I have been thinking about something I saw a few weeks ago.
In a sign of how tough 2009 is retailers around the country have jumped the gun on Christmas. Traditionally Christmas decorations and sales began with Black Friday – this year November 27th. But the Thanksgiving holiday is late this year and retailers are understandably nervous.
So that is why I saw Santa Claus in the mall when I went to buy my Halloween Candy.
This says a lot about concerns about consumers in the economy and it should inform us as we think through the economic data that will come out of this holiday season.
First, extending the Christmas shopping season by almost a month will probably not increase holiday sales. It will look that way when people report November monthly numbers, but overall it seems that people are either spreading out their planned purchases over a longer period of time, or simply waiting until the traditional start of the season.
I can think of a few reasons why retailers would want to bring out Santa before we are finished with Jack Skellington. First they are nervous about consumer demand so starting early is not such a bad idea. Thanksgiving is late this year as mentioned before. Finally having sales now may postpone the desire to purchase gift cards in anticipation of deep deep discounts in the ‘after Christmas’ season.
In either case, retailers seem to be simply moving future sales forward in the year. Such a move does not generate more demand/sales, but rather has them occur now rather than latter. Sound familiar?
It seems like retailers are taking the wrong page out of the car company’s strategy book. Remember after the terrorist attacks of 9-11, car companies came out with 0% financing for 60 months and other incentives to keep the economy running. The result was dramatic with car sales leaping to all time highs.
Executives and economists saw this as a sign of economic strength and overcoming fear, etc.
Unfortunately you do not need a new car every year and before long it became apparent that all of these incentives had just moved purchases people would have made in 2003 and 2004 up a year or two. Given the durability of automobiles, sales fell as much because consumers had met the need earlier than anything else.
Moving future sales forward does give you earnings now, but it strips future demand creating a relative wasteland where there are few sales and in the short term less of a future.
Investors, consumers and everyone needs to understand that buying today what I planned to buy next spring makes this year look good. However it makes the spring season look terrible.
Fortunately many of the items purchased, as holiday gifts are not as durable as automobiles, so we can hope that the trough created by moving future sales forward will be short term.
However, remember Christmas in October when first quarter earnings are slow or consumers seem to be tardy in participating in the recovery. Could be they are finally getting around to eating their Halloween candy.