportunities for people to go out and earn money and feel good about themselves. I think the ‘98 outlook is very good, and we expect continuing growth in that period.
PHIL PONCE: And that'll have to be the final word. I thank you all.