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| * Center for Customer Driven Quality |
November 1, 2007
Holiday spending may be up, but not enough to make retailers merry
WEST LAFAYETTE, Ind. - Retail sales are expected to be about 4 percent more this holiday season than last year, but the amount consumers have to spend on gifts will be limited by higher gas prices and anticipated higher heating oil costs, said a Purdue University retail expert. Richard Feinberg, a researcher with the Purdue Retail Institute and director of the Center for Customer-Driven Quality, said for every dollar spent on fuel, one dollar less is spent on the holiday."Fuel prices are just like a tax on consumer spending," Feinberg said. "This is not good news for retailers who have had higher costs and will have greater promotional expenses as they spend more money trying to get people into the stores."
Home heating oil is expected to go up 25 percent or more this season, which also will leave consumers with less disposable income to spend if temperatures drop in November, Feinberg said.
"Holiday sales are very sensitive to small but extreme economic and geopolitical events, such as fuel costs," he said. "This disproportionately affects lower-income consumers, which hurts discount stores the most. The possibility of a downside for discounters is greater than the possibility of an upside."
Feinberg estimates retail holiday sales in the United States will be $475 billion to $500 billion in 2007. However, Indiana's personal income growth, job growth and lower unemployment suggest that its retail sales may actually be stronger than the nationwide average, with Feinberg estimating the state's holiday sales to be $9 billion to $11 billion this year.
Data from the center indicates holiday sales of apparel will increase only 3 percent over last year and electronics sales will rise 5 percent above last year. Consumer electronics, jewelry, video games/CDs/DVDs and clothing are expected to be the most popular categories for spending.
The official starting day for holiday shopping is the Friday after Thanksgiving, called "Black Friday" because it was traditionally a day when retailers could turn their balance sheets to profitability. But retailers started holiday promotions in October this year.
"Retailers are rolling out their arsenal of promotions earlier than last year," Feinberg said. "Wal-Mart announced price cuts on toys in October, and we expect them to blast away with very aggressive sales up to and including Black Friday. Our research shows that 50 percent of consumers say they are attracted to sales and special promotions."
Consumers like hunting for bargains and regale their families with stories of successful hunting and gathering forays, Feinberg said. Contrary to a myth that consumers dislike holiday shopping, research at the Purdue Retail Institute tells a different story.
"Mothers and fathers pass down holiday traditions and use holiday shopping as family outings comparable to picnics," Feinberg said. "The crowds and noise and community filter into positive feelings as consumers imagine the effect that their gifts will have on the recipients. You can always find the disgruntled crotchety man and woman who complain about the lines and the crowds, but they may stand out because they are so vocal about it. Our work shows they are the exception, not the rule."
Big discounts and sales, while good for consumers, may not be good for retailers because a 4 percent sales increase may not mean a 4 percent increase in profitability, he said. If retailers begin to worry that they will not make their expected numbers, they will reduce prices even more, which will disproportionately affect profits.
More common this year, Feinberg said, will be coupons at point of purchase that are designed to get consumers back in the store during a specified time.
"This is a strategy employed by retailers to try to get the consumer to revisit during a crucial week and represents the fact that retailers cannot guarantee that a consumer will ever come back," he said.
More shopping days between Thanksgiving and Christmas also probably won't help retailers, Feinberg said. This year, there are 32 shopping days between Black Friday and Christmas, which is the maximum possible number of days. But Purdue Retail Institute research shows no relationship between the number of available shopping days and the totals rung up on cash registers.
"Because Christmas is on a Tuesday, our research shows the biggest shopping day of the year will be Dec. 22, the Saturday before Christmas," Feinberg said. "Retailers will be pressed to exceed their sales expectations, so there is very good reason to wait to the last weekend to shop. We expect exceptional sales and promotions for shopping this last weekend."
Writer: Maggie Morris, (765) 494-2432, maggiemorris@purdue.edu
Source: Richard Feinberg, (765) 494-8301, xdj1@purdue.edu
Purdue News Service: (765) 494-2096; purduenews@purdue.edu
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