Santa Will Be Leaving Coal in Retailers\’ Stockings This Year

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This week the Department of Commerce published September retail sales figures, and despite all the jabber about a solid back-to-school season, sales growth slowed considerably during the month.

Total retail sales rose by 4.3% to $444 billion, their most sluggish rate in seven months on a 12-month smoothed basis. Every major sector of retail saw a decline in sales growth compared to earlier in the year.



Automobiles, which if you’ll pardon the pun have been driving retail sales growth for the past four years, increased by 9.5%. Taking autos out of the mix, retail sales gained only 3%, and general merchandise sales rose by 2.7%.

Department and discount stores saw sales fall by almost one percent, while apparel specialty store sales rose by one percent on a 12-month smoothed basis.


\"RRNon-store (pure-play e-commerce) merchant sales growth slowed to 3% from much higher levels earlier in the year, totaling $39.6 billion in September, down from its peak of $40 billion reached in August.


What’s going on here? Isn’t unemployment on the decline? Aren’t key sectors of the manufacturing sector gaining momentum? Hasn’t there been more good economic news than bad over the last several weeks?

Yes to all of the above. However, there’s also plenty of negative stuff that has folks feeling cautious, like flat income growth, volatility in the financial markets, the intensified conflict in the Middle East, and the newest reason for anxiety, Ebola.

But what’s really slowing down retail sales growth, I believe, is the fact that prices are on the decline, and people can get more for less. So they are.

\"windowThis has implications for the upcoming holiday selling season. National Retail Federation announced a few days ago that it estimates that per-person spending to rise by over 5% in the season, to about $805. The trade association and lobby group thinks retail sales for the holiday season will grow by 4.1% overall, making it the best end-of-year in three years. An article this week in The Wall Street Journal corroborated this, pointing out the record number of containers unloading seasonal merchandise at US ports.

Now, I like the holidays as much as (actually, more than) the next person, but these forecast numbers don’t add up for me. You don’t need to be reading any arcane tea leaves or subscribing to proprietary analysis to know what’s going on in discretionary retail. All you have to do is go down the street, through the mall, or visit a couple of e-commerce sites to realize that this Christmas is going to be as promotional, if not more so, than last year. The 40%-, 50%-, and 75%-off signs are a permanent fixture, and have become the going rate to get the consumer’s attention. Prices won’t be increasing much in the next few months. In fact, they’ll probably be going in the other direction.

If prices aren’t rising, then the forecasts suggest that people are going to be buying lots more stuff. Given the consumer trend toward less is more, and toward a more streamlined lifestyle of experiences over goods, it seems highly unlikely.

But without any strong fashion trends (yoga pants and skinny jeans are old hat, and who really needs another cashmere sweater) or must-have video game (unless you count the latest in a long line of Call of Duty sequels). And GoPro is very cool, but frankly, do you want to encourage your spouse to go bungee jumping by buying a head-mountable camera to impress buddies with a recording of the experience?

Apple will get its piece of the Holiday pie, of course. The debut of the new iPhone and next iteration of the iPad came just in time to make it to top gift-item status. People who have been holding off for any of the new models will request it as a gift rather than buy it for themselves, thus shifting it into holiday sales from another month.

With all due respect to our friends at the NRF, however, the forecasted 4% increase seems a little high. Maybe if the person who devised it based it on consumer feedback today, the forecast would tell a less festive story.



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