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Are Retailers playing a game of “Chicken?”
Posted By Barry Ritholtz On November 18, 2003 @ 11:48 am In Finance | Comments Disabled
Retail, X-Mas & Discounting: I’ve been thinking a lot lately about retail sales. Some of that is due to recent earnings — especially Home Depot (HD) and Wal-Mart (WMT); Part of it is due to our imminent kitchen renovation.
The Hpme Depot’s 3rd quarter resultswere terrific (as was Lowes) — but that’s strictly a function of ultra low interest rates. Wal-Mart’s conference call was more intriguing, given their CEO’s comments (mentioned here  last week).
What’s been so intriguing is the surprising amount of “no discounting this year” chatter you may have been hearing this pre- Christmas season. My personal opinion is that its mostly nonsense. Oh, they’ll wait as long as they can, but the discounting genie is out of the bottle. Here are some reasons why:
1) They are early: You cannot help but notice all the Christmas decorations up since Halloween. While we all hate it when the holiday shopping season becomes a 3 month orgy of crass consumerism — one month is plenty — the early decorations provide a hint into the retail thought process. It smacks of too high expectations, or perhaps desperation. Regardless, its apparent that retailers both want AND need a very strong showing.
2) They are discounting: I’ve been seeing very aggressive special offers via direct mail. We’re on a few lists (not spam, but stuff we chose to be on). Consider some of the discounts, which have been very aggressive:
Lord & Taylor : One of the nicer Department stores in the “high, but not insanely priced” higher quality category (and one of my favorite Men’s departments). They are having a 50% off sale on nearly everything in the store pre-Thanksgiving. They sent a catalogue with several 20% off coupons, applied to the already 50% off. L&T happens to have a lovely Men’s sweater section , and I see their cashmere sweaters have been reduced to $89. Add the 20% coupon to that, and you are looking at $200+ items being sold for $72. (Now that’s a sale).
Macys: Has their pre-Thanksgiving sale, and their direct mail flyer has lots of 15 -20% off coupons, to be applied to the “lowest ticket prices.”
Dansk : is a midlevel flatware and china store. High quality stuff at reasonable prices. Not that you would mistake their wares for Villeroy & Boch  , but still fairly decent. Their inventory clearence sale is on, and that’s before you apply the additional 30% off.
3) They are interest rate sensitive: The kitchen renovation has me spending time in Home Depot  and Home Depot Expo . (Lowes  falls somewhere in the middle of this spectrum of warehouse to high end design).
Ordered kitchen cabinets from HD. They spent a lot of time with us — design, layout, measurement. No pressure, no commission sales/design staff. Very competent, actually a pleasure to deal with. We ended up with an upper mid-tier Kraftmaid  for a reasonable price. HD is doing the install also. We looked at appliances there, as wells as Expo, Sears , and Best Buy . Ended up buying ‘em at P.C. Richards , where they were very, very willing to really haggle on the prices — came in below budget (can’t say the same for the floor or backsplash). Again, not high end, but upper mid-tier — GE Profile, Amana, Maytag. (I dig the new beefy looking appliances — who came up with the idea of marketing kitchen stoves to Men?) But what struck me at all these places was the heavy discounts or the willingness to drop prices to close a deal. It probably didn’t hurt that we ordered everything before the improved GDP and jobless numbers came out — that may have given us more leverage when negotiating.
This shopping experience was another story entirely. Mrs. BigPicture (and her sister) are huge outlet fans. You need to be a savvy shopper at these places. We’ve watched over the years as the outlet centers went from a little known bargain hunters delight to selling lower priced, made-for-the-outlets junk — and then back again. If you know clothes — Mrs. BP teaches a course in Fashion Design & Illustration — then you can do exceedingly well there.
This last trip was simply too much: Its so obvious that discount shopping has become an enmeshed part of our consumer culture. The local papers had adverts for 30% off (I spent $1.50 cent on 3 copies of Newday). Stop in the outlet center office and pick up a coupon book for $5 — well worth it. With the coupons, there were some serious bargains to be found.
I do not believe retailers will be able to go back to charging full prices until we are in a much later stage recovery — think 1996-99.
Some examples: Mrs. BigPicture found a pair of knee-high leather boots at Bass (I never can talk her into the thigh high ones). They are $139, on sale for $89. With the 30% off coupon, they were a little more than $60. (Made in USA? Try Brazil)
After my last clothing debacle , I thought I should have some “back up” shoes in the office. Bass was running a “buy one pair, get the second 1/2 off” promotion. Plus the 10% off coupon. I got a pair of black tasselled loafers, and another pair of penny loafers. Net net — under $100 for two pair of shoes. Thats a joke — the penny loafers alone used to cost that much.
In the Gap, I found a long sleeved striped polo shirt, made in Guatemala for the factory outlet. The funny thing is that this was the exact same style and color as one I bought on the Gap on 23rd St & Lex in Manhattan when I was in grad school — in 1986. Only these were 2 for $20; The old one — long since tattered and discarded — was ~$35 dollars, on sale for $16 or so. That was over 15 years ago.
No wonder Greenie  ain’t too worried about inflation.
Same story at Levis: Heavily discounted jeans. With the coupons, Levis premium jeans (regularly $50) ran a touch more than their cruddy signature line does at Wal-Mart ($23.99), An even better deal was had at Le Gourmet Chef — New Contemporary Calphalon  pans, which are almost always at list price everywhere — 30% off with the coupon.
All this leads me to 3 conclusions:
1) Discount shopping has become a sport, and will not fade until much, much later in a cyclical recovery.
2) The continued importation of goods from China, Malaysia, India and Philippines will only accelerate. Expect South American nations — i.e., Guatemala and Brazil — to more aggressively join this circle.
3) We can ascertain what consumer spending will be like over for the next 6 months by watching the Xmas game of discount chicken — if retailers are forced to discount sooner rather than later, that implies consumers are being very cautious with their spending, and are pulling their horns in a bit.
We will find out soon enough — Thanksgiving is next week, and the big holiday rush starts the next day . . .
Holiday Discounts  for a slew of retail discount (web) coupons;
Discounting? What Discounting?  for the latest salvo from WAL-Mart
Lord & Taylor 
Home Depot 
Home Depot Expo 
Best Buy 
P.C. Richards 
Tangers Outlet Center 
Macy’s website is a Flash hell, and as such is omitted.
Article printed from The Big Picture: http://www.ritholtz.com/blog
URL to article: http://www.ritholtz.com/blog/2003/11/are-retailers-playing-a-game-of-chicken/
URLs in this post:
 here: http://bigpicture.typepad.com/comments/2003/11/walmart_dumps_c.html
 Lord & Taylor: http://www1.mayco.com/common/indexDiv.jsp?divCode=LT
 sweater section: http://www1.mayco.com/salebook/salebook.jsp?divCode=LT&eventName=1121
 Dansk: http://www.dansk.com/
 Villeroy & Boch: http://www.villeroy-boch.com/en/index_us.html
 Home Depot: http://www.homedepot.com/
 Home Depot Expo: http://www.expo.com/
 Lowes: http://www.lowes.com/lkn?action=home
 Kraftmaid: http://www.kraftmaid.com/KMMain.htm
 Sears: http://www.sears.com/sr/javasr/vertical.do?BV_UseBVCookie=Yes&vertical=APPL
 Best Buy: http://www.bestbuy.com/site/olspage.jsp?id=cat12074&type=page&categoryRep=cat05000
 P.C. Richards: http://www.pcrichard.com/CGI-BIN/LANSAWEB?WEBEVENT+L068C6881306595D4947F461+PCR+ENG
 Tangers Outlet Center: http://www.tangeroutlet.com/outlet/centers/State.asp?ST=NY&ID=36
 Riverhead: http://www.tangeroutlet.com/outlet/centers/StoreDirectory.asp?ID=36&ST=NY
 clothing debacle: http://bigpicture.typepad.com/comments/2003/11/a_funny_thing_h.html
 Greenie: http://www.federalreserve.gov/bios/greenspan.htm
 Contemporary Calphalon: http://www.calphalon.com/cookware.asp?product=Contemporary+Nonstick
 Holiday Discounts: http://bigpicture.typepad.com/comments/2003/11/holiday_discoun.html
 Discounting? What Discounting?: http://bigpicture.typepad.com/comments/2003/11/discounting_wha.html
 Levis: http://www.us.levi.com/fal03a/levi/home/l_home.jsp
 GAP: http://www.gap.com/asp/home_gap.html?wdid=0
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