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Retailers Cry “Uncle!”

Posted By Barry Ritholtz On December 17, 2003 @ 7:40 am In Finance,Media | Comments Disabled

I previously took issue [1] with the “No retail discounting this Xmas” meme (“Are Retailers playing a game of ‘Chicken?’ [1]“) circulating earlier in November:

“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.”

Tuesday saw a spate of articles which noted that retailers had thrown in the towel. The WSJ observed [2]:

“At least one big player has blinked in the annual game of chicken retailers play with holiday bargain hunters. Sears, Roebuck & Co. added extra promotions this weekend to spur sales following a disappointing November sales report. Sears added an “instant savings” promotion Saturday, offering shoppers who spent $100 on merchandise such as clothes, shoes and jewelry an immediate 25% discount; those spending $50 got $10 off. From 7 a.m. to 10 a.m. Saturday, Sears took an extra 10% off for most of the items eligible for savings.

“Sales for the industry are softer than many had expected,” Larry Costello, a Sears spokesman, said last week. “For consumers, we view [the past weekend] as the best weekend to buy. … We decided to be more promotional to encourage customers to act now rather than wait.”

Reuters noted [3]:

“U.S. retailers flinched first in their annual holiday face-off with consumers, unleashing a fresh round of steep discounts to salvage what remains of a disappointing Christmas shopping season. Before the season got under way, forecasters said tight inventories and improved consumer sentiment would help retailers avoid profit-squeezing clearance sales this year. Even so, stores are now slashing prices in the face of sluggish sales, raising concerns about fourth-quarter earnings.”

USA Today discussed [4] the impending sense of doom for those who failed to pull traffic:

“There’s an increasing desperation. Each retailer needs to be the store that consumers are going to, so you will see some increased discounting to make that happen,” says Heather Brilliant, retail analyst at independent research firm Morningstar . . . A slimmed-down holiday sales forecast by Wal-Mart on Monday indicated that a hoped-for flood of procrastinating shoppers – who’ve been willing to wait longer and longer each year for a better sale price – didn’t happen last week.”

AP likewise observed [5]:

“Some major retailers like Chicago-based Sears have given in, and added extra sales this past weekend, hoping to fuel business . . . Meanwhile, K-B Toys began its second wave of unplanned discounts Monday, cutting prices by 25 percent on some 200 different toy products and up to 50 percent off train sets and select other items . . . Still, consumers remain frugal as worries loom about job security. While unemployment has ticked down to 5.9 percent, the creation of jobs has lagged.”

Snow Job [6]
Some analysts and CFOs have blamed the sluggish sales on the two snow storms which hit the NorthEast. This is (mostly) nonsense. Here’s a news flash: It snows in the winter. Get used to it (and plan accordingly). Of course, the Home Depots of the world sold alot more shovels and snow blowers that weekend, which leads to cries of the “broken window [7]” fallacy.

But unlike the limited resources referenced by the broken window thesis, Christmas shoppers are a determined lot, hardly dissuaded by their ‘finite’ resources. The key underlying flaw of all economics – the theoretical “rational consumer” – is nonplussed by mere lack of cash. The social and familial obligations of gift exchange reduces the elasticity of “the list” by a large measure. Thus, everyone you know will get everything [8] on their X-mas shopping list [8] by December 25th, come sleet, snow, debt, gloom of night, etc. If the snow kept them from the mall, than they shopped on line [8]. If they run out of cash, they charge their purchases. Its always dangerous to rely on anecdotal evidence, but this is a query into the fundamental nature of the American consumer. Will a little snow — or a lot, for that matter — prevent grandma from getting her grandkids their gifts? “Susy and Bobby, here are your Christmas gifts . . . sorry little Debbie, but it snowed. Maybe next year . . .

Last I checked, the internet does not close for “snow.” Whether that means Wal-Mart’s and Sear’s loss becomes Amazon’s and eBay’s gain, we have yet to see. But suffice it say that a determined shopped can get whatever they want delivered by December 25th.

May we please retire this pathetic snow excuse now? (Thanks).

As to our original discussion re: Discounting, I’ve seen nothing to move me away from my original perspective:

“Discount shopping has become a sport, and will not fade until much, much later in a cyclical recovery . . . The continued importation of goods from China, Malaysia, India and Philippines will only accelerate [the discounting trend] . . . We can ascertain what consumer spending will be like over for the next 6 months . . . 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.”

The bottom line is that the economic pop we’ve all enjoyed remains a stimulus driven animal, and not a brand new business cycle or spanking new Bull market. Of course, I could be wrong, but I believe the differences between a cyclical Bull run and a full blown secular recovery continue to elude most of the mainstream economists and analysts. With superficial econometric models, or slavish devotion to outmoded theories, its folly to rely on the same “traditionalists” who missed the bubble, crash and recession in the first place.

This is not a popular viewpoint. The truth rarely is . . .

Update, December 21, 2003: 10:05 PM:
Interesting early look at the holiday shopping season over at CNN/Money:
Did shoppers come through? [9] http://money.cnn.com/2003/12/21/news/companies/holiday_raceupdate/index.htm

Sources:
Retailers Blink in Holiday Standoff [2]
By STEPHANIE KANG and AMY MERRICK
WALL STREET JOURNAL, Monday, December 15, 2003

http://online.wsj.com/article/0,,SB107144091355216800,00.html

Retailers Slash Prices as Sales Sputter [3]
Tue Dec 16, 5:19 PM ET , Reuters
By Emily Kaiser

http://story.news.yahoo.com/news?tmpl=story&u=/nm/20031216/bs_nm/retail_sales_dc_2

Stores may cave in showdown with bargain hunters [4]
Tue Dec 16, 7:02 AM ET
By Lorrie Grant, USA TODAY

http://story.news.yahoo.com/news?tmpl=story&u=/usatoday/20031216/bs_usatoday/12071478

Shoppers Waiting for Holiday Bargains [5]
Mon Dec 15, 6:28 PM ET
By ANNE D’INNOCENZIO, AP Business Writer

http://story.news.yahoo.com/news?tmpl=story&u=/ap/20031215/ap_on_bi_ge/holiday_shopping_9

Wal-Mart reports subdued US sales [10]
by Amy Yee
Financial Times, December 15 2003

http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1071251554721&p=1012571727085


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2003/12/retailers-cry-uncle/

URLs in this post:

[1] took issue: http://bigpicture.typepad.com/comments/2003/11/are_retailers_p.html

[2] WSJ observed: http://online.wsj.com/article/0,,SB107144091355216800,00.html

[3] Reuters noted: http://story.news.yahoo.com/news?tmpl=story&u=/nm/20031216/bs_nm/retail_sales_dc_2

[4] USA Today discussed: http://story.news.yahoo.com/news?tmpl=story&u=/usatoday/20031216/bs_usatoday/12071478

[5] AP likewise observed: http://story.news.yahoo.com/news?tmpl=story&u=/ap/20031215/ap_on_bi_ge/holiday_shopping_9

[6] Snow Job: http://www.weather.com/weather/local/11548?lswe=11548&lwsa=WeatherLocalUndeclared

[7] broken window: http://www.progress.org/archive/fold136.htm

[8] everything: http://amazon.com/gp/registry/PIBBI29EORHA

[9] Did shoppers come through?: http://money.cnn.com/2003/12/21/news/companies/holiday_raceupdate/index.htm

[10] Wal-Mart reports subdued US sales: http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1071251554721&p=1012571727085

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