MasterCard Advisors’ SpendingPulse released revised figures for the Christmas holiday shopping season.  (See “Stores to post modest December sales gains“)

The results confirm what we have been saying in these blog pages:   Consumers are starting to spend again, but they are doing so in a tepid manner.  They are out of the “panic mode” brought on by the credit crisis, but they are far from back to their free-spending ways.  This is consistent with the Dent view that consumers will be more conservative in the years to come as the Baby Boomers pay down debts and aggressively save for retirement.  Stores did not have to resort to heavy discounting this year (or at least not nearly as much as last year) but this was only because they started with much lower levels of inventory.  Now, starting from a lower base, we can mount a modest recovery of sorts.

Some observations of note from the AP article:

 The worst December performers are expected to be teen merchants, particularly pricier stores such as Abercrombie & Fitch Co. as parents have cut spending even on their children….  [There is also a demographic effect at work here.  College kids tend to spend less on clothes than high school kids because they live on tighter budgets.  While not “cheap,” college football t-shirts and hoodies are cheaper than the overpriced crap that insecure teenagers buy at Abercrombie.  As the Echo Boomers move through the college years and beyond, sales at high-end teen stores should suffer.  But on the other hand, stores that cater to young professionals should do relatively well - CLS]

Sectors that saw improved sales from Nov. 29 through Saturday, compared with a year ago, according to SpendingPulse:

– Online sales soared 17.7 percent. For the year, that category rose 12.2 percent.

– Footwear, up 6.2 percent. For the year, it was unchanged.

– Electronics, up 7.3 percent in December. It fell 0.5 percent for the year.

– Luxury sales, excluding jewelry, up 5.5 percent. They fell almost 8 percent for the year. [This is a sector we intend to continue watching.  Demographic trends are not necessarily negative for the luxury goods sector.  Wealthy Baby Boomers and a new generation of young professional women building their working wardrobes should help this subsector to outperform the broader consumer sector in the years ahead - CLS]

– Jewelry, up 6.9 percent in December, down 4.1 percent for the year. High-end and low-end jewelry chains fared well, but mid-tier jewelry stores struggled. [Again, this is consistent with our view of a bifurcated market in which the low end and high end do comparatively well while the middle tier suffers - CLS]

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

The first few days after Christmas, when sales figures start to trickle in, should be quite interesting this year.  We’re expecting holiday sales to be roughly flat over last year’s disappointing numbers.  But headlines like this make us wonder if we’re being too optimistic:  “Shrinking Credit Threatens Almost $9 Billion in Holiday Sales”

Bloomberg writes,

Target Corp. and U.S. retailers may lose almost $9 billion in holiday sales as banks rein in lending to cash-strapped consumers before a new credit-card law takes effect.  Sales in November and December may fall 1.2 percent to $436.7 billion from the same period in 2008, said Britt Beemer, chairman of consumer polling firm America’s Research Group. If lenders weren’t cutting customer spending limits and rejecting more credit-card applicants, sales would gain about 0.8 percent to $445.5 billion, he said in a Dec. 21 interview.

Despite the best efforts of the Fed to open the floodgates, credit remain tight in the private sector.  It will be interesting to see exactly how badly this dents 2009’s holiday sales.

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

Despite being in “bunker mode,” in which virtually all non-essential spending has been trimmed or eliminated, consumers have continued to buy shoes by the box loads (see “A Not-So-Guilty Pleasure“).

The question begs to be asked: Why?

The New York Times writes “Retailing executives and analysts offer varying, occasionally wacky, explanations. The one favored by many of them is that consumers consider shoes more of a necessity than, say, dresses, cuff links or handbags, so people feel less guilt about buying them.”

Shoes are generally cheaper than most of the other items mentioned. Perhaps this is a better explanation, however:

Shoe buyers for major retailing chains said sales were also driven by styles for children and babies, especially during the back-to-school months. Children regularly grow out of shoes and parents, while willing to sacrifice when it comes to themselves, are typically loath to scrimp on their children.

When a child’s foot grows, you really have no choice but to buy shoes for him.  In this sense, children’s clothes can be thought of as a recession resistant sub-industry, particularly given the recent surge in births.  This recent baby boomlet gives the market for children’s clothes strong demographic support in the next decade.   Even if an adult man or woman is content to turnover their wardrobe a little less frequently when times are hard, some amount of spending is needed for their growing kids.  They might buy cheaper brands and buy fewer pieces overall, but some amount of spending is going to happen.  You can’t rightfully send your kid to school with sleeves and pants legs that are half a foot too short.

The Times also had another interesting theory to explain the resiliency of shoe sales:

Among the more curious explanations proffered for the relative strength of shoe sales is that women — who make up the lion’s share of the American shoe market — get an emotional lift from shoe shopping in a way they do not when trying on jeans and cocktail dresses.

During depressions, people are…well…depressed.  The “retail therapy” of shoe buying might create a sense of escapism from current economic woes.

At any rate,  this goes to show that in a bad economy, pockets of strength can be found in some unexpected places.

Charles Sizemore, CFA
Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

The Census Bureau Retail Sales Report reported nothing new under the sun (download here).

Auto sales plummeted immediately after the Federal “cash for clunkers” program expired (see chart below), and total sales ex-auto, while up slightly from August, were down significantly from the previous September.

Across the board, virtually all product segments saw declines from September 2008.   Food, general merchandise, and sporting goods were more or less flat and health products were up slightly. But everything else was down, and generally by a lot.

So, while things are improving, we are still a LONG way from a full recovery.

Charles Sizemore, CFA
Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

The Census Bureau released the latest retail sales figures, and at first glance, they don’t look that bad.  Sales were up nearly 3% over July’s numbers — implying, perhaps, that the consumer is starting to dust off his wallet and shop again (See chart below).  A closer look at the report quickly extinguishes this hope. Read the rest of this entry »

Interesting interview with retail maven Howard Davidowitz:

Mr. Davidowitz sees a continued string of bankruptcies in the retail sector with “hundreds of thousands” of stores closing. The retail sectors he sees surviving and prospering? Pharmacies, deep discounters like “dollar stores,” and not much else!

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

The Census Bureau reported advanced retail sales for July today, and we had a few surprises.  Year-over-year, retail sales remain horrid though are showing signs of improvement.  Strangely, autos — which had been seeing year-over-year declines in excess of 20% for most of 2009 — actually outpaced overall retail spending, pulling the averages up!  

The federal “Cash for Clunkers” plan was obviously a major driver of this, so we should take these gains with the proverbial grain of salt.

On a month-over-month basis retail sales were down, breaking a decent run of improving months.  So much for the recession being over….

This is more or less what we expect from the retail economy for the next several years: a positive month here, a negative month there….  Retail sales will not march continuously downward, but they will certainly have a hard time gaining any real momentum.   How could they, given that the largest and richest generation in history is now massively cutting back spending and instead saving for retirement?

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy