Retailers Face Tough Holiday
Season
Listening to media reports would tend to make a person believe this is
going to be a grand holiday season for the economy. But there are enough storm
clouds to give anyone not inside the Beltway or living on Wall Street pause
before venturing outside.
For starters, just look at all the food donations being requested. The
people who supply these holiday dinners KNOW they are going to
be inundated on Thursday and throughout the last five weeks of the year by those
depending on their benevolence to make it through this Christmas season. If the
number of people unable to afford food is rising so dramatically, what about
those people who normally flood the stores obtaining Christmas gifts, wrappings,
decorations and their holiday meals?
The majority of middle-class and low-income Americans are reluctant to open
their wallets because they are not sure how much they will be able to replace in
the future. The "I want to make sure I have it before I spend it" attitude is
becoming pervasive across the country. With the 99% firmly established as
closely watching their spending, the major retail stores are bracing for meager
returns.
Fixtures of normal individual shopping such as Wal-Mart and Kohl's are
being forced, already, to put in red-and-green signs declaring their sales in
big, bold lettering. Usually the effort doesn't start until after Thanksgiving
but this year some retailers began the push in October. They know they are in
for a siege.
Since the recession first bit in October 2007, retailers have had to offer
ever-growing price cuts, just to get people into their stores. But discounts
trim the profit margins and store managers, ever mindful of the bottom line, are
alarmingly close to the fail-safe point. If the discounts are not offered,
shoppers stay home, but a too-large discount makes some items bottom-line
losers. Losses which other items can no longer carry as well.
Take the Thanksgiving dinner as an example. The grocer offers steep
discounts on the turkey. But he slightly boosts the costs on items that make up
the side dishes to compensate. This has worked magnificently well in the
past.
Now the tide is turning. Even the discount isn't enough to entice shoppers
when they are facing the dire choice between a "want" and a "need".
A need is something necessary to maintain life. A want is anything else.
This little distinction is lost on the government which doesn't seem to see
any problem.
You have to chuckle when you read the official unemployment rate and how
much better the job market is. At last count, from September, there were 91
million Americans (age 18-65) out of a job and not in school. Even in raw
numbers for the population as a whole, that comes perilously close to the 30%
unemployment rate and makes the official 7.3% rate a laughing stock.
And the housing market is being touted as making strides when new home
sales have been falling for five straight months and still isn't close to where
it was six years ago.
Normally official numbers would be accepted by the citizens. But more
Americans are aware of the shrinking size of their wallet contents and know
something isn't right. Thus the consumer confidence level is at its lowest level
since April.
The surge in spending by Americans in October may have been the death knell
for this holiday season. American spending went up .4% in October but it was for
big ticket items like cars and furniture, masking a decided downturn in retail
spending as a whole.
Because of the switch to part-time employment, many Americans are making
the adjustment to permanent part-time prospects away from full-time jobs. The
looming impact of the Affordable Care Act is still causing many individual
families from spending as freely as they used to. The retailers know this as
well. Many of them are facing the prospect of passing along most of the
higher health insurance rates to their employees, particularly because they know
the holiday trade will not be the saving grace it has been in the past.
The final nail in the holiday season is coming from economists. Monday
morning the Philadelphia Federal Reserve's quarterly survey of economists showed
more than a 20% drop in what is expected this last quarter of 2013 from what had
been anticipated in August.
Economists surveyed saw a mere 1.7% gain for this fourth quarter now after
predicting a 2.3% rise. What's worse is they turned gloomier on the future,
seeing the first quarter of 2014 as another drag for the recovery with
expectations dropping to 2.5% from the 2.7% that had been expected in August and
the optimistic 3.2% seen last January.
The one bright spot in recent months was the decline in fuel prices but,
just last week, the pump price jumped 3 cents on average. This will further
diminish Americans' desire to part with hard-won dollars.
Put the whole of the economy into the blender and Santa doesn't just wind
up with soot on his suit, there are definitive signs the suit will be patched
and decidedly ragged before this next month is completed.
"I have sworn on the altar of God eternal hostility
to every form of tyranny over the mind of man."--Thomas
Jefferson
Please note there will be no Rant this Friday. Until
next week, may you have a Happy Thanksgiving--Mike
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