Is Decreased Holiday Spending a Mixed Blessing?

PaulKeleher What’s bad for retailers may be good for you and yours this holiday season. You may not see as much under the tree, but perhaps this is a wake up call for individuals to curb needless spending.

The National Retail Federation predicts sales will grow by only 2.2 percent this year, far below the average 4.4 percent growth the industry enjoyed over the last ten years. Retailers, who typically make about 1/5 of their sales during the Christmas shopping season, are the latest casualty in the war that is our economy.

Marian Salzman, chief marketing officer for Porter Novelli, a New York public relations agency, blames continuing uncertainty in the markets for a near total loss of consumer confidence. All this could not come at a worse time for retailers. She told

“How is that going to translate? Into low gift-giving or no gift-giving,” she said. “I see very small, incremental charitable donations replacing retail purchases. . . . From a retail standpoint, it’s going to be dismal.”

As for me, I can’t imagine how much more enjoyable the holidays could be without all that pressure to find ‘just the right gift’.

Contributing Factors

It’s not just the bad news we’re bombarded with daily. Other circumstances are affecting the industry:

Merchandise Availability: Retailers are going to have to offer the right merchandise. Plus, they’ve got to make sure there’s enough to get the customer in the door and satisfy their needs without having too much to discount at the end of the season. This year consumers are going to be pickier than ever.

Too Much Capacity: According to Antony Karabus, chief executive of Karabus Management, some retail chains (via easy access to debt at relatively low rates) bought too much real estate. Now lower performing stores are struggling.

Credit Crunch: Retailers who have already purchased winter inventory are better prepared for this season. However, those who delayed may find it hard to finance operations this year.

Thanksgiving: Thanksgiving falls in the last week of November this year. And when do we all start shopping? Not until the day after! That means the holiday shopping season is five days shorter this year than it was last year.

The Winners

Retailers who survive this season will be companies that offer a great value at a lower price. Think TJ Maxx, Wal-Mart, and Family Dollar. The higher end stores may be hit the hardest as consumers in every strata seek to trade down.

Techcrunch reports that Internet retailers will fare better than their brick and mortar counterparts. Established and diversified may be the only retailer truly celebrating come Christmas morning.

But you and yours? You’ll probably emerge from December just fine with fewer holiday sweaters and tins of chocolate pecans.

  • Many higher-end stores, such as designer products, have greatly slashed the prices of their products in order to attract the new, more frugal shoppers who do not want to show off a new 30k bag when everyone around them is getting hit hard. I’m sure this will not offset the loses they’re expecting, but it should still help some.