Monday, December 10, 2007

Domestic Spending Slowdown?

Economists and retailers everywhere are freaking over the possibility of a slowdown in consumer spending, and they're looking for signs of weakness during the oh-so-important holiday season.

Americans' spending is not being sustained by cheap credit extended by banks against a home's rising equity, as real estate sales (and prices) have stagnated.

Commentators and economists have been hypothesizing that this would hit the aspirational luxury retailers hardest - Coach and your local suburban-mall Tiffany & Co. are two strong examples of stores that are believed to be the hardest hit this season. The ultra-luxury retailers are thought to be more resilient during a slowdown, so Bvlgari and Bergdorf Goodman might still have reason to celebrate. Blogger TalentedBlonde did some sleuthing in her local mall and "hooked a woman from [Tiffany & Co.] corporate sales," who, when asked, "owned up to the truth - the day was slow, people weren’t shopping. When they were, the ASP’s (Average Sales Price[s]) were DOWN, and the fear of the impending recession was ALL everybody talked about - in TIFFANY!!!!! Mon Dieu!"

This account isn't statistically significant - it's an account of one day, in one mall. Still, if this mall is a microcosm of national spending, TalentedBlonde may just be right: this sales season is no superstar.

On Black Friday (the day after thanksgiving), sales numbers looked really good, and this was cause for optimism. The problem was that much of the sales on Black Friday were driven by heavy discounting. Most stores didn't have the goods to drive demand, whereas the last two holiday seasons had great new product introductions that drove people to stores to pay full price (for instance, the XBOX 360, PS3, and Wii launches of winters '06-'07).

This heavy discounting is not good for the retailers' bottom-line.

Read more about this season's spending over at Luxist ("High End Retailers Seeing A Slowdown") and Talented Blonde ("Spies Like Us: Talented Blonde On The Loose At Short Hills Mall")

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