||Holiday Forecasters Have Their Work Cut Out for Them This Year
The first round of Christmas sales forecasts are trickling in, and retailers are once again wringing their hands about the biggest shopping period of the year.
Most merchants placed orders for holiday goods in the spring, when there was still plenty of hope that the economy was on the mend. But since then the combination of the first-ever U.S. credit downgrade, the European debt crisis and widespread talk of a double-dip recession has squelched that optimism.
Consumer behavior has never been easy to discern. But experts say it is getting harder to predict in the long aftermath of the recession.
"Consumerism today is getting more and more unpredictable, and the recession has a lot to do with that," said Tracy Pilar Johnson, research director at Context Research, a Baltimore-based consumer behavior research firm. "People are still shopping. They are still buying things. It's just more hit or miss."
Trying to figure out shoppers' appetites for holiday spending is critical for retailers, as sales rung up in the November-December period account for 20 to 25 percent of most retailers' annual revenue. At jewelry and toy stores, the figures reach 30 to 40 percent.
At the same time, a bad holiday season for retailers could be a bonanza for consumers. Recall the horrible holiday of 2008. The financial crisis happened so quickly that retailers were stuck with loads of goods and panicked. They slashed prices, overwhelming consumers with deals. Shoppers snatched up designer duds at Neiman Marcus and Saks Fifth Avenue for markdowns at 60 and 70 percent, a rare treat.
In 2009, with the memory of the previous season's price slashing fresh in their minds, retailers reduced their holiday orders. The play-it-safe strategy led to bare shelves and slim pickings for procrastinating shoppers. Last year, retailers brought in more inventory but took extra steps to make sure the goods would sell. Widespread offers of free shipping and Black Friday promotions that lasted throughout November sent retail sales soaring more than 4 percent, double what most forecasters had predicted.
Kurt Salmon, the Atlanta-based retail consulting firm, has watched consumers becoming less predictable since the depths of the recession. The correlation between what the 8,000 consumers on the firm's monthly research panel say they're going to spend and what they actually do spend has been shrinking in the past three years.
Before the recession, the survey had a 78 percent accuracy rate, said John Long, retail strategist at Kurt Salmon. Today, it is 20 percent. The difference: Consumers say they will trim their spending, but then they don't cut back as much as they intended.
"Consumers want to be disciplined, yet they are enticed to buy when they go in stores," Long said. "Even when consumer confidence goes down, consumers aren't reducing their spending. It gets to what shopping is doing for them psychologically."
Still, confidence among the nation's consumers languished at a two-year low in September, while the percentage of households saying it is hard to find a job climbed to the highest level in 28 years. That's not exactly a recipe for a merry shopping season, according to some forecasters.
"The outlook for the 2011 holiday season is not a matter of whether it will be weak, but rather how weak it will be in the wake of declining consumer and business confidence," wrote Frank Badillo, senior economist at Kantar Retail, in the London-based retail consulting firm's annual holiday forecast report.
Kantar expects fourth-quarter retail sales to increase 2.8 percent this year compared with a 5.6 percent gain in the same period in 2010. Unit volume, a measure that eliminates the effect of price increases, is forecast to remain flat and may turn negative by the end of the year, the firm said.
Other retail forecasts agree.
ShopperTrak, the Chicago-based retail foot-traffic counting firm, expects retail sales to rise 3 percent in November and December combined, compared with a 4.1 percent gain last year. The International Council of Shopping Centers, a New York-based trade group of malls, predicts a 2.2 percent gain for November-December compared with a 5 percent rise last year.
Meanwhile, Deloitte LLP's retail consulting arm forecasts an increase of between 2.5 percent and 3 percent for the three months ending in January, compared with a 5.9 percent rise last year. The National Retail Federation, the retail trade group, has yet to release its forecast.
(The final sales figures vary at each organization because each group tracks a different slice of the retail industry.)
Anticipating what consumers are going to do next can be like forecasting the weather. The actual percentage forecast itself is less relevant than the general direction the retail industry is headed, said Michael Niemira, chief economist at the shopping centers group. And, even then, forecasters can get it wrong, he said.
In September 2008, when Lehman Bros. collapsed, sparking the global financial crisis, consumer spending came to an abrupt halt. The shopping environment deteriorated so quickly that few forecasters bothered to revise their initial upbeat estimates. In the end, 2008 ranked as the worst holiday retail season in four decades, falling 5.7 percent, according to Commerce Department data.
As a weak economy and high unemployment lingered in 2009 and 2010, most forecasters underestimated how much consumers would spend for the holidays.
In a 1981 Wall Street Journal article, dug up by Niemira, the adjectives used to describe the holiday season are typical. The early outlook: "Slow season; cut prices." The mid-December view: "Gloomy." The post-Christmas view: "Good, not great."
Holiday retail sales that year, based on the aggregate of chain store sales, rose 8.8 percent, a figure that today would be "booming," Niemira said.
"At the end of the day, the game of forecasting is not so much about a point estimate, but to telegraph what we think the economic environment and industry trends suggest for the season," Niemira said. "No single forecast is ever that powerful an influencing factor, but the consensus of views may be important."
Nonetheless, the shock of the recession has forced consumers of all economic classes to consider their shopping and buying patterns carefully, said Kit Yarrow, a professor and consumer psychologist at Golden Gate University in San Francisco. For many it was the first time they had stopped to consider the "whys behind their buys," she said.
"These days people can't predict what body blow is coming at them next," Yarrow said. "Consumers are looking at this uncertainty in the long haul and saying, 'How can I readjust my budget so I can still get some goodies?' I think we will see splurges this Christmas as people are looking for stress relief and fun stuff."
Balancing their budgets
The merchandisers at mass discounter Meijer Inc. have watched as shoppers in their stores habitually put both expensive and bargain items in the same basket. The items differ depending on what the individual shoppers value, but the behavior spans all income levels, said J.K. Symancyk, executive vice president of merchandising at the Grand Rapids, Mich.-based retail chain.
"It is routine to see people walk in and splurge on a $20 bottle of olive oil and in the same trip cut back in another category they don't value as much," Symancyk said. "The customer's definition of value has gotten more complex."
Cathy Kuzel, a 49-year-old mother of two in St. Charles, Ill., like many shoppers, is addicted to coupons and bargains. But a low price alone isn't enough to entice her to make a purchase.
Kuzel started her Christmas shopping last month at Toys "R" Us. Her husband is starting a new business, so the holiday budget is focused solely on the children this year. Kuzel's strategy is to spread the gift buying across several months, so the family doesn't have to pay one big bill at the end of the year.
"I don't always go for the cheapest price," Kuzel said. "I would rather spend a little bit more and get what I really want. I have to be selective in this economy."
Toys "R" Us Inc. Chairman and CEO Gerald Storch said shoppers are willing to spend if the product is "good enough." He said that is why the merchants at the Wayne, N.J.-based toy store chain invest so much energy in finding what they believe will be the hottest toys for the season. Among their picks: the LeapFrog LeapPad Explorer and Lalaloopsy Silly Hair dolls.
"I do believe, in this environment, consumers are focusing on products they need or on what they really, really want," Storch said. "We're certain of this much: Christmas will come, and people will buy great toys for their children."
(Source: Chicago Tribune, 10/02/11)
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