Just Come In, We’ll Pay You To Shop
|November 11, 2008||Posted by Roshawn Watson under Uncategorized||
Recent reports suggest double digit sales declines for the majority of retail chains surveyed. In fact, retail sales suffered their biggest drop in three years last month. For the first time since 1992, retail sales have fallen for the third month in a row. As consumers battled record high gas and food prices, decimated portfolios, and plummeting home prices, consumers rightfully felt less rich. Consumers decreased discretionary spending to lessen the economic blow.
Since some believe higher income consumers are somewhat impervious to the economic slowdown, it is interesting that sales at luxury stores suffered pretty badly as well. For example, luxury department store Neiman Marcus had a 28% decline in sales compared to last year. This is definitely not surprising because higher income consumers can manage their money just as poorly as the “average” income consumers.
Note that Abercrombie and Finch and Gap sales declined 20% and 16%, respectively. Not surprisingly, Walmart and BJ’s reported gains, likely because they are well-known as deep discounters.
Retailers are trying a variety of tactics to drive consumers to their stores. Hours for some stores such as Kohl’s have been extended for special “doorbuster deals” -teaser sales leading up to Black Friday. Last week my local Sam’s Club extended their store hours for the holidays more than seven weeks before Christmas. New merchandise is being marked down before it arrives on the sales floor. Prices on literally thousands of food and gift items have been dropped. Some stores are offering discounts on their entire merchandise lines or allowing shoppers to buy one item and take 50 percent off a second.
Despite these strategies, the sales declines suggest that their efforts are not fruitful. Reduced prices coupled with decreased sales volumes are expected to heavily erode profits and could potentially spell disaster for many companies. Retailers who are heavily leveraged are especially at risk. Perhaps perception of good discounts may be more important than offering them (i.e. Walmart and BJ’s success in lieu of other discounter’s failures)
While we may see an increase in businesses filing for bankruptcy (Circuit City), which isn’t good for the overall economy (including jobs), it is refreshing to see consumers exercising fiscal restraint during these difficult times.
One consumer said it best…
“…I don’t care if the prices are cut by 60%; I am using the cash that I have to pay off my credit cards, hopefully to zero out by the end of the year. I am not going to shop. This is not a “shopping” economy. It’s tempting that the designer suit that I’d like to buy has been deeply discounted, but the reality is that I will need to be debt-free, with money in the bank, if I or my husband see our incomes decline or, god forbid, lose our jobs, in the coming recession. This is not the time to spend money.”
Copyright 2012, Roshawn Watson, Pharm.D., Ph.D. All Rights Reserved.