Christmas 2006 may not be as merry as retailers would like it to be, according to an analysis by Platt Retail Institute following the release of third quarter numbers.
First of all, Platt notes a slowing of the U.S. economy during the third quarter, with gross domestic product rising at a 1.6-percent annualized rate, compared with 2.6 percent in the second quarter. Platt points out that the slowdown in the housing market eventually will impact employment. “Reduced home values, increasing interest rates and stagnant employment will be a drag on consumer spending at some point, indicating a weakening in the future,” Platt writes.
In Platt’s view, the economy has been fueled by the “wealth effect of cheap money being extracted from residential real estate.” As this source of money dries up and the cost of debt service increases, consumer spending will feel the impact.
“Average spending has exceeded income for some time,” says Platt, “savings rates are in negative territory and consumer debt burdens are high, thus consumers will have no place to go to reconstitute their balance sheets but to pull back on spending.”
Platt notes that Wal-Mart’s comparable sales grew at only 0.5 percent in October, the weakest showing since December 2000 and that Wal-Mart predicts flat same-store sales this month. Same store sales also fell short for Costco and Target in October.
Maybe this is why the National Retail Federation predicts only a 5-percent rise in holiday sales this year, down from 6.1 percent last year. Archstone Consulting predicts only a 2.5-percent increase in 2006 holiday sales.
Here’s hoping all will be merry and bright for retailers this holiday season, but this forewarning from Platt might be reason to beef up marketing plans, rearrange your merchandise and generally rethink your holiday strategy.