The U.S. holiday shopping season traditionally begins on Black Friday, the day after Thanksgiving, with alluring sales and promotions. On the day the ultimate discounter, Wal-Mart's CEO resigns [5], as Bloomberg's Rich Yamarone notes, the most agreed-upon take so far is that sales will be difficult amid a deteriorating economy - every major retailer in the Bloomberg Orange Book has made mention of the competitive market for the consumer’s dwindling dollar. Target Corp. CEO Gregg Steinhafel said, “it’s clear that the holiday season will be highly promotional and that consumers will be laser-focused on value.”
Via Bloomberg Economist Rich Yamarone,
Holiday spending expectations are not exactly lofty. A Gallup poll conducted Nov. 7-10 found Americans estimated spending $704 per household on Christmas gifts this season, notably lower than the $770 they projected at this time last year. A separate survey conducted by the National Foundation for Credit Counseling found the persistently high rate of unemployment coupled with the long duration of unemployment are still “very real challenges many people are facing.” The November poll revealed 53 percent said they would “cut back on spending, since I am worse off financially this year,” and 33 percent claimed they would “not spend at all, because I anticipate further financial distress.” Only 11 percent had intentions to spend at the same level as a year ago, while 3 percent looked to spend more.
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Target’s CEO told investors last week consumer spending remain constrained. “In particular, lower and middle income households are shopping cautiously, as they work to stay within tight, very tight, household budgets, which have seen additional pressure from this year’s payroll tax increase,” he said.
Consumers simply don’t have the wherewithal to get the economy moving — real disposable personal incomes are advancing by a gradual 1.9 percent pace, while real average hourly earnings are only 1.3 percent higher than year ago levels. The household sector is limiting its purchases to necessities, like food, and retailers are well aware of this.
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My colleague Matt Nolfo and I stopped by a Target in Birmingham, Alabama during a recent speaking tour. The biggest takeaway — other than a six-pack of Bud — was the enormous size of the grocery section. What used to be a few aisles of dry goods — coffee, cereal, and chips — has ballooned to a sizable dedication of square footage including frozen food, alcohol, and freshly baked produce.
Dollar Tree Inc. has been moving in this direction for several quarters. CEO Bob Sasser highlighted this during his company’s earnings report, noting comparative sales growth in the third quarter was the result of increased sales in need-based consumables. “We’re rolling out freezers and coolers at a faster pace,” Sasser said. In the third quarter Dollar Tree installed freezers and coolers in 122 additional stores for a total of 566 store installations year-to-date exceeding the company’s original plan for 550 store installations. “We now offer frozen and refrigerated product in 3,115 stores,” Sasser said.
All this food considered, maybe the year’s best seller will be fruitcake — a heavily discounted one.
Source: Bloomberg