Business Update with Mark Lacter

Retailers pushing Christmas sales in October

It's late October, which means  more and more stores are decorating for Christmas. 

Steve Julian:  Business analyst Mark Lacter, whatever happened to "better late than never?" 

Mark Lacter: Steve, retailers never want to sell late because it often means having to reduce the price. They're looking to start out as soon as possible - these last three months represent their biggest payday of the year. And here in California people do seem to be buying stuff - consumer spending has been up for 14 consecutive quarters, going back to the spring of 2009, and taxable sales are up almost 5 percent from the peak levels before the recession. Another good sign is Chapman University's index of consumer sentiment, which is at its highest level since the beginning of the recession in late 2007. All these indicators explain why the state economy is generally outpacing the rest of the nation.

Julian: There has to be a "but" in here someplace…

 Lacter: The "but" is that only 60 percent of the jobs lost during the downturn have been recovered, and the unemployment rate in many parts of the state, including L.A. County, is still at or above 10 percent, which isn't what you'd call a healthy economy. And that's why holiday shopping this year could end up being sort of hit and miss. Folks who have well-paying jobs and a bunch of their money in the stock market - and Southern California has its share of both - those folks will probably be spending good amounts. 

Julian: Are there geographic tell-tale signs?

Lacter: The closer to the coast you go, the more spending there's likely to be. But it's a different story if you're feeling vulnerable about your job or in the amount of savings you have in the bank. So you have retailers once again coming up with ways of reaching as many budget-conscious folks as possible, as early as possible. The most obvious move is opening their stores on Thanksgiving night - Macy's is the latest of the chains to get a head start on Black Friday (Target, Kohl's, Walmart and J.C. Penney will also be open). Another strategy is matching your prices with the prices on Amazon and other online retailers - also, retailers will use mobile apps and arrange in-store pickup of online purchases. All told, expect holiday sales to run 3 percent ahead of last year, with the L.A. area likely to be a bit higher. Decent, but not great.

 Julian: What's the message to consumers now: buy or not buy?

 Lacter: Well, we'll start with the good news - gasoline prices are at their lowest level since the beginning of the year, with an average gallon of regular in the L.A. area running $3.75, according to the Auto Club. And barring any refinery fires or international catastrophes, the numbers might keep falling into November and December, which could incentivize consumers to buy a little more at the shopping malls. Here's some more good news - the L.A. area has seen a huge drop in the number of homeowners who are underwater, which happens when the value of a property is less than the amount that's owed on the property. This of course was a big problem during the recession, but over the last year the median home values have gone up between 20 percent and 30 percent. 

 Julian: And if your equity is positive instead of negative, you'll probably feel more confident about spending. 

 Lacter: That's right. But there are also deterrents to spending - as has been reported, a few hundred thousand Californians lose their individual health care policies by the end of the year because their plans don't meet the requirements of the Affordable Care Act. Policyholders will be stuck in many cases with a premium increase, possibly a big increase. Now it's possible that in the long run these folks will be better off with a more inclusive plan that results in lower out-of-pocket expenses. But it'a hard to ignore the sticker shock of having to shell out, say, $250 a month instead of $100.

 Julian: There goes the holiday list...

 Lacter: For those folks, yes. And even though L.A. consumers do a good job of separating their feelings about Washington with their desire to spend, the economy is bound to slow down a little. So Steve, just don't count on that $9,000 fur vest I was going to get you for Christmas. Sorry about that…

Mark Lacter writes for Los Angeles Magazine and pens the business blog at LA Observed.com.


blog comments powered by Disqus