3 Things To Ponder Over Christmas

First of all, while realizing that it is politically incorrect to do so, I want to wish you and your families a very merry, safe, and enjoyable Christmas.  While you enjoy your gifts, the traditional Christmas ham and the annual re-gifting of Aunt Meg's 12-pound fruit cake here are "3 Things To Ponder"  regarding the retail shopper this holiday season. 

I recently penned an article entitled "Is The Consumer Slowing Down." In that article I analyzed the personal consumption trends as they relate to the potential for stronger economic growth in 2014.  The consumption question is key because the economy is primarily driven by this singular factor as shown in the chart below.  I stated:

"There has been much debate in Washington about how to get the economy growing again.  Unfortunately, fiscal policy has done little to address the core of economic growth, which is the consumer, or the productive investment required to generate real employment and wage growth.  Currently, real (inflation adjusted) personal consumption expenditures make up 67.82% of real gross domestic product as of the third quarter of 2013.  This is currently at the same level as seen in 2010." 

 

The next chart clearly shows the high degree of correlation between PCE and the economy.

The reason that I bring these particular points up is because there are exceedingly high hopes that the consumer is ready to "take off" in the months ahead fostering the support needed for the predictions of a strong economy.  However, is that really the case and can the holiday shopping season give us any clues?

1) Rampant Returns Plague E-Retailers via Wall Street Journal

"Free shipping and lenient return policies have given online retailing a huge boost. Now, chains are mining their order data to get shoppers to keep more purchases.

 

Behind the uptick in e-commerce is a little known secret: As much as a third of all Internet sales gets returned, according to retail consultancy Kurt Salmon. And the tide of goods flowing back to retailers is rising. Shipper United Parcel Service Inc. expects returns to jump 15% this season from last year, making them a significant and growing cost for retailers.

 

The stakes get even higher during the holidays, when return volume peaks. So this year, chains are digging through past transactions to weed out chronic returners, train shoppers to make better decisions or stem buyer's remorse."

2) As The Clock Ticks, Retail Traffic Slides via CNBC

"Brick-and-mortar retailers saw no signs of relief last week, as store traffic in the final week before Christmas posted the third straight week of double-digit declines, according to the most recent report from ShopperTrak.

 

According to the analytics firm, traffic for the week ended Dec. 22—which included the crucial final weekend before Christmas—was down 21.2 percent year over year. The first two weeks of December saw double-digit decreases, which trailed a 4 percent decline over Black Friday weekend, it said.

 

In-store sales fell 3.1 percent from the same week in 2012, ShopperTrak added."

3) Sleigh Full Of Deals To Follow Slow Shopping Season via USA Today

"Shopping in stores just crawled along this holiday season, leaving a pile of unsold inventory. That means bigger-than-usual after-Christmas sales.

 

You don't even have to wait until the 26th.

 

'Promotions have already crept into the irrational zone — north of 50% off,' says Brian Sozzi, CEO of Belus Capital Advisors. 'The season so far was a full-on Debbie Downer. After Christmas a black plague of promotions will sweep throughout the malls and stores — 50, 60, 70% off.'

 

Amazon.com's '2013 After-Christmas Sale' is already rolling with such offers as 70% off on select clothing, shoes, watches and jewelry. Old Navy launched its 'After Holiday Sale' on Sunday with markdowns up to 75%.

 

Sales growth this year is likely to be the weakest since 2009: 3.2%, says Chris Christopher, director of consumer economics at IHS Global Insight.

 

'Overall, the holiday retail sales season is not the best,' he says. 'Online is up tremendously from where it was five years ago, but everyone is hurting on the margins because of the discounting and the free shipping.'"

Of course, the reason that retailers are having to so heavily discount in the first place is because of weak wage growth, still high unemployment and rising healthcare costs which are reducing disposable income.  Of course, as I discussed yesterday, if healthcare costs due to the Affordable Care Act rise by just $100 per month per capita that is a $72.25 billion diversion of discretionary incomes away from retail spending. 
This could mean that retailers will be fighting an uphill battle for quite some time to come.