Holiday 'Price Wars' Begin ... because Price Matters !
from
(snip)"In yet another indication of a weak holiday shopping season, stores aim to outdo each other as shoppers focus on getting the best deals.
This shopping season is shaping up into two key words "Price Matters"
A week before Halloween and two full months before Christmas, stores are desperately trying to outdo each other in hopes of drawing in customers worn down by the economy.
Wal-Mart, the biggest store in the nation, joined the price wars Monday by announcing that it would give gift cards to shoppers if they buy something there and find it somewhere else cheaper.
Staples and Bed Bath & Beyond have already said they will match the lowest prices of Amazon.com and other big Internet retailers. Sears is going a step further, offering to beat a competitor's best price by 10 percent.
In a recent poll of 1,000 shoppers by America's Research Group, 78 percent said they were more driven by sales than they were a year ago. During the financial meltdown in 2008, that figure was only 68 percent.
Duncan MacNaughton, chief merchandising officer for Wal-Mart's U.S. stores, told reporters Monday that he has noticed "much more promotional intensity and gimmicks" among competitors.
The holiday price wars mark an acceleration of a trend that has already swept the retail industry. Lowe's, the nation's No. 2 home improvement store, said in August it was starting to focus on everyday low prices for items that customers can easily comparison-shop at rivals like Home Depot and Sears.
64 percent of shoppers polled said that it would take discounts between 30 percent to 50 percent to get them to spend, up from 54 percent last year, according to a recent Citi Investment Research & Analysis survey of a little more than 1,000 customers. Customers looking for 60 percent off as a big motivator to spend increased to 10 percent from 8 percent last year, the survey showed.
"The reality is consumers are targeted. They're well informed, and they've searched the Internet for price information," said Bill Martin, co-founder of ShopperTrak, which expects foot traffic to drop 2.2 percent during the holiday season compared with a year ago.
It is extremely rare to see shopping estimates lower than last year. That does not mean lower traffic and lower sales are written in stone, but that is the way consumer sentiment numbers and shipping stats are shaping up.
For details, please see ...
•Unprecedented Drop in Port Traffic: A Sobering Omen for Holiday Sales or Should we Listen to Analysts?
•More Alarming Shipping News and Charts: Railfax Railroad, Ceridian Trucking, Harper-Petersen Shipping; Reader Anecdotes
Even if spending does not drop, expect profits to drop on reduced markups and increased discounts.
Mike "Mish" Shedlock"(snip)
As confirmed by today's release of 'durable goods inventory' data, the take-away from all of this is arguably as follows ...
- many retailers 'bought into' early year projections that the US economy was only going through a 'soft patch', and placed orders for merchandise on expectations that the US economy would in fact be improving by now
- after receiving this merchandise, but with no real improvement in the US economy, retailers were unable to sell the merchandise at anywhere near expected levels. As a result, inventories have been building ( reaching 'record' levels per today's data )
- Once the retailers noted sluggish sales continuing into the summer, they reduced / cancelled orders for additional merchandise to be delivered later in the year. This is a major reason for today's surprisingly low ( and still dropping ) port traffic, diesel truck traffic, rail traffic etc.
- With the end of the year approaching, retailers sitting on 'mountains' of unsold merchandise are now getting very aggressive about price cutting / price competition in order to try and 'move' this merchandise during the 'holiday' season. While this will mean profit margin compression, from the retailer's standpoint lower profits in 2011 are preferable to outright losses in 2012 that would result from shedding unsold inventory via forced 'liquidation' ( i.e. selling below cost ) in order to free up operating cash with which to purchase next year's model merchandise.
This obviously has lots of overtones ... from prospective declines in profit levels / stock values for non-upscale retailers / shippers / durable goods producers, to the availability of major bargains for those holiday shoppers with cash in hand.
Lets hope that the same sort of anemic spending / hard bargain seeking by retail consumers doesn't carry over to strip club customers seeking cheaper private dances and/or more 'bang for the buck'.
Re: Holiday 'Price Wars' Begin ... because Price Matters !
(snip)"The recent consumer confidence indices, after a pickup in the spring, have collapsed to levels not seen in years and in some cases in decades. Yet the inexplicable American consumer, the toughest and most indefatigable creature out there that no one has yet been able to beat down, struck again. Consumer spending increased at an annual rate of 2.4% during the third quarter, though the mood, as measured by the confidence indices, has become outright morose.
The Bloomberg Consumer Comfort Index dropped to -51.1. By comparison, it averaged -46.2 so far in 2011, -45.7 in 2010, and -47.9 in 2009. The shocker was this number: 95% of the people surveyed had a negative opinion about the economy, the worst reading since April 2009, and just 1% away from the worst reading since the index began in 1985.
The Conference Board's Consumer Confidence Index plummeted to 39.8, the lowest level since March 2009, at the trough of the great recession. The Present Situation Index fell to 26.3 from 33.3, its sixth consecutive monthly decline.
"Consumer confidence is now back to levels last seen during the 2008-2009 recession ... as pessimism about the current economic environment continues to grow," said Lynn Franco, Director of The Conference Board Consumer Research Center, on October 25 when the Confidence Board released its numbers.
Mid October, it was the Thomson Reuters/University of Michigan's preliminary index that headed south. Its sub-index for consumer expectations six months from now, which gauges future consumer spending, dropped to 47, the lowest since May 1980.
The reasons are obvious. The Fed is winning its 12-year war on real wages. Its mechanism: create inflation that exceeds nominal wage increases. The numbers are ugly. According to today's GDP report, real disposable personal income—income adjusted for inflation and taxes—decreased by 1.7% in the third quarter (BEA). Since their peak in 1999, real wages have dropped 9%. Median household income—a function of wages and unemployment—has fallen 9.8% between December 2007 and June 2011 (Sentier Research). For many people, the situation is even worse due to the skyrocketing costs of healthcare and higher education, which are eating up an ever greater part of the declining family budget (for more: A Dysfunctional System That Bankrupts A Generation). And Unemployment remains a fiasco by any measure: U-6, the broadest measure the Bureau of Labor Statistics offers, and the one that most closely resembles reality, hovers at 16.5%.
And yet the inexplicable American consumer went ... to the mall. And to the doctor—of the $10.8 trillion in consumer spending (seasonally adjusted annual rate), $1.76 trillion went to healthcare, about half of which was paid for by government. And healthcare has been on a tear, up 6% over the same period last year.
Back to the mall. The worse things get, it seems, the more consumers pull out their credit cards—confirmed by the savings rate which dropped to 4.1% from 5.1% in the second quarter. The effect of shopping as a drug against the funk of daily life has been well established, though its impact on the mood of the shopper has proven to be ephemeral. Now the drug has worn off, and as the confidence indices show, consumers feel worse than before, worse than in years. That can only mean that they will return to the mall to shop till they drop.
Or they will cave. Though the miraculous powers of the inexplicable American consumer should never be underestimated, some uncomfortable indicators have been accumulating. Among them, my favorite:
“It is hard to imagine a very robust holiday season compared to last year,” Blake Jorgensen, Chief Financial Officer of Levi Strauss warned earlier in October. He was griping that his price increases of $5 to $15 per pair of jeans didn't sit well with consumers. (Duh, did you think the American consumer is stupid? Disclosure: the only jeans I've ever bought were Levi's, but I'm going to wear mine down to rags before I pay fifty bucks for a new pair. Hint, Mr. Jorgensen: I'd be willing to buy two for the price of one right now, or none for a couple of years. Do the math and think about it.)"(snip)
from
In fairness, it needs to be pointed out that the 'savings rate' mentioned by the author is actually referring to reduction in outstanding overall consumer debt levels and not simply referring to consumers putting money in bank savings accounts. A major contributor to reduced overall consumer debt levels are bankruptcy filings, settlements with creditors for less than full value, etc. which reduce debt via writing off losses rather than via repayments.
In fact, some 'talking heads' assert that an increasing source of money now being spend on mall shopping by consumers is in fact money that is no longer being spent to make mortgage payments, student loan payments, credit card payments etc. And they also make the assertion that outstanding credit card debt is again rising ...
(snip)"When CardHub extrapolates from the first two quarters of this year to an end of year total, the company estimates that consumer revolving debt will grow by $54 billion in 2011, after rising by a net $9.1 billion in 2010. The report gets interesting here, because it notes that even though total outstanding debt in 2010 fell by $66 billion, the entire drop was due to the write-off of bad loans.
Americans are paying down their debt, but only in the first quarter of the year. And the rate of payment has dropped in each of the last two years. CardHub estimates that US consumers will end 2011 with an additional $20 billion in credit card debt, compared with the end of 2010 total.(snip)
from
Also, in fairness, it should be pointed out that consumer spending is being measured in current US dollars, which may not actually correlate with an increase in actual consumption. As the CFO of Levi Strauss indirectly points out, with a 5-15% y-o-y price increase now in effect ( pass through of increasing cotton prices and foreign labor costs ), a 2.4% consumer spending increase in dollar terms may actually represent a decrease in the number of 5%-15% more expensive Levi jeans now actually being purchased / sold. And that of course side-steps the more basic question of how many newly purchased Levi jeans will actually be paid for by the consumer, versus being 'written off' as an uncollectible future debt !
Circling back to the original point of this thread, the 'apparent' good news of increased consumer spending is not likely to be 'real' good news for companies like Levi Strauss any more so than the retailers ... with Levi Strauss et al potentially facing a 'vise grip' situation of rising input costs on the supply side, plus probable reduced sales volume on the demand side ( due to attempted pass through of those higher input costs being rejected by consumers ). Like the retailers, this bodes for lower profits / lower future earnings / lower future stock valuations for supplier companies like Levi Strauss et al.
~
Re: Holiday 'Price Wars' Begin ... because Price Matters !
Focus only on price, and you'll almost always be buying imported crap from national chains. This means fewer americans are working, and less money stays in your community. Those that are working are the minimum wage checkout etc.
This means higher unemployment, and more need for social services. More of your taxes supprting people who can't find good work.
So, every time u shop for lowest price, you vote for bigger government, more debt and fatter entitlements.
Re: Holiday 'Price Wars' Begin ... because Price Matters !
Quote:
Focus only on price, and you'll almost always be buying imported crap from national chains. This means fewer americans are working, and less money stays in your community.
This means higher unemployment, and more need for social services. More of your taxes supprting people who can't find good work.
Trying to skirt the political and stick with the economic, this is an argument that should have been seriously evaluated 10 years ago. At this point, entire US industry segments are simply no longer present in the USA ... from appliances to textiles to consumer electronics. And also at this point, many of the industries that are (still) American in name are actually just assembling components produced in foreign countries. And also at this point, some industries that do still manufacture in the USA are only able to do so via gov't price protections ( i.e. imported tire / ethanol / other tariffs and quotas ) and/or gov't subsidies ( GM, GE, etc. ). The proverbial 'horse' is already gone, thus 'closing the barn door' won't accomplish anything at this point.
However, all of this is beside the point in relation to this particular thread ... which deals with the present day assertion that retailers have over-purchased, that suppliers have over-produced, that US consumers have under-purchased, etc. As such, the resulting 'inventory overhang' must be whittled down by one means or another. This is likely to mean bargain prices for those US consumers actually having money to spend, but also likely to mean 'pain' and potential losses for retailers and a dearth of future new orders for suppliers.
Re: Holiday 'Price Wars' Begin ... because Price Matters !
Quote:
Originally Posted by
pinups4
Focus only on price, and you'll almost always be buying imported crap from national chains. This means fewer americans are working, and less money stays in your community. Those that are working are the minimum wage checkout etc.
This means higher unemployment, and more need for social services. More of your taxes supprting people who can't find good work.
While there are many people who realize this may be true....the problem is how it may influence individual buying decisions is probably minimal. If a person has the option of buying a tv for a $100 less and it is imported ....that hundred dollar savings is more important to the individual than buying American. If the 'imported crap' only lasts 6 years instead of 8...that is not much of an influence either with the changes in technology that will have happened. The immediate satisfaction of saving $100 on the purchase out weighs the minimal influence a single person's decision on what to buy may have.
And as far as price wars.....you can usually get just as good of deals prior to the 'black friday' craziness. Numerous retailers are now offering specials starting early that week in an attempt to get your dollars early. NO need to be out with the crowds only to find out they only had 6 of the televisions and 3 were bought by employees. !!!
Re: Holiday 'Price Wars' Begin ... because Price Matters !
Here is a piece that details how many American jobs were destroyed by private equity firms.......
For most of the 133 years since its founding in a small city in Wisconsin, the Simmons Bedding Company enjoyed an illustrious history.
Presidents have slumbered on its mattresses aboard Air Force One. Dignitaries have slept on them in the Lincoln Bedroom. Its advertisements have featured Henry Ford and H. G. Wells. Eleanor Roosevelt extolled the virtues of the Simmons Beautyrest mattress, and the brand was immortalized on Broadway in Cole Porter’s song “Anything Goes.”
Its recent history has been notable, too, but for a different reason.
Simmons says it will soon file for bankruptcy protection, as part of an agreement by its current owners to sell the company — the seventh time it has been sold in a little more than two decades — all after being owned for short periods by a parade of different investment groups, known as private equity firms, which try to buy undervalued companies, mostly with borrowed money.
For many of the company’s investors, the sale will be a disaster. Its bondholders alone stand to lose more than $575 million. The company’s downfall has also devastated employees like Noble Rogers, who worked for 22 years at Simmons, most of that time at a factory outside Atlanta. He is one of 1,000 employees — more than one-quarter of the work force — laid off last year.
But Thomas H. Lee Partners of Boston has not only escaped unscathed, it has made a profit. The investment firm, which bought Simmons in 2003, has pocketed around $77 million in profit, even as the company’s fortunes have declined. THL collected hundreds of millions of dollars from the company in the form of special dividends. It also paid itself millions more in fees, first for buying the company, then for helping run it. Last year, the firm even gave itself a small raise.
http://www.nytimes.com/2009/10/05/bu...pagewanted=all
The country has been looted.
Re: Holiday 'Price Wars' Begin ... because Price Matters !
this is why i make the point about buying local, and caring where the products are made. Hell, when I talk to customer service, I ask where they're located, and if it's not US, I ask to be transferred stateside.
local businesses keep money local. They may cost more, may have less selection, but in the end it's better for you and your community. In alot of cases, the most "local" I can get with my media stuff is US based...and sometimes I can't get that, but I try to when I can.
You won't see the price shrinkage from overbuying in local stores as much...they dont overspend, and have a good handle on what their communities will need...but they will always be as competitive as they can.
Re: Holiday 'Price Wars' Begin ... because Price Matters !
Quote:
local businesses keep money local. They may cost more, may have less selection, but in the end it's better for you and your community
I doubt that low income / social services dependent Americans would agree with you. In their case, having to pay 20% higher prices for groceries / clothing / low end consumer items at a local 'mom & pop' business versus a big box WalMart or Dollar General would result in a very tangible reduction in current standard of living.
While I happen to personally agree with your macro economics observations, for a fact the vast majority of US consumers do not understand, nor do they care about, the repurcussions stemming from buying Korean vs US autos, Chinese vs US appliances, Indian vs US clothing, Vietnamese vs US vegetables, Australian vs US beef etc. And even when those repurcussions that were arguably set in motion a decade ago or more finally circle around to create a permanent loss of US jobs, a permanent reductions in US pay rates etc. the same majority of US consumers both fails to see the cause / effect relationship, and continues ( with even more effort than before ) to seek the absolute lowest price !
Re: Holiday 'Price Wars' Begin ... because Price Matters !
here's another example of drawing incorrect conclusions i.e. 'the devil is in the details' ... from
(snip)"The surveys also may be somewhat less useful now because wealth is more concentrated, said Omar Saad, an analyst at International Strategy and Investment Group Inc. in New York. The top 20 percent of income earners, who make more than $100,000 a year, may account for more than half of household spending, and they are under-represented in the confidence gauges, he said.
‘Resilient’ Consumers
Upper-income consumers have been “resilient,” Edward Yruma, a New York-based analyst at KeyBanc Capital Markets Inc., said in an Oct. 26 telephone interview. “Even if retail does slow, we still think the high-end will outperform middle- and lower-income retailers,” he said. He recommends buying the shares of Tiffany & Co. (TIF), Coach Inc. (COH) and Nordstrom Inc. (JWN)
New York-based Tiffany, the world’s second-largest luxury- jewelry retailer, jumped 27 percent this year through Oct. 28, while Nordstrom, the high-end department-store company based in Seattle, climbed 21 percent. Coach, based in New York and the biggest U.S. luxury leather-goods seller, advanced 20 percent. All have far outperformed the Standard & Poor’s 500 Index, which was up 2.2 percent. "(snip)
The obvious take-aways here would seem to be ...
the 80% of American consumers who can't afford designer clothing or imported sports cars or new jewelry are becoming increasingly concerned about finding the lowest possible price. This is good for the low end retailers like WalMart, but NOT good for slightly upscale retailers like JC Penney.
the remaining 20% of American consumers are far more concerned with 'quality' merchandise and/or 'status' merchandise ... and don't particularly care what the comparative cost is. This is good for the high end / luxury retailers and suppliers, but bad news for the slightly upscale retailers and suppliers
the 20% of American consumers who DO have money to spend represent 50% of total American consumer spending dollars !!!
An analogy can probably be drawn re strip clubs and dancers who appeal to that same top 20% continuing to do well, while strip clubs and dancers who appeal to the bottom 80% experiencing increasing economic backslide.