Consumers ready to loosen tight holiday purse strings

Discount Store News, Nov 7, 1994 by Pete Hisey

NATIONWIDE DSN REPORT -- If consumers' holiday shopping plans hold up through November and December, it will be a very merry Christmas for retailers.

That even applies to the beleaguered department stores, which were saved last year by a last-minute rush.

Over the past three or four years, consumers have cut back on the number and value of holiday gifts, often purchasing a major present, like a big-screen television or a computer, that could be used by the entire family. Often, these were planned purchases doing double duty as Christmas presents.

With any luck, that trend should continue through this year (particularly in the case of multimedia computers and new video game machines like 3DO and CD-i). However, according to George Rosenbaum, president of the Chicago-based Leo J. Shapiro & Assoc., the real action will be in the kind of personal luxury goods consumers have forgone over that past few seasons.

"We see consumers moving back to apparel quite heavily," he said, basing his remarks on October results of an annual tracking survey conducted by his consumer research firm. "Last year was a strong year in major appliances; consumers won't stop buying sensible products the whole family can enjoy, but this year, they'll loosen up the purse strings a bit more and splurge on jewelry, apparel and other personal gifts."

Consumers, he said, are feeling more generous and have more disposable dollars ready.

Overall, 33% of respondents in the Shapiro study said they plan to spend more this year than in 1993 (compared to a paltry 15% who planned to spend more last year); 34% plan to spend less, compared to 57% a year ago, with the balance (33%) planning to spend about the same amount.

A poll of Michigan retailers supports Rosenbaum's rosy prediction.

Nearly four out of five retailers expect a sales increase over the last three months of the year, with jewelers (91%) and electronics retailers (88%) the most optimistic. Michigan retailers also increased inventory levels (55% up, only 17% down), and reported increased sales in September (55% said sales increased, 32% said they fell). Nearly two-thirds said that credit card transactions have recently increased compared to a year ago, and nearly the same number said that they plan increased Christmas promotions this year.

"All signs point to a strong holiday shopping season," said Larry Meyer, chief executive of the Michigan Retailers Association. "Expectations are fueling strong year-to-date sales, a strong economy and optimistic consumers who are willing to spend on larger-ticket items."

According to Steve Seibert, vice president, retail affairs and industry research for the International Mass Retail Association, the preliminary results of surveys for both consumers and several hundred mass retail buyers are "very positive" Full results of the two polls will be released Nov. 10.

Despite signs that the economy is stronger than last year, Shapiro's Rosenbaum warns that all is not well at the personal level.

"People don't have a general feeling of prosperity," Rosenbaum noted, "but they feel they deserve a reward for spending most of 1994 on a budget, spending conservatively, and watching their pennies." The result: barring unforeseen circumstances (like 1990's pre-war gloom), a very strong Christmas across the board.

Management Horizons, Price Waterhouse's consulting division, foresees a strong but essentially flat Christmas, in line with the 6% increase retailers turned in a year ago.

"Specifically, spending on women's apparel, which has been up only 2.5% in the first half of the year, should see a doubling of that rate," said senior economist Rosalind Wells. Men's apparel, electronics and sporting goods are also expected to be bright spots, she added. Home goods, strong a year ago, will be weaker this year due to higher interest rates and a weakening housing market. Wells noted, however, that any further rise in interest rates could quickly kill the Christmas spirit, and that, due to inflation, the 6% sales gain will not translate into an equal unit gain.

Rosenbaum expects department stores to be the major beneficiaries of consumers' relatively open checkbooks. That is due to the soft lines orientation of this year's shopper and the attractiveness of added services like giftwrap; but it's also a result of "the department stores finally getting their act together," he said.

One warning: consumers over the past few years have abandoned the notion that only full-price goods from premium merchants are appropriate for gift giving. "There is absolutely no shame attached to buying at less than full price," Rosenbaum said. "Everyone will have a pretty good Christmas, but most goods will be sold offprice or at reduced promotional prices. On the other hand, consumers clearly indicated that they will buy at better price points and want to get something special." Retailers will probably have to mark down early or risk getting caught with excess inventory.

This is predicted to be the year of multimedia, and up to 11 million CD-ROM-equipped computers will occupy American households after the Christmas season, compared to about 3 million a year ago. Ultra-hot games like the brand-new Doom II and the year-old Myst are pacing demand, as are a wide selection of children's educational (but fun) titles. Prices have stabilized after a brief but disappointing test of selling underpowered models at incredible prices (under $1,000); more fully featured models now sell in the $1,500 range, with Pentium-based models now under $2,000.