Consumer confidence; supermarkets compete for best drug discount
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KPCC business analyst Mark Lacter talks about consumer confidence; he also talks about the latest on supermarkets in the Southland competing to offer the best discount offers on pharmaceutical drugs.
Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, are people ready to spend money?
Mark Lacter: Well, retailers will come out with their September sales reports on Thursday and that might indicate what's in store for the holiday season. Actually, the numbers could be decent because Labor Day came so late this year (that kicked back-to-school sales into September), and also because the results in 2008 were so bad that it's easy to look good on a comparable basis.
Trouble is, things apparently slowed down later in the month. It's not just that folks are worried about holding onto their jobs, or that companies aren't hiring. It’s that there's a whole new mentality among consumers when it comes to spending.
Julian: It's called being cheap, isn't it?
Lacter: Yeah – somebody called it "Keeping Down with the Joneses" – and it's an amazing contrast to the years when consumers spent beyond their means by just taking out a credit card. This is one reason why Wal-Mart and the other discounters have held up pretty well, while the higher-end chains like Saks Fifth Avenue are having such a tough time.
Here’s an example of the new frugality: Mattel says that 80 percent of its toys this season will cost less than $30, and Wal-Mart is offering 100 toys priced at $10 this season, compared with just 10 a year ago. Now for retailers, the trick will be having enough of those lower-priced items in stock, and pricing them at margins that will generate some sort of profit.
Julian: It's so shoppers will have choices.
Lacter: Right – it’s do I hold off on purchases in the belief that the stores will slash prices, or do I buy earlier in order to have more to choose from? Whatever they choose Steve, it's almost certain to be a very sluggish holiday – most of the forecasts call for flat to slightly lower sales from a year ago, an extremely weak performance no matter how you slice it.
Julian: There's always competition among stores, especially as we head toward the holiday season – what about among grocery stores?
Lacter: Different kind of competition – and we saw an example with the grocery chain Stater Bros. offering a 14-day supply of antibiotics for free, as long as you have a prescription, of course, and then Sav-On matching the promotion. The Stater Bros. press release talked about wanting to provide affordable health care, which is commendable, but what it also wants to do is hold onto its customers.
For most of the year, all the chains have all lowered their prices for an unusually large number of items. This feeds into that penny-pinching mentality, and it's especially cut-throat among the local supermarket chains.
Julian: It's winning?
Lacter: Ralphs appears to be gaining the most ground – it has almost 20 percent of the Southern California market. Vons is at just under 15 percent, Albertsons is at 12 percent, and Stater Bros. is a little over 6 percent.
Point is all the chains are looking for any edge, so Stater Bros. figures if it can get people into the store with free medicine, maybe they'll stay on to do their grocery shopping. Of course, the competition is not just among themselves, but with Wal-Mart, Costco, and even Target, which is starting to expand its grocery selections.
Julian: What does this mean for you and me?
Lacter: Well, all the discounting is obviously a good deal, but if retailers are forced into a race to the bottom because customers expect everything to get cheaper, it will either eat into profit margins or for suppliers to cut costs by laying off workers. That could lead to deflation, which would be a terrible development for the economy. We're not there yet, but the concern is that all the discounting might turn out to be too much of a good thing.
Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes a business blog at LAObserved.com.
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