Do the expectations of Best Buy and Toys “R” Us for the holiday season suggest that it may turn out better than is commonly thought at present or are these retailers possible exceptions to the gloomy rule? What is there about one or both of the two chains that makes you expect that they will have a strong 2008?
Yes, I expect the holiday season will turn out better than is commonly thought at the present. Our latest Consumer Demand Index is in negative territory for the first time ever, but consumer buying intentions for specific durable and non-durable goods are down only marginally or in some cases even stabilizing. The explanation is again in the large percentage of consumers (56%) that are in a wait-and-see, sit-on-the-fence mode, declaring themselves not ready to make any major purchases in the next 3 months. This uncertainty and insecurity are being driven by pronounced price increases for food and fuel, which have been sudden, rapid and pronounced. Consumers don’t know if these increases are temporary or not, and so are cutting back drastically on discretionary spending. In fact, 78% of Americans think the US is in recession (it isn’t–the economy grew .9% in the first quarter), even though 72% rate the financial situation of their own household as “good.” What else is there about Best Buy and Toys “R” Us that makes me expect that they will have a strong 2008 holiday season? Electronics and toys are always strong in the fourth quarter; our 7 years of CDI data confirm it. [Feel free to email me for a free sample issue.] http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/13040
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What else will determine my holiday results?
Which companies will come out winners or losers will be tied directly to customer service. Discussions of customer service often focus on convenience, quality, speed, and helpfulness of sales staff.
Increasingly, however, consumers view returns policies as the most important component of the customer service equation.
This Christmas season many consumers will actually decide where to shop on the basis of each retailer’s returns policy. Is your returns policy up to date and up to grade? Shoppers want return policies that are liberal, generous, flexible, fast and easy. And of course, they want to be able to return any item via any and every store and channel, including a different channel from which they made they purchase.
Shoppers will want to know your returns policy beforehand. As experienced multi-channel retailers know, a good returns policy is a win-win proposition. Satisfied customers are more likely to trade-up when they trade-in, and more likely to be open to the purchase of other items. And of course they are more inclined to be frequent, loyal shoppers, and to spread good word of mouth. Approach your returns policy as an opportunity to strengthen your customer relationships!
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Will it be a Merry Christmas or not? (2006)
The winter holiday season accounts for one-fifth of total annual retail industry sales. The two-month period can account for about half of retailers’ annual profit. In the past 3 years, total holiday retail sales have shown year-over-year growth of 5.2% (2003), 6.7% (2004), and 6.1% (2005). This year, according to National Retail Federation forecasts, retailers can expect a “subdued” gain of 5%, which would take overall holiday spending to a record $457.4 billion.
Most analysts view the retail industry as being fundamentally strong, and see little indication consumers will drastically reign in spending during the upcoming holiday season. Dr. Roger agrees. But the real trend this holiday season (and next, and the ones after that) will be the growing separation of retail winners and losers. Many factors will be at play, including brand allegiance, convenience, shopping experience, product selection, returns policy, etc. But the biggest factor in our view is this: those retailers with well-integrated multi-channel platforms will thrive, and will be well positioned for future gains. Those retailers without well-integrated multi-channel platforms will have to rely on one-time factors, such as a hot product selection.
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Will retailers see green this holiday season? (2006)
Absolutely. Household income is up. Consumers have money to spend. Buying intentions are robust (see our exclusive US Consumer Demand Index on pages 9–12). The average consumer plans to spend $791 on gifts this holiday season (up from $738 last year), and an additional $100 on themselves (BIGresearch).
The biggest trend in holiday shopping this year is, of course, multi-channel shopping. Fully half of all consumers will be shopping online this holiday season, up from 36% three years ago. Multi-channel retailers will be the biggest beneficiaries. Department stores that use their web sites to serve customers and drive traffic will see large increases
in sales; 62% of shoppers plan to shop at department stores for holiday items, up from 53% in 2003.
(See our item under Lifestyle & Culture on why department stores are making a comeback, including the return of young adult shoppers. Fully 79% of 18- to 24-year-olds are planning to shop at department stores for holiday merchandise, up from 73% last year and 66% in 2004.)
Consumers, as always, cite low prices and sales or discounts as primary factors in determining their holiday shopping destinations and methods. But increasing percentages now also cite convenience, customer service, product quality, merchandise selection and, as we highlighted in last month’s issue, returns policy. These factors should all favor the increasing growth of best-practice multi-channel retailers in income, profitability and market share.
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Seasonal Forecast 2006
Will 2006 be a record
Consumers will be spending more this year because they will be able to: 2006 has been a good year for employment and income (and the fifth in a row). Total employment is near 150 million (in the Bureau of Labor Statistics’ household survey). At 4.4%, the unemployment rate is well below its 5.1% long-run average.
The average wage is up 3.9% from last year; workers’ incomes from wages and salaries are up 6.8% in the last year (the fastest annual advance in 5 years); personal income is growing at an annual rate of 7.5%. Business compensation per employee-hour was up 8% through the first half of this year.
What else will drive spending? A record 28% of households have incomes above $75,000, the traditional definition of “affluent” (and twice the share of 30 years ago). Affluent households, which make up a disproportionate share of consumer spending, have seen income and assets grow smartly again this year. Per capita these households will spend 60% more this holiday season than the average for all households (approximately $1500 vs. about $900). By our own reckoning, another 28% of households are “affluent minded,” meaning they know quality and value and are willing to pay for it when buying an item of high importance.
The
Another reason spending will be up this holiday season: the buying starts earlier, stays heavy right up until Christmas, and finishes later. Because of the widespread availability and use of the Internet, price-comparison shopping sites, online retailers’ early promotions and traditional retailers’ own Internet marketing efforts, the Christmas shopping season now commences well before Thanksgiving. (We detected signs of online holiday shopping and planning as early as July and August this year!)
Because some shippers now offer overnight delivery right up until Christmas, long in-store hours (including some post-midnight and on holidays), and the availability of store pick-up of items ordered online, the conventional wisdom that most shoppers will have completed buying gifts by mid-December is no longer valid. Shopping will now continue right up to and through Christmas itself! Consumers have also become savvy enough to realize that even greater bargains await those who shop after Christmas.
Will the housing market depress holiday spending? Not at all. In most markets the only decline in housing prices has been in the rate of upward appreciation. In the few overheated markets that have experienced actual declines, they have been marginal declines from historic highs (reached after years of unprecedented annual increases). True, there has been a marginal decline in housing activity (buying and selling), but some of that is due to a standoff between buyers trying to resist higher prices and sellers who won’t reduce them (not a precursor of a housing collapse!).
Unsurprisingly, therefore, 92% of American consumers say any recent change in the market value of their home will have no impact on holiday spending (Deloitte & Touche). More than four out of five (82%) of consumers say they feel secure about their jobs, and two-thirds (68%) expect the economy to improve or stay the same next year.
What products are hottest this year? We will see a heightened demand across the board: both traditional and non-traditional toys and gifts, and both luxury and bargain goods. Computer games and consoles will be hot, but so will traditional dolls, trains and board games (e.g. Monopoly). Electronic products will be in big demand, but so too will old standbys like Etch-a-sketch, Barbie and Mr. Potato Head. Lego will do well selling both their traditional snap-together blocks and their robot assemblies (Mind Storm). The aisles will be filled at Costco and Wal-Mart, and they will also be filled at Saks, Bloomingdale’s, Neiman Marcus and Bergdorf Goodman.
Although the majority of consumer electronics purchases will be made at retail locations, a striking 77% will be influenced by Internet research, according to the Consumer Electronics Association.
Will discounts rule the Season? Sure, but we don’t recommend competing on price alone. That’s a tough road to long-range profitability. And it’s unnecessary in the good economic and spending environment we have described. Better to know who your most profitable consumer targets are, and to provide them with good value, service, convenience, quality, a generous returns policy, a good online shopping experience and a friendly, helpful in-store environment.
Is the Internet playing a bigger role? Amazingly so. Nearly three-quarters (73%) of consumers will rely on the Internet to research and compare prices and varieties of holiday products and gifts this year, and 70% will buy at least one item online (Prospectiv). Overall, Forrester Research expects a 23% rise in online sales, to $27 billion, this holiday season. Even 57% of consumers with household incomes under $50,000 plan to do some of their holiday shopping online.
The Internet has met the necessary and sufficient conditions for any consumer technology to become nearly universal: high levels of accessibility, affordability, simplicity, and utility. As a result the Internet is becoming ubiquitous, used extensively by those in any and all demographic, geographic or socioeconomic groups (young or old, rich or poor, urban, suburban or rural). In fact over half of all Americans now consider the Internet to be indispensable to their lives (Pew Internet and American Life Project). Not just useful or highly valued — indispensable!
Three-quarters of US households now have high-speed broadband Internet access, and an increasing number of Americans are becoming comfortable and competent using the Internet for information and commerce. Of the 80 million US online households, 75% have purchased products over the Internet. Concerns over privacy and piracy are still prominent, but will diminish over time as perceptions of security match the true level of safety now afforded.
Who is benefiting most? Integrated retailers are benefiting most — those who are combining their in-store and online environments both for consumer interface and for back office operations such as inventory and merchandise logistics. Retailers that use their web sites not just as a sales channel but also as a marketing opportunity to drive traffic to their physical stores are benefiting most. Retailers such as Best Buy, Circuit City, Home Depot, Office Max, Ann Taylor, Banana Republic, Talbot’s, Casual Male,
Multi-channel retailers like Wal-Mart, Target and JC Penney are becoming more aggressive both online (with advertising and promotions), and offline (with extended services and hours of operation). Multi-channel retailers continue to take market share away from pure-play Internet e-tailers.
Neiman Marcus’ Christmas catalog is legendary; every year its most outrageous gift garners national media attention. But this year, for the first time, holiday shoppers are doing more shopping on Neiman’s Web sites than through catalogs. Likewise, both JC Penney and L.L. Bean expect online sales to exceed catalog volume this year.
All three store chains are multi-channel pioneers — Neiman’s to the upper market, JC Penney to the middle and lower, L.L. Bean to the outdoor market. That their respective web sites are surpassing their long-established catalog operations is a sign of things to come throughout the industry.
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