Holiday Shopping Season Begins

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• JEFFREY BROWN:

  From Times Square to Los Angeles, early bird shoppers hit the stores in search of holiday bargains.

  In Falls Church, Virginia, crowds braved the cold to line up at 2:30 A.M. at a Best Buy.

• The draw:

  A chance to buy a DVD player for just $18. A KB Toys in New York City opened its doors at 5:00 A.M.

  Target stores even offered wakeup calls to get customers up and out shopping early.

  Once in the stores, bargain hunters wielded coupons for deep discounts and took advantage of price-slashing.

• SHOPPER:

  I wrote everything out, I cut out all the coupons, and I'm ready to go.

• CORRESPONDENT:

  Can you get it done in a day?

• SHOPPER:

  Oh, yeah, all of it.

• JEFFREY BROWN:

  For some, it was a family affair.

• SHOPPER:

  My husband is at Best Buy. I have my son and my grandson at Mervin's. My daughter is at Target. And my other son is at Kohl's.

• JEFFREY BROWN:

  This shopper, visiting from England, found the deals to be especially good.

• SHOPPER:

  The pound is so strong against the dollar at the moment, I would be crazy not to take advantage of it.

• SPOKESPERSON:

  Three, two, one!

• JEFFREY BROWN:

  Today is known as Black Friday, when retailers used to turn their balance sheets from red to black.

• JEFFREY BROWN:

  As this year's holiday shopping season begins, the National Retail Federation estimates customers will spend $220 billion in the coming weeks.

  Consumer electronics are expected to be very popular, and the sale of gift cards may top $17 billion between now and Christmas, just 29 shopping days away.

• JEFFREY BROWN:

  Two veteran holiday season observers join us now.

  Nancy Koehn is a business historian and professor at the Harvard Business School.

  Kurt Barnard is president of Barnard's Retail Forecasting, a retail and consumer goods advisory group.

  Welcome to both of you.

  Mr. Barnard, as we have seen, there is nowadays a great expectation out there that this is the day you get the big discounts. Is it true this year?

• KURT BARNARD:

  Yes, you will get wonderful discounts and lots of them, no question about it.

  And people are clearly beginning to shake off the blues which they had over the last two or three months and are beginning to look at merchandise and be ready to buy.

• JEFFREY BROWN:

  Professor Koehn, how has this beginning of the traditional season changed over the last few years for retailers, that is?

• NANCY KOEHN:

  Well, we are seeing some interesting innovations on the part of retailers, attempts, all of them, to increase their profitability, add to the bottom line.

  Some of these include bringing customers in earlier and earlier. They hadn't even put the Halloween candy away before we heard Christmas carols and soft Santa in the aisles.

  A second and very important innovation is to use new software to help retailers of all shapes and sizes manage their inventory, better, Jeffrey, so they have fewer unsold goods.

  That means fewer discounts, fewer cuts to the bottom line as we get closer to the Christmas holidays.

  Something else that's happening that's interesting on the part of retailers is to stagger merchandise selection, to bring a particularly hot electronic good out now, and then to promise another one in a week or two, to bring a hot toy out now and to do the same thing with another Erica Barbie, a new exciting children's toy, and do that in a way to keep customers in the stores not just today, Black Friday, but day after day in the 29 days now until Christmas comes.

• JEFFREY BROWN:

  So, Mr. Barnard, pick up on what were you just talking about as you look at the weeks to come here. What are the key factors, the key economic factors that will determine the season?

• KURT BARNARD:

  The key economic factors that will determine this season are essentially very simple.

  Retailing and consumer spending are essentially the function of what we say is a four-letter word, namely j-o-b-s.

  When jobs are plentiful, consumers generally are willing to buy, willing to spend money.

  When jobs are perceived to be scarce, then undoubtedly they put their hands in their pockets and keep them there. And retailers and consumer spending fall into the background.

  There is no question at the present time that we are seeing that this is a propitious moment for this weekend to take place for the simple reason that about three or four months ago, we had not anticipated that the crowds today and probably tomorrow would be as large and as big as they indeed turned out to be.

  But the employment situation in this country has gradually, slowly, ever so slowly been giving signs of improving.

  The employment picture is clearly beginning to shake itself loose. And that is encouraging a lot of people to go out and spend money.

• JEFFREY BROWN:

  What about other factors though, Mr. Barnard? There's rising oil prices; there's growing… interest rates are moving up, things like that.

• KURT BARNARD:

  Very good question; and we can tell you very clearly that if it weren't for the fact that the prices at the gas pump hadn't risen staggeringly, then this might have turned out to be a record holiday sales season.

  As is, we are going to see a very decent holiday sale season with perhaps a 3 to 4 percent improvement over last year.

  But generally speaking, let me clearly say to you, that there is no question in my mind that this is a good time for it to happen.

  Consumers are beginning to be a lot more confident than they were three or four months ago and it is beginning to show in stores.

• JEFFREY BROWN:

  Professor Koehn, what do you see out there given that consumer confidence has bounced around quite a bit this year?

• NANCY KOEHN:

  I'm a little more cautious than Kurt. I think consumers are nervous about rising interest rates, the geopolitical situation, the job situation.

  So I'm a little bit less optimistic. I'm with your estimate though, Kurt. I think we'll see sales increase something like 4 percent.

  Now, that's less than the year before when they rose a little bit over 5 percent between 2003 and 2002, but that's a lot more than the year before that.

  So overall, I think a mixed… a mixed Christmas, merry for many retailers, perhaps less merry for others.

• JEFFREY BROWN:

  Now Professor Koehn, I mentioned in our setup the consumer electronics are one area that's supposed to be quite hot.

  Some of these things like plasma TVs, the last time I checked, are quite expensive.

  Can people really afford them or have they just decided that televisions are sort of must-haves at this point?

• NANCY KOEHN:

  Well, it's interesting. Plasma TVs are one of the most asked for gifts. When you survey consumers about what is at the top of their lists, the gifts they'd like to get, it falls on the list when you look at what they're going to give people.

  But I think, Jeffrey, we are seeing a lot of consumers from almost all income points, save for the very lowest parts of our society, buying a variety of gifts — looking assiduously for values, using all the coupons they can in the case of one gift and going to another store, a more luxurious store, Brookstone, Sharper Image, Neiman Marcus, the Gap, and purchasing something very special at a higher price point.

  Cutting and pasting, if you will, looking for values, of course, but also looking for something very special and often very luxurious including something like a plasma TV with that very high price tag.

• JEFFREY BROWN:

  Mr. Barnard, what do you see? What are people buying?

• KURT BARNARD:

  Two points need to be made and that is that most of the retail business at this particular time, the holiday sales season, is driven by so-called must-have items like the ones that the professor mentioned herself just now.

  Plasma TV, digital cameras and the DVDs and all these other toys and gadgets that are exciting, that are new and that people are willing to spend money for, and not only spend money for, but really spend their credit for through the credit cards.

  And another thing which also needs to be made is… which needs to be mentioned is the fact that every holiday sales season we are seeing the same thing recurring, that consumers wait for this particular time in order to make their purchases, and we have also seen that things for the home are extremely, extremely in demand.

  And we believe that a lot of companies that cater to that particular need are the ones that will come out way ahead in the shopping season.

  And one more point that I'd like to make is that consumers apparently have split into two groups now.

  That is the high income ones and the modest income ones.

  And stores that cater to the high income ones are going to do very, very well indeed this holiday shopping season while stores that are catering to the lower income groups, are very clearly going to struggle a little bit and not quite reach their goals.

• JEFFREY BROWN:

  I'm glad you raised that because I remember you and I talked about that on this program about a year ago.

• KURT BARNARD:

  And I predicted it would happen.

• JEFFREY BROWN:

  And you're saying it's exacerbated?

• KURT BARNARD:

  Yes, absolutely.

• JEFFREY BROWN:

  Professor Koehn, do you see this kind of split as well in the retail world between the high end and the low end?

• NANCY KOEHN:

  Yes, I do, Jeffrey. You know, I think it is being driven predominantly by very rapidly skewing income and wealth distribution, an important part of the broader information revolution taking place as we speak.

  But I also see… and again, at lots of income levels, the phenomena of affordable luxuries in which consumers of lower income levels have access to goods that they once deemed very scarce or very rare; everything from a double tall latte with a hazelnut shot to a Tiffany's bracelet to a Coach key bob to a beautiful shimmering scarf from Saks Fifth Avenue.

  So we're seeing again, I think a skewed income direction. Luxury retailers will continue to do well, but again, consumers from all walks literally trading up as they buy gifts for themselves and for the people they care about.

• JEFFREY BROWN:

  And Professor Koehn, so you see consumers having sort of recognized this new world and learning how to cope with it?

• NANCY KOEHN:

  Recognizing how to cope with it, finding the most value they can and also, Jeffrey, get their own little piece of it.

• JEFFREY BROWN:

  All right. Nancy Koehn and Kurt Barnard, thanks again.

• NANCY KOEHN:

  My pleasure.

• KURT BARNARD:

  You're welcome.