Black Friday: the Shopping Starts
'Tis the season to start shopping. The day after Thanksgiving–called Black Friday because of the oppressive crowds and their encouraging effects on retailers' profits–is shaping up, as always, to be your local mall's most crowded day of the year.
It's also the beginning of the make-or-break season for many businesses: Between 20 and 40 percent of annual retail sales come out of the five-week window between Thanksgiving and New Year's Day. Economists spend much of the rest of the year fretting about it.
So how is holiday spending shaping up this year? A fleet of consulting firms, banks, and industry groups has spent the past few weeks gazing into their crystal snow globes, trying to predict just how much of a spike the economy is in for–and just how merry retailers will be at the end of this holiday season. The general consensus is that the economy is clicking along quite nicely: Lower unemployment (only 4.4 percent in October), falling gas prices (down more than 80 cents since August), soaring stocks (the Dow hit record highs six days in a row this month), and climbing income numbers (real wages are up 2.4 percent for the year) have made things warm and cozy for that most American of holiday traditions: spending! The National Retail Federation expects consumers to cough up $458 billion in the next month, 5 percent more than last year.
That doesn't necessarily mean individual consumers will be whipping out their wallets more than they have in the past, of course. According to a report produced this week by the Conference Board, the average consumer will spend $449 on gifts during the holidays–just about enough to cover the cost of one Sony Playstation 3–compared with $466 last year. Roughly half of consumers will spend between $100 and $500, the study found, while a bighearted 10 percent will spend more than $1,000. Less than 1 in 5 people plan to spend under $100.
With Black Friday around the corner, though, what will those dollars be spent on, exactly? Here is a look at some of the dilemmas facing shoppers and retailers alike:
Gift cards: Not as cumbersome as a gift certificate or as impersonal as writing a check, gift cards have become hugely popular in the last few years, shooting up to 12 percent of total holiday expenditures in 2005, according to the International Council of Shopping Centers. Two in three consumers plan to give a gift card this year, says a new survey by American Express. Deloitte & Touche expects consumers to buy an average of 4.6 cards per person, up from 3.9 last year–which means all those little plastic cards will be worth well over $30 billion.
As much of a boon as they may be for distant cousins and in-laws who don't know what to get each other for Christmas, there is a downside to gift cards: They're making it harder to gauge holiday spending. According to consumer surveys, only 40 percent of gift cards are redeemed between Christmas and the end of the year, while another 38 percent are spent by the end of January. As the cards get easier to use–more retailers are allowing them to be redeemed online, and more states have begun to prohibit expiration dates–they are likely to spread holiday spending out even further, pushing retailers' profits into January and February. This year's holiday numbers may suffer as a result, analysts say–even if retailers' bottom lines do not.
Online: Internet shopping has gone so mainstream it's earned its own day on the calendar. CyberMonday, the new moniker for the Monday following Thanksgiving, is the first "official" day of what promises to be a month of widespread, obsessive clicking. Some 61 million people are planning to shop online for holiday gifts while they're at work this year, according to a recent Shop.org survey, up from 52 million last year. And when they go home, consumers don't have any plans to go offline. Last year's online holiday sales topped $27 billion, a number that should grow substantially this year. According to the Conference Board, 35 percent of consumers plan to buy holiday gifts on the Internet, compared with 33 percent a year ago. It's certainly clear why E-commerce is booming: Of those who went online to buy gifts last year, 95 percent said they were satisfied. Fingers crossed that Amazon hasn't forgotten to pay its electric bill.
Price wars: If it's toys, games, and electronics they're after, consumers may have to look no further this holiday season than Wal-Mart and Target, both of which seem to be armed and ready for a looming price war. At its earnings call last week, Wal-Mart execs flexed their muscles about their "everyday low prices," promising the next month would see their "most aggressive pricing strategy ever." The discount retail giant started slashing prices well ahead of Thanksgiving. Later that same day, at Target's earnings call, the company's president said that however low Wal-Mart went, Target would follow. All of which is good for consumers, of course. The two behemoths of discount retailing seem so intent on beating each other's prices–and, presumably, gaining market share–that they're willing to take sizable hits to their bottom lines. What makes consumers happy doesn't always do the same for investors, though. Wal-Mart warned that the holiday price war might cause it to miss Wall Street's earnings expectations for the fourth quarter. Time to go shopping, indeed!
Hot or not? If there is anything that pleases retailers more than pre-Thanksgiving holiday hype, it's comparing numbers after New Year's to see who came out on top. Which companies will be the winners and losers this holiday season? Sporting goods and recreation equipment stores are expected to do monster sales, as are clothing and discount retailers, according to a new study by Visa USA. Discounters and E-commerce sites are also expected to enjoy their fair share of holiday cheer. Put it this way: If a store has iPods, PS3s, and the new Nintendo Wiis for sale, it's probably going to be just fine. Not so much for companies selling building material and home furnishings, though. The housing slump is starting to take big bites out of Home Depot's and Lowe's bottom lines, and both companies have predicted depressed earnings in the months ahead. If you're feeling altruistic this holiday season, consider remodeling!