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 A lot of stores had to discount heavily to eke out a modest increase
in sales, likely squeezing profit margins in the process.
Some improvement in the U.S. economy and declines in the jobless
rate, plus gains in stock and home prices, are failing to resonate
with many Americans whose incomes are struggling to catch up to
where they were before the financial crisis.
But to many retail experts and economists there are other less
cyclical factors at play. Consumers are spending more. Government
figures show monthly personal consumption has risen for seven
straight months, with November's outlay marking the fastest increase
in five months. But they just are not spending in the shopping malls
like they used to.
And that means that, even if the economy picks up significantly,
retailers of many products could still struggle.
"We are in a something of an evolutionary process, said Bill Martin,
founder of data firm ShopperTrak, which monitors foot traffic in
about 60,000 retail stores. Americans are spending more online and
becoming more careful about what they buy, he said.
Some of this has been unfolding over a long period, although the
changes might be picking up pace.
For example, department stores have found themselves on the wrong
end of trends for some time. According to data compiled by Reuters,
they now capture just $3.37 of every $100 of U.S. retail spending,
the lowest since records began in 1992, when the number was nearly
$9.
Some of that is explained by the rise of Wal-Mart Stores Inc and
other big box discount retailers. But the pace of decline has picked
up, with department stores losing about 0.28 percentage points of
market share at an annualized rate between 2002 and 2011, compared
with 0.22 in the prior 10 years.
The problem is two-fold. The middle class consumers to whom the
likes of JC Penney Co Inc and Kohl's Corp cater have struggled with
stagnant wages and a payroll tax rise, prompting them to reduce
spending on apparel, said Scott Tuhy, a retail analyst at Moody's
Investors Service in New York.
People have also gravitated toward spending on services such as
travel — airline ticket prices and hotel room rates are up — as well
as movie downloads and other content for their TVs, smart phones and
tablets. Prices to attend live sports events, theme parks, movies
and rock concerts have also been rising.
In addition, increasing healthcare costs have been eating up
discretionary income, with many employers seeking higher
contributions from their staff.
According to the Commerce Department, spending on services hit an
annual rate of $7.1 trillion in November, by far the biggest slice
of overall consumption
"There was a day you bought your TV, refrigerator, furniture,
everything in a department store, whereas today, it's really just
apparel and maybe jewelry," said Stuart Hoffman, an economist at PNC
Financial Services Group in Pittsburgh. "But as incomes rise over
time, people spend more on services — travel, entertainment."
As data from MasterCard showed last week, it took deep discounts and
hefty promotions to spur a 2.3 percent rise in holiday sales between
Nov. 1 and Dec. 24 compared with a year earlier. The figures
include apparel, jewelry, electronics, luxury goods and home
furnishings.
"Given how promotional the season turned out to be, profits are
likely to be flat because retailers had to provide quite a lot of
discounts to get those sales," said Moody's Tuhy.
And it's not as if people aren't doing some serious shopping.
U.S. sales of big-ticket items such as autos and home-related goods
such as washing machines, as well as purchases in home-improvement
stores, surged in 2013, boosting overall retail sales. Homes sales
also increased pretty steadily from mid-2012, although a summer
spike in mortgage rates cooled things off a bit this fall.
Some of the gains reflected a long-anticipated release of pent-up
demand as the economic recovery has gained momentum, but it might
also be partly a reflection of changing attitudes, with the focus on
more practical purchases.
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According to the National Association of Realtors, more than half of
home buyers between July 2012 and June 2013 made some sacrifices,
such as reducing spending on luxury items, entertainment and
clothing.
"Pent-up demand has helped on housing and autos, but consumers are
still cautious. Things are getting better, yes, but even if you have
a job, things are still tight," said Sam Bullard, an economist at
Wells Fargo in Charlotte.
In its 2014 retail industry outlook, Moody's said it expects the
auto and home improvement sectors to outperform again in 2014, good
news for Home Depot Inc and General Motors Co, whose stocks are up
32 percent and 41 percent, respectively, this year.
It's been a different story with more ordinary purchases.
An Ipsos/Reuters poll released just ahead of the Christmas holiday
found consumers plan to spend about a third less this year than last
year on items such as jewelry, toys and electronics.
Sluggish sales of toys and packaged foods pushed down sales at
Wal-Mart's U.S. stores in the third quarter and prompted the company
to forecast disappointing holiday sales results, while Target Corp
blamed "constrained" consumer spending for a tepid rise in quarterly
sales.
One factor is that the giant TV is much cheaper than it was, and
tablets and many of today's laptop and desktop PCs are cheaper than
their predecessors of a few years ago, again not helping store
sales. Shoppers are also increasingly likely to buy such items
online from the likes of Amazon.com Inc and Apple Inc.
Participants in Deloitte's 2013 holiday shopping survey for the
first time named the Internet as their number one shopping venue,
with 68 percent of smart phone users and 63 percent of tablet users
planning to use their devices to help them.
As people check out goods online before heading to the store
impulse buying can take a hit, said Martin. ShopperTrak data shows
mall shoppers visited an average of 3 to 3-1/2 stores this year,
down from 4-1/2 to 5 in 2007.
The improvement in the economy and gains in asset prices have also
clearly not trickled down to large segments of the broader
population.
Hiring has picked up, helping to push the jobless rate to a
five-year low of 7 percent in November, but some 11 million
Americans are still unemployed, and many are earning less than
before the recession. When adjusted for inflation, average weekly
wages have barely budged since late 2008.
That has made Americans, particularly those in middle- and
lower-income brackets, far more discerning when it comes to their
spending.
"There's been psychological scarring for people from this recession,
much like how some people who lived through the Depression said they
were scarred," said Hoffman. "There are still a lot of people who
can't afford to do much, and those who can are holding back."
(Additional reporting by Dhanya
Skariachan; editing by Martin Howell and Andre Grenon)
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