Thursday, December 13, 2007

Retail Sales Were Up, But ....

From the WSJ:

Retail sales increased by 1.2%, the Commerce Department said Thursday. Sales went up an unrevised 0.2% in October.


Excluding gas and auto sectors, demand at other retailers last month increased by a robust 1.1%. Sales climbed by 2.5% at electronic stores; 0.6% at health and personal care stores, 1.0% at food and beverage stores; 1.2% at building material and garden supplies dealers; 2.6% at clothing stores; 0.3% at eating and drinking places; 1.9% at mail order and Internet retailers; 1.0% at furniture store sales; 2.2% at sporting goods, hobby and book stores; and 0.9% at general merchandise stores.


U.S. retail sales dropped for the second straight week as consumers postponed holiday gift purchases during what may be the worst holiday shopping season in five years.

Sales fell 2.7 percent in the seven days through Dec. 8, following a 4.4 percent decline a week earlier, Chicago-based research firm ShopperTrak RCT Corp. said yesterday. About 12 percent fewer shoppers visited stores last week compared with the same period last year, ShopperTrak said.

Consumers are completing their holiday shopping later than usual, and they're trimming purchases as they pay for $3-a- gallon gasoline and higher food costs. The National Retail Federation in Washington forecast a 4 percent increase in holiday sales this year, the smallest gain since 2002.

``High gas prices and oil costs are definitely taking money out of people's wallets,'' Michael McNamara, vice president of research and analysis at Mastercard Advisors in Purchase, New York, said yesterday.

So -- what is going on?

1.) My guess is the heavy discounting and extended holiday hours over Thanksgiving helped to drive sales and traffic. However, I have to wonder what this will to retailer's margins.

2.) The consumer is now heavily conditioned to expect massive Christmas incentives. In my opinion, retailers have really shot themselves in the foot over the long run by continually offering lower and lower prices and more and more incentives over the holiday season. Consumers are now use to these massive incentives from retailers and consumers will no longer do a big Christmas buy without them.

3.) Let's not forget about gas prices.

Notice that gas prices typically decline after the "summer driving season." However, they haven't done that this year. Instead, gas prices are approximately 70 cents higher this year than last year. That is probably having a negative impact.

4.) Financial market turmoil isn't helping consumer confidence. Remember the Fed lowered interest rates a few days ago and issued a bearish statement with the announcement. In addition, there is continued talk about a credit crunch among lenders.

5.) Housing still sucks. At some point, the decrease in mortgage equity withdrawals and declining home prices will start to seep into consumer sentiment.