Ever since October's retail sales figures were released, there has been a growing chorus of Grinches declaring the yet-to-arrive 2008 Christmas season a total washout. Respected (?) professional investors are yelping about the "Worst Holiday season in 25 years" and such. Here's a thought: Instead of extrapolating October's awful numbers in a three-month straight line to a December mass-markdown, how about we inject a little Behavioral psychology into the thought process?
- Consumers aren't oblivious to the fact that the Holiday season is right around the corner -- they stopped spending money in October, at least partially, because they don't want to disappoint their kids/families come Christmas. What is happening to some extent is a 'substitution effect' whereby October sales were sacrificed into the future and will manifest as late-November and December spending.
- Analysts have taken expectations down so low that we have plenty of room for an 'upside' surprise. Even though sales will certainly be less than recent years, they will exceed the now-developing horrendous consensus. Retail stock rally in late November, anyone?
- Concomitant with the development of this post, I did a search in the New York Times to see if any previous Holiday seasons had surpassed lowered expectations in a weak economic environment. Lo and Behold, it happened in one of the worst years since WWII -- December of 1974. Don't be surprised to see the same kind of headline in about six weeks.
Don't get me wrong - I am quite Bearish on the economic picture for 2009, starting literally right after the New Year's Ball drops (great metaphor). Forget about small fry like Circuit City, we are going to see some Major-league store closings next spring. More on this topic to come in December...stay tuned.
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Dear Lindy:
ReplyDeleteYour analysis seems Pollyanna-ish; I'm especially baffled by your first point. Stop spending now so you can spend more later? Since when do U.S. consumers think ahead, let alone plan ahead? If they did, there wouldn't be such a mess to begin with.
As to the so-called 'substitution effect', it is always overwhelmed by the 'wealth effect'. That is, people act rich when their portfolio is doing well, and act poor when their portfolio is doing badly.
It would be more relevant to know if people will still try to max out their credit cards if they've defaulted on their mortgages. My guess is they won't be able to, and that Christmas will be quite bleak.
eptechnical
eptechnical: "Stop spending now so you can spend more later" is a mischaracterization of what I wrote...Holiday sales will undoubtedly be lower than in previous years (as I mentioned), so nobody is spending "More" later. Secondly, nobody will be 'acting poor' this Christmas. We are very early in the consumer slowdown (maybe two months into a yearlong+ problem) and the consumer isn't going to all of a sudden "cancel Christmas". And yes, the average person will shove another 400 bucks on their credit cards in order to see a smile on their kids'/relatives' faces. The social psychology as I currently see it is one of temporary paralysis; it will lift for December and then return in January. If we still have this level of economic malaise in late 2009, then I will totally agree with your assessment for next year's Holiday season.
ReplyDeleteI went to the mall on Tuesday and it was difficult to find a parking space. Someone is shopping.
ReplyDelete