[Guest post by DRJ]
In an article dated December 26, 2007 (but available online at 3:00 PM EST Christmas Day), The New York Times reports “bleak” holiday sales based on disappointing MasterCard charges:
“American consumers, uneasy about the economy and unimpressed by the merchandise in stores, delivered the bleak holiday shopping season retailers had expected, if not feared, according to one early but influential projection.
Spending between Thanksgiving and Christmas rose just 3.6 percent over last year, the weakest performance in at least four years, according to MasterCard Advisors, a division of the credit card company. By comparison, sales grew 6.6 percent in 2006, and 8 percent in 2005.
“There was not a recipe for a pick up in sales growth,” said Michael McNamara, vice president of research and analysis at MasterCard Advisors, citing higher gas prices, a slowing housing market and a tight credit market.
Strong demand at the start of the season for a handful of must-have electronics, like digital frames and portable GPS navigation systems trailed off in December. And robust sales of luxury products could not make up for sluggish sales of jewelry and women’s clothing.
What did eventually sell was generally marked down — once, if not twice — which could hurt retailers’ profits in the final three months of year. “Stores are buying those sales at a cost,” said Sherif Mityas, a partner at the consulting firm A.T. Kearney, who specializes in retailing.”
However, online and luxury sales increased significantly:
“MasterCard found that online spending rose 22.4 percent, a healthy, if not robust, showing, given fears that Web purchases would slow after a decade of impressive growth.
Clothing sales rose a meager 1.4 percent, but there was a stark split between genders. Sales for women’s apparel dropped 2.4 percent. Sales for men’s apparel rose 2.3 percent. Analysts said women complained of dreary fashions. “Even when the dust settles, women’s clothing is likely to be one of the weakest categories in retail this season,” said John D. Morris, senior retail analyst at Wachovia Securities.
Luxury purchases rose 7.1 percent, as the nation’s well-heeled splurged on $600 Marc Jacobs trench coats and $800 Christian Louboutin shoes. Footwear, at all prices, proved a bright spot for the clothing industry, with sales surging 6 percent.”
An increase of 22% is definitely robust by anyone’s evaluation. I’m sure the New York Times would be glad to see its ad rates and stock price increase 22%.
The article noted Target’s sales were weak while Wal-Mart and Best Buy were big winners. That makes me curious how the author knows – as stated in the first line of the article – that people didn’t use their MasterCards because they were unimpressed with the merchandise. Apparently they liked the merchandise at Wal-Mart and Best Buy. This illustrates why it’s hard to extrapolate MasterCard’s data to the US Christmas market and answer “Why?” questions based on solely on data.
Nevertheless, the author’s conclusion may be correct. Certainly one reason that supports his conclusion that people are uneasy about the economy is that more people have reached their credit card limits or are in default. There can be many reasons for credit card defaults, including not only the reasons mentioned in the Times’ article but also things like changes in federal bankruptcy law and the ready availability of credit. Easy credit lets people use credit cards to incur debt far beyond what they can reasonably repay, and more and more people are taking advantage of that kind of credit.
In addition, I think health care costs are a factor for some households. Even with health insurance, catastrophic medical events can devastate a family’s budget. The nature of our health care system makes it almost impossible to determine what treatment will cost until it’s completed, so people have no ability or incentive to evaluate whether the costs are worth incurring.