The 2013 Thanksgiving Day and the Black Friday are already over and the grand Christmas is less than three weeks away. Like every year, it's now peak time for holiday sales. As usual, retailers are now extremely busy and they have engaged in offering big discounts to push up sales. But, data published by an industry group reveals that during the Thanksgiving weekend, shoppers spent almost 3% less than they did in 2012. This gives an indication to a more tough time ahead for many retailers. However, one silver lining to this otherwise sagging story is that the sales through e-commerce route have soared. But, the question that has come to the fore is – Does this rise in online shopping compensate for the drop in sales of the retailers through departmental stores?
As per the estimate given by the National Retail Federation (NRF), an average American shopper has spent $407.02 over the Thanksgiving weekend. This indicates a decline of nearly 4% from that of the same weekend last year. In 2012, in the same weekend, an average shopper spent $423.55. NRF - a 2,600-member trade association - is of the opinion that in order to attract today's very value-conscious and budget-driven shoppers, retailers have gone all-out to promote their in-store and online offerings. NRF report reveals that during the 2013 Thanksgiving holiday weekend, 141 million people have gone for shopping at least once. In 2012, the same figure was 139 million.
A retail-chain leader predicts that holiday sales will increase but gross margins will decline. People are now more looking for door-busters than the regular-priced items. Thanksgiving weekend gives an indication of the sentiment of the consumers and the season from Thanksgiving to Christmas accounts for nearly one-third of the sales and two-fifth of the profits of the retailers. However, this time, many retailers predict moderate sales for the quarter. Wal-Mart Stores Inc – the world's largest retailer - don't foresee strong growth in its US sales. Macy's Inc – the Ohio-based retail giant – has not increased the full-year sales forecast despite good sales performance in the last quarter.
The decline in Thanksgiving weekend sales can be attributed to various factors -
1. Consumers are stressed
This year consumers are more stressed. Consumers are under huge pressure because of various things such as high unemployment. With headline unemployment rate above 7% and the labor force participation rate at its lowest level since past two and a half decade, American consumers are in a tizzy. Despite the fact that equity market is performing well, home values are moving upwards and gasoline prices are falling, shoppers are still stressed out. As per the report of Morgan Stanley – a financial services firm - confidence of the shoppers is now at a very low level. Instead of putting extra money into gift items, many Americans are putting money on big-ticket purchases such as home appliances, cars and home improvement goods.
2. Real estate is more in the form of debt than equity
Despite two years of increases in the real estate prices, nearly half of the real estate in the country is in the form of mortgage debt rather than home equity. Though the equity part has moved up marginally due to the real estate recovery, but it is still close to historic lows. In the early 1980s, the equity portion in real estate was above 70%.
3. Late Thanksgiving Day
Thanksgiving Day is a day of giving thanks for the blessing of the harvest and this day is celebrated in US on the fourth Thursday of November. Black Friday is the day following the Thanksgiving Day and it heralds the beginning of the Christmas shopping season. This year, Thanksgiving Day has come on 28th November and in 2012 it came on 22nd November. So, this year, there are six fewer days between Thanksgiving and Christmas compared with 2012. The shorter holiday period of 2013 has prompted the retailers to come out with offers earlier than usual in order to keep their business intact.
4. Government shutdown
The October government shutdown is having adverse effects on retail sales. A poll conducted by the Reuters/Ipsos shows that consumers are in a wary mood. In that poll, more than half of the of the respondents have said that in this holiday season they are more watchful about their spending because of 16-day government shutdown and economic uncertainty.
Ironically, the house price has gone up and logically it should give consumers more confidence, but this has not happened in actual practice. Sentiment of the consumers has remained at a very low level due to worries about job security and government’s lack of leadership. This has been reflected in the latest decline of Consumer Sentiment Index, prepared by the Thomson Reuters and the University of Michigan.
Can E-commerce make up for the decline in holiday sales?
More consumers are avoiding the brick-and-mortar stores and leaning towards the online stores. According to a retail-trade group, this time the share of online shopping over the Black Friday weekend was 44%. In 2012, the share of online shopping on Black Friday weekend was 41% and it was 23% in 2006. As per the data given by the comScore Inc, online sales have increased by 21% to $766 million on Thanksgiving Day, and by 15% to $1.2 billion on Black Friday. Data given by the comScore Inc further adds that during the whole month of November, e-commerce spending rose by 3% from a year earlier to $20.6 billion.
Online shopping is much more easier. Customers don't have to wait for online shopping and they can obtain the products at the same price. In order to attract customers through the online route, more retailers have offered online Black Friday deals in the days and weeks before Thanksgiving and more such online offers are likely to come before the Christmas.
Retailers gearing up
Retailers now are focusing on getting Americans to keep up shopping as Christmas is less than three weeks away. In the same vein as the Black Friday has grown into a multi-day affair, retailers have also come out with Cyber Monday and Cyber Week. The retailers are making a last-ditch effort to boost sales, both through online and offline routes. Many retailers are now focusing on bringing people back throughout the season, without relying too much on holiday sales.
Despite the efforts of the retailers, various studies show that this time shoppers are very aware of their budgets. The number of shoppers who has bought gifts for themselves has dropped from last year. Many of them are limiting gift-giving to only the family members and have set a budget for the occasion. Adding to the worries of the retailers, many shoppers are using only cash to make purchase in this holiday season.