Retail Sales Softer (Ignore the Surveys)
If you want to know:
- What people think, ask them questions.
- What people are doing, look at the data.
- What they are going to do, watch their behavior.
That simple lesson gets lost in the various annual Holiday Shopping surveys. Each year, some group or another -- National Retail Federation (NRF), CNBC, Mall Stores Association, etc. -- goes out and surveys shoppers. This survey then leads to grand pronouncements about future shopping data.
There is one small problem with this methodology: Us.
Humans are notoriously bad at a variety of things: We are poor judges of our own future behavior; We often over-estimate our present circumstances (Most people cannot accurately tell you how much they spent ALREADY for the holidays). Hell, we barely understand our own belief systems. Is it any surprise that we cannot accurately forecast how much money we might spend overall for the holidays?
Asking people to tell you how much they believe for Christmas is actually an OPINION POLL. The answers may be well-intentioned, but as we have seen time and again, they typically bear little correlation to subsequent consumer behavior. Over the past few years, these surveys have over-estimated consumer spending; In recent months, ordinary consumer sentiment survey under-estimate spending. People say sentiment is poor, and then they go to the mall and shop.
The latest survey silliness comes to us via CNBC:
"Easing fears the Economic Grinch will steal Christmas, the CNBC Holiday Central Survey finds that Americans appear ready to up their holiday spending a healthy 6% over last year to $782. But downbeat views on housing and the economy are sapping some of the holiday cheer."
To give you an idea of just how bad us Humans are at forecasting our own behavior, the same survey about future spending plans had declined 16% from when it was done last in October. Some parts of the survey -- the parts that ask about current behavior and spending patterns -- have value (see below).
So much for the surveys, let's check out what's going on in Retail so far this holiday season. The NYT reports:
"Sales of women’s clothing, a traditional pillar of the holiday shopping season, are unusually bleak so far this year, according to a major credit card company, an ominous sign for the retail industry.
From high-end dresses to bargain coats, spending on women’s apparel dropped nearly 6 percent during the first half of the Christmas season, compared with the same period last year, according to MasterCard Advisors, a division of the credit card company.
Analysts blamed a rough economy, which has discouraged women — and mothers, in particular — from splurging on clothing for themselves and a lack of compelling fashions this winter. The drop-off, which the credit card company described Sunday as “surprising,” bodes poorly for chains like Chico’s FAS and Ann Taylor, which specialize in women’s clothing, and could result in steeper-than-expected discounts on their merchandise in the final week before Christmas.
The slowdown is worrisome because women make the vast majority of purchases in retailing, and their spending is a closely watched barometer of the industry’s health. "(emphasis added)
Note that Fortune is blaming "Ho-hum fashion" for the sales drop off. "A shaky economy and expensive gas may keep consumers from seasonal splurging, but there's another factor: no big fashion trends."
When it comes to Retail stocks, investors have already discerned the trend: Discretionary spending is slowing, while consumer Staples have maintained sales. The WSJ reports:
"This year, the consumer-discretionary sector has been the second-weakest in the broad Standard & Poor's 500-stock index, after financials. The sector is off 13.6%, compared with a 20.8% drop for financials, because of the turmoil in the housing market and a raft of bad mortgage bets on Wall Street. The overall S&P is up 3.5% in 2007. . . [T]he consumer-staples sector, which includes supermarkets, discount retailers and other sellers of nonluxury items, has held up far better than the discretionary sector, posting a 12.5% gain."
As we noted last week, when you adjust for inflation and calendar anomalies, Retail Sales have been rather lackluster. For those people who are counting on a robust holiday sales season, you are very likely to be disappointed . . .
CNBC's Starbucks Indicator: 1 in 9 polled say they're cutting back on their high-priced coffee purchases. A whopping two-thirds of Americans say they don't drink premium coffee drinks at all. [BR: no surprise given our $4.55 Caramel Macchiato last week]
Discounts Matter: 3 out of every 4 Americans say discount and holiday sales are critical in determining where to shop and what to buy. [BR: quelle surprise!]
Big Boxes Rule, Online Is Cool: Big Box stores like Wal-Mart are still the prime destination for holiday shopping, but they've lost some ground to online shopping.
Holiday Payback: While nearly half of Americans won't have leftover debt following their shopping when the Christmas Season, a full 23% will still be in debt more than two months after the holidays. [BR: I would be surprised if this were accurate]
Wii Nation: Last holiday season, Americans were split as to which console they wanted: Wii, XBox360 of PlayStation3. They're split no longer... Amongst consumers who have a specific video game console in mind, nearly 80% are looking for a Wii.
UPDATE: December 18, 2007 3:03 pm
Retailers in the U.S., mired in the worst holiday season since 2002, posted their smallest weekly sales gain in two months as discounts failed to entice consumers faced with $3-a-gallon gasoline.
Sales at stores open more than a year increased 2.1 percent in the week through Dec. 15, the International Council of Shopping Centers and UBS Securities LLC said today in a joint statement. December sales at stores open more than 12 months may grow 1.5 percent from a year earlier, the group said, matching an earlier forecast.
Retailers Face an Ominous Holiday Sign
NYT, December 17, 2007
Will Americans Shop On?
The Answer May Foretell A Stock-Market Upturn Or Economic Downturn
PETER A. MCKAY
WSJ, December 17, 2007
Consumers Say No to Economic Bah Humbug
CNBC | 16 Dec 2007 | 08:56 PM ET
Inflation, Retail Depress Wall Street
CNBC.com | 17 Dec 2007 | 06:07 AM ET
Ho-hum fashion hinders holiday sales
Fortune, December 14 2007: 3:50 AM EST
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There is often a very wide gap between Revealed Preferences (answers to a survey) and Observed Actions (what we actually do). I learned about that phenomenon in an Economics course in Grad school and it's helped me interpret survey data a little better ever since. Looks like a classic case of it right now.
Posted by: craig | Dec 17, 2007 8:40:50 AM
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