Looking ahead to the Christmas shopping season, retailers are stuck between a rock and a hard place. So says marketing Professor Michael Hartline of The Florida State University, who forecasts weaker than normal holiday sales for most retailers.
"Due to the worldwide economic crisis, retail sales have already dipped to levels matching those in the aftermath of the terrorist attacks of Sept. 11, 2001," said Hartline, who chairs the Department of Marketing in Florida State’s College of Business. "This time, though, declining consumer confidence and the growing number of unemployed Americans will continue the slide in retail sales. Given the importance of consumer spending to the health of the overall U.S. economy, these events couldn’t come at a worse time for retailers."
Most retailers depend on sales during the holiday season to offset any losses earlier in the year, Hartline said. Black Friday — the day after Thanksgiving — is so named because it marks the first time that most retailers have been "in the black," or operating at a profit, all year. If retailers fail to turn a profit now, they could end up "in the red," or operating at a loss, for the entire year.
"Retailers are stuck right now because they need to offer discounts and special deals to get customers into the stores or online," Hartline said. "However, if those discounts or deals are too good, retailers run the risk of not making enough profit. It’s a real Catch-22, and a reason that the upcoming Black Friday sales will not be that spectacular.
"Heavy discounting began this year well before Black Friday," Hartline said. "Certain types of merchandise — such as home entertainment — typically do well in an economic downturn as consumers look to expand the creature comforts of home. For example, this looks as though it will be a banner year for HDTVs, movies and gaming consoles. In addition, look for discounts from companies that seldom offer them. Apple, for one, is expected to have its first-ever online Black Friday sale."
As has been the case in the past, consumers will shift much of their shopping to discount chains such as Wal-Mart, Target and Costco, indicating that these stores are likely to be the only retailers to come out on top this holiday season. High-end department stores and specialty shops will suffer the most.
"The biggest winner this holiday season may be the gift card," Hartline said. "The recent move by the Federal Deposit Insurance Corporation to insure gift cards makes them a safe bet for wary consumers."
While a slow retail season can mean good news for holiday shoppers, Hartline cautions that it’s bad news for the economy as a whole. Retail losses have a direct effect on store employees and shareholders, and lower stock prices will further erode consumer and business confidence.
"Circuit City may not be the only retailer filing for bankruptcy after the holidays are over," he said.
The outlook for the New Year doesn’t look good either, Hartline said, explaining that if consumers are reluctant to spend during the holidays, they’re not likely to spend later.
"Until the economy improves, consumers are going to buy far fewer discretionary items such as cars, appliances and vacations," he said.