When the going gets tough for the economy, consumers should go shopping.
This Christmas could be one of the best buying opportunities in a long time. From clothing to computers to cruises, retailers will be slashing prices and offering incentives for people to spend, spend, spend.
Last month such discounting helped boost retail sales 7.1%, in large part because of the 0% financing offered by automakers. Auto sales not included, retail sales jumped 1%.
But that may have been a one-time spike in sales. Heading into Christmas, experts expect sales to slump. A recent survey from America's Research Group, a Charleston, S.C., retail research firm, says families will spend $759.66 this year, compared with $828.17 in 2000. Retail Forward, another retail research firm, says fourth-quarter retail sales, not including autos, will grow by only 1.5% year over year, the weakest season since the recession of 1991.
This is partly because of the reluctance of people to leave their homes or visit large public places, fearing additional terrorist attacks. According to a recent report from Britt Beemer, founder and head researcher of America's Research Group, 30.6% of shoppers said they would be doing less shopping at the mall this year. Additionally, 21.2% say they would avoid malls because of the anthrax scare.
All the more reason for retailers to rely on promotions to push inventory out the door.
"Usually, prices are rising in a recession," says Frank Badillo, a senior retail economist with Retail Forward. "There's just too much downward pressure on prices. But for consumers, it's a great time to buy."
On a Wing and a Prayer
The travel and tourism industry has been reeling in the wake of Sept. 11 and the crash of Flight 587 on Nov. 12. The Travel Industry Association of America projects that the industry will lose $43 billion in spending from domestic and international travelers this year. As a result, hotel rooms are empty and planes are barely full, but the deals could not be better.
The city of Dallas launched a new "Dallas on Sale" promotion, offering hotel discounts and more than $1,000 in coupons redeemable at area retailers. On its Web site, American Airlines is offering an off-peak round-trip flight from Los Angeles to New York for just $286, with a Saturday night stay and advance purchase required. It's even cheaper, just $271, to take a peak round-trip flight from New York to Switzerland.
Hotel rates have been cut just as dramatically. Expedia.com offers rooms in Chicago for just $54 a night. Even four-star hotels are dropping their nightly rates. For example, San Francisco's posh Sir Francis Drake Hotel is just $129 a night, $70 cheaper than a year ago.
Also consider the deals offered by the major cruise lines. On Expedia.com, Princess Cruise Lines is advertising a seven-day southern Caribbean excursion from San Juan for $399. Meanwhile, rival Travelocity.com is offering Mexican cruises for under $200. All include food, entertainment and lodging, but not booze. With ticket prices so low, that might not be much of an issue.
Consume Our Electronics
Consumer electronics, from the smallest handheld to the largest TVs, pack the aisles of a near-empty Circuit City in Manhattan. Neon sale stickers hang from merchandise that isn't quite cutting edge but isn't old hat either. Indeed, that flat screen 32-inch television set that sold for $800 last year is now just $500.
"Last fourth quarter, prices were falling at 13% rate," says Badillo. "This quarter we're expecting a 20% fall."
Toeing the Soft Line on Prices
A decrease in mall traffic will result in discounts at clothing retailers. Experts say that specialty retailers, such as Gap and Eddie Bauer, will battle for the same customers, while department stores will become overloaded with too much merchandise.
In the fourth quarter of 2000, apparel prices fell 1.7% from the previous year, Badillo says, but in 2001 he expects prices to fall 4%. "The pressure to cut prices has more than doubled in the past year," he says.
Over the course of 2001, apparel retailers have struggled to cut back inventory levels that grew after last year's unimpressive holiday season and subsequent recession. During the spring and summer, widespread sales helped clear the inventory channel, allowing sellers to hold the line on prices. But Badillo says that since then, customer demand has decreased and retailers were forced to drop prices again.
"Conventional department stores should have an even deeper price cuts," Badillo says. "There are some great bargains there."
The Gift of Buying Power
For those who don't want to elbow their way through throngs to get the best deals before Christmas, consider gift certificates this year. According to America's Research Group, 41.3% of shoppers plan to give gift certificates, while 31.4% plan to give cash. Last year, about a quarter of all shoppers said they'd give gift certificates or cash.
"The reason cited was the promise of bigger savings during after-Christmas sales for the recipients," says Beemer, who helped conduct the research.
But shoppers won't miss out on most pre-Christmas sales, because the sales will probably still be around after the holiday. In fact, after Christmas, Beemer says, consumers save 27% more than before Christmas, on average. Those people who are patient enough to wait, but don't want the pre-Christmas hassle, can stretch their money even further by using gift certificates.
The Online Liquidator
The liquidator is where retail dreams ultimately die. It's where vendors ship their languishing inventories of products that won't make it to stores.
"We're getting calls from all kinds of manufacturers," says Carl Rosendorf, the CEO of SmartBargains.com, a online liquidator that sells merchandise at discounts of 50% to 80%.
Since July, the number of unique users at SmartBargains.com has increased 938%, from 431,000 to 4.4 million. This is because in a recession, money-conscious consumers scour the Web for great deals, Rosendorf says.
And indeed, SmartBargains.com has its share of deals, offering Ralph Lauren down comforters at 56% off, and Polaroid digital cameras with printers for $99.
"It's red hot," Rosendorf says. "The vendors that are calling, up until now, hadn't had a liquidation strategy."
Once SmartBargains.com signs a deal with a vendor, unwanted inventory is sent to its warehouse, and the company takes orders on its Web site. The deal is turned around in two days, much faster than is possible at a brick-and-mortar chain, where inventories must be shipped to stores and then displayed.
"Our deals are here and then they're gone," Rosendorf says. "You snooze and you lose."