Retailers Try to Grab Dollars Ahead of Utilities
By George Anderson
Retailers are looking to drive holiday sales early before high home energy prices force consumers to put the brakes to spending.
Companies, including L.L. Bean, Radio Shack, Old Navy and Wal-Mart, began advertising and promoting sale prices and special deals, such as free shipping on internet orders, earlier than usual, say industry experts.
Rich Donaldson, a spokesperson for L.L. Bean, told The Boston Globe, ‘We decided to make a meaningful offer (free shipping on all orders) at a time when consumers are likely to be faced with increased expenses for energy and heating. It comes at a considerable expense to us, but we are being aggressive and believe that offering it early on will outshine other offers coming from competitors.”
Internet sales are expected to be strong this year as consumers opt to take the information superhighway rather than one jammed with cars leading to nearby malls and shopping sales. Aside from traffic, the high cost of fuel is also a consideration for many. Even though gas prices have dropped from record highs in recent weeks, the average cost for a gallon of unleaded regular gasoline remains around $2.40.
Shopping in stores, however, still remains the primary venue for consumers’ purchases. That’s where the increased and early promotional activity comes in.
Sabrina Joyce, a consumer who lives in Lynn, Mass., told The Globe she had noticed the increased promotional activity by retailers. ‘This is the first year of my life that I’m out shopping this early,” she said. “I’d rather get the shopping done now before my bills come. The gas and oil have gone up so much, it makes you stop and think, especially if you have a family.”
Moderator’s Comment: Will the combination of early sales by retailers and consumers’ knowledge that heating bills are on the way result in higher than
usual sales before the Black Friday weekend? What do you think the sales picture will look like during the traditional Thanksgiving to New Year’s period? Which of the retailers
getting out early with holiday promotions has impressed you most? –
George Anderson – Moderator
Americans overspend at the holidays and this year probably won’t be much different. But, these are highly volatile times and a thousand things from the price of gas to a terrorist attack on a mall could change the equation at any time.
Strikes me that spending money now (and spending is, of course, the only way of “saving”) may leave many people dangerously short when those utility bills come in. Encouraging more and more debt is really not right or sensible. Not to mention unethical and not entirely moral. Not that I believe this will stop anybody either encouraging spending or actually spending. I just feel increased concern for those who will have to hit the panic button come February.
I don’t think heating bills will have an effect on holiday shopping. When it comes to holiday spending, everybody finds a way to come up with the cash. The poor know that the utility companies won’t cut them off until spring – and Christmas comes before spring. So far, I like what Wal-Mart has announced they will be selling on Black Friday.
The response depends upon what consumers notice in the marketplace and what is important to them. If consumers notice gas prices going down, they may wait in the hope of gas prices going down further. If consumers really don’t want to think about Christmas yet, they won’t buy now. If consumers have to mail things, they may be very happy to take advantage of sales and buy now. Just as with normal sales, consumers are becoming fragmented markets, each with their own concerns, and will respond differently. The bigger question is whether people will spend more or less than last year, not when. Having the sales early will make the season longer. I’m not sure it will increase overall sales.
This year’s Christmas selling season began before Halloween at Costco and Walgreen – two retailers I frequent. If this timing was a deliberate response to high energy costs, it may misfire somewhat as fuel prices edge down, especially if the displays desensitize consumers or bore them. Isn’t your holiday campaign supposed to feel “special”? This early start may have the unintended consequence of cooling off consumers’ sense of urgency.
I personally avoid holiday shopping like the plague, so online options and gift cards play right into my preferences. And it doesn’t take $2.89 per gallon gasoline to make me feel this way.
I think the retail trade is making the most of the energy hype. Fear is a great motivator and I think that fear is what is driving the retailers. They should realize that most of the U.S. will experience very little energy crunch. The Northeast being the exception due to the high use of fuel oil as compared to electricity or gas. Most of the utilities (especially gas) have offered consumers fixed pricing for a number of years now and most people (I know) have taken advantage of this. While we will see some cost increase, it isn’t going to bankrupt the nation. Could this be another media hype? Could it be that the 24 hour news has invented this to fill time. Gas prices are down under $2.00 per gallon in my area. If there was any real shortage, this wouldn’t be happening. I guess marketing efforts designed to shortcut the energy scare are OK. I would prefer retailers get back to providing value and service.
Buying for Christmas is presumed a necessity,
By the American consuming entity.
While high cost utilities are futilities,
They will not stop consumer extravanzies.
My take is that pre-Thanksgiving to Christmastime will be brisk overall in well-promoted stores and over the internet, and that sober spending won’t set in until the New Year’s Day hangover … for the reasons expressed above.
As long as the weather remains mild, clothing sales will be depressed. Furthermore, much gift-giving has become “gift shifting” (see Annette McEvoy’s commentary). In other words, people will give cash and gift cards, as well as other services and items not previously seen as traditional gifts (vacations, tuitions, health gifts to the elderly, supermarket gift cards). Retailers who give free shipping may eliminate their profit, unless the extra units sold reduce the end-of-season markdowns. Consumer confidence figures are very low, so creative promotion started early may be worthwhile.
Oh Michael, as a person interested in retail, starting Christmas early this year seems smart. As a person, it makes me want to cry.
I do believe retailers are being smart to jumpstart the holidays. As Ryan points out, given the craziness of the past few years, between the terrorists and the weather, I think both consumers and retailers should get while the getting is good.
In addition to everything else already mentioned, we are looking at a higher cost for credit as well. Forty-two percent of consumers say they intend to shop online for Christmas this year. I believe early free shipping will help this. A site I visited yesterday had a terrific timetable on their home page: “For guaranteed free shipping deliveries for Thanksgiving, Order by [Date]; Chanukah, order by [Date]; for Christmas, order by [Date].” Smart.
Common sense would mandate lower spending, but we’ve never had common sense over the holidays. I see a flat season overall, but with slight shifting to the Internet and catalogs and away from brick and mortar.
It is going to be a tough year with rising costs everywhere – especially healthcare and energy. Retailers have continued to start the holiday season earlier every year to help get in front of their competition. Pretty soon Christmas decorations will be up at Halloween! I think the free shipping and other enticements will help but consumers are a funny bunch: there are the ones that are price focused, then there are the ones who seek convenience and there are the last minute shoppers who will pay whatever it takes to get the job done. It has been a difficult year for many and I am happy to see the decorations go up early and am looking forward to a long and positive holiday season for retailers and consumers!
There are many factors that do and can affect the Holiday Season! Ryan M. touched on some; but one might consider the prediction of the stock market ending in a major upswing!
Let’s not forget, the middle and upper income households are in good shape to splurge again, as retailers keep the sales signs in ‘broad daylight.’
Finally, the gift certificates last year brought a record upswing in January sales; all part of the Holiday selling season. Hmmmmmmmmmm