Holiday shopping
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KPCC business analyst Mark Lacter talks about how the holiday shopping season is shaping up.
Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, we're already into the holiday shopping season, when stores open early, offer deep discounts, and shoppers can't seem to help themselves. Or can they this year?
Mark Lacter: Steve, there are all kinds of surveys and forecasts on what’s likely to happen, and they all basically say the same thing: that the season is going to be sluggish, maybe a little better than the disaster last year but not by much. Consumers have almost become afraid to spend, especially in portions of Southern California, where job growth isn't likely to pick up until late next year.
That's slower than the nation as a whole – but it's not that surprising given all the foreclosures in the state and an unemployment rate in L.A. County that's just a touch under 13 percent (quite a bit higher when you include the folks who have given up on looking for work).
Julian: Do those people with jobs feel secure about them?
Lacter: They don’t. The accounting firm Deloitte & Touche did a survey of Southern California shoppers and found that 24 percent were concerned about their jobs, way higher than the national rate. Also, about half of those surveyed felt their household's financial situation was worse than last year, also higher than the national average.
So if you believe the surveys, people will be buying fewer gifts and spending less money for those gifts. Electronics should do well, along with the essential items like clothes. Gift cards will be very popular – that's been a trend for several years now – and more shoppers are going to pay by cash or debit card, with fewer shoppers paying by credit card.
Julian: That's a switch.
Lacter: And very revealing Steve – people are just not willing to take on more debt, what with the job situation being so uncertain and with one out of every four homes worth less the amount owed on the mortgage – an amazing number.
Just to give you an idea of the concern, more credit cards were paid off on time during the July-September quarter than in the previous three months. Normally the delinquency rate jacks up in the third quarter. So caution is definitely in the wind.
Julian: With all this caution from consumers, how will retailers manage?
Lacter: Well, the first thing they're trying to do is front-load the shopping as much as possible, which is why Black Friday this year doesn't really come the day after Thanksgiving. It really started a week or two ago. Retailers don't want to be stuck during the third week of December with thousands of sweaters that they'll have to mark down – and then take a smaller profit.
Actually, they’ve done a good job of anticipating what kind of merchandise is most likely to sell for what price, in what store, and what region of the country. So they've been able to order more strategically – kind of like how the airlines know which flights are more popular and they can price them accordingly.
Julian: Does ordering strategically mean ordering less?
Lacter: Usually, and that's a big reason why port traffic in L.A. and Long Beach has been down so much this year. They're also selling more strategically by having those Midnight Madness sales where the stores advertise a few 42-inch TVs for $16 or whatever, and then, when the good stuff is sold out in five minutes, shoppers wander into other parts of the store, where the prices and margins might be a good deal higher.
One other plus are all the retailers that either went out of business in the last 12 months or drastically cut back because of bankruptcy. Circuit City, Ritz Camera, Eddie Bauer – it's a long list and the result is that the surviving stores don't have as much competition. That alone is going to help their numbers.
Julian: As long as you have people willing to spend.
Lacter: That’s right. But even if they don’t spend that much retailers are coming up with ways to make the most out of what they do get. Remember, the holiday season can generate more than half of a retailer's entire sales year, so they're just trying to hang on until the economy starts to get better.
Mark Lacter is a contributing writer for Los Angeles Magazine and writes a business blog at LAObserved.com.
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