Will It Be a Merry (or Not) Christmas for Retail?
Many analysts view the retail industry as being fundamentally strong and see little indication consumers will drastically reign in spending during the upcoming holiday season.
Still, there are worrisome signs for retailing and the economy, such as rising household debt, steep energy prices and a downturn in the housing market. New job creation has been modest at best and many of the positions being created are at the lower end of the economic scale. The federal government’s debt remains at an unsustainably high level, with little resolve in Congress to reduce the spending on entitlement and defense programs considered necessary to get the budget under control.
Howard Davidowitz, chairman of Davidowitz & Associates, believes retailers are sending out subtle signals that their businesses and others may be in for a rough road ahead.
“Some of the largest retailers are saying their business isn’t doing so good. Let’s listen to the whispers before the roars,” he told CNNMoney.com.
“Wal-Mart says sales are slowing. Home Depot posted declining same-store sales last quarter. Target warned of weakening same-store sales. Gap has struggled with falling sales for a long time. This is a signal that we’re going to see some softness this holiday season,” he added.
Craig Johnson, president of retail consulting group Customer Growth Partners, took a different view.
“I hesitate to draw a retail-wide conclusion just from looking at Wal-Mart, Home Depot and Gap,” he said.
“Each of these companies has their individual challenges. Gap has struggled for several years now with its merchandise and advertising. It’ll be bogus for them to blame their problems on the economy.”
Janet Hoffman, managing partner at Accenture, is another who doesn’t see the same scenario developing as suggested by Mr. Davidowitz.
A recent study by Accenture found consumers were spending the same or more for back-to-school shopping as they did last year. Based on historical performance, the same should hold true for the Christmas holiday shopping season.
“Retailing overall isn’t in trouble. However this year we will see a clear segmentation of winners and losers,” she said.
Mr. Johnson holds to a similar view. “Retailing has been very robust for three years now. So clearly there’ll be some softening on the margins,” he said. “The good retailers will continue to thrive even if consumer spending slows.”
Discussion Questions: What factors (energy prices,
household debt, housing market, jobs, federal debt, etc.) do you believe will
have the most profound effect on consumer spending over the next year? What
will be the net effect on retail industry performance?