Retailers move early to lock in Christmas purchases

Sunny skies, high tem­per­a­tures and Indian sum­mer… noth­ing screams Christ­mas more loudly than these types of weather events, right? Well, per­haps not, but that doesn’t keep the nation’s retail­ers from doing their very best to try to accel­er­ate your ten­dency to enjoy the spirit of giv­ing. And what they really want you to do is give to them, retail­ers, as merry a Christ­mas as pos­si­ble in a very slowly grow­ing economy.

Since the sec­ond half of Sep­tem­ber, major retail­ers have been entic­ing con­sumers to come in and shop for the not-so-rapidly approach­ing hol­i­day sea­son with glitzy Christ­mas dec­o­ra­tions, early price cut­ting and low-to-no lay­away fees.

So with mer­chants giv­ing it their all on our behalf — and theirs — is this a good time to jump at the bait and shop till the bud­get drops? As is typ­i­cal in the field of eco­nom­ics, the answer depends upon a num­ber of factors.

Are the items that are now on sale the must-have types of mer­chan­dise that you really want to give some­body? If the answer to this ques­tion is yes, then it could well be in your best inter­est to buy the desired item now rather than wait until a later time with a (hope­fully) lower price.

When retail­ers put together many of their mer­chan­dise order­ing plans ear­lier in the year — unless they were very short sighted — it was becom­ing more and more appar­ent that the year was not likely to be par­tic­u­larly strong eco­nom­i­cally. As such, mer­chan­dise orders were some­what Goldilocks-like in nature, not too strong and not too weak. For con­sumers of must-have types of items, it means that some inven­to­ries could be quickly depleted and buy­ing dur­ing the cur­rent early mark­downs may be a wise deci­sion. That, of course, is pre­cisely why retail­ers are cut­ting prices so early and offer­ing gen­er­ous lay­away plans; they want to lock in your pur­chases now, given the increas­ingly tight bud­gets con­sumers find them­selves deal­ing with as the Christ­mas sea­son approaches.

On the other hand, if obtain­ing must-haves is less impor­tant than extend­ing a belea­guered fam­ily bud­get as much as pos­si­ble, you should prob­a­bly wait. Think about it. Retail­ers are basi­cally enter­ing into a pre-panic mode right now, that is, they are tak­ing some siz­able mark­downs now, know­ing full well that as the sea­son unfolds, fewer and fewer dis­cre­tionary dol­lars will be avail­able for shop­pers to spend. That means that as the cal­en­dar moves into Novem­ber and Decem­ber — the more tra­di­tional shop­ping months — many of the avail­able dol­lars in a gift-giving bud­get will already be gone. At that point, real des­per­a­tion and panic will set in for retail­ers and price cut­ting will become more intense. For those will­ing to wait, it could well turn into a buy­ers’ mar­ket, but then such “late” shop­pers will be pick­ing through the rem­nants that remain behind from the ear­lier Christ­mas feed­ing frenzy.

One impli­ca­tion of this pos­si­ble behav­ior on the part of retail­ers, if my analy­sis proves cor­rect, is that macro­eco­nomic data on con­sumer spend­ing will be exhibit­ing a strange sea­sonal behav­ior this year and pro­vide a false sig­nal regard­ing the strength of the econ­omy. Since the gov­ern­ment “sea­son­ally adjusts” eco­nomic data to remove the impact of nor­mal sea­sonal vari­a­tions (such as the typ­i­cal increased buy­ing of gift-giving mer­chan­dise in Novem­ber and Decem­ber), the early mark­downs will pull many Christmas-spending dol­lars back into Sep­tem­ber and Octo­ber at the expense of pur­chases that would nor­mally occur in Novem­ber and Decem­ber. As such, con­sumer spend­ing in Sep­tem­ber and Octo­ber, after sea­sonal adjust­ments, will come in like a lion and then, seem­ingly, go out like a lamb in Novem­ber and December.

On Mon­day of this week, for exam­ple, the gov­ern­ment reported that con­sumer spend­ing rose by a very strong sea­son­ally adjusted 0.8 per­cent in Sep­tem­ber com­pared to the prior month. More likely than not, it seems to me, the gain can be par­tially attrib­uted to the unusu­ally early attempt by retail­ers to entice con­sumers into mov­ing Christ­mas spend­ing plans ahead by a few months. But with incomes not see­ing much of an increase dur­ing Sep­tem­ber — only half of the spend­ing increase at 0.4 per­cent — it sug­gests that gift-giving bud­gets will remain under tremen­dous pres­sure and con­sumer spend­ing may well appear to be weak dur­ing the final two months of the year.

In real­ity, all of this amounts to lit­tle more than a gigan­tic game of chess, with retail­ers try­ing to gain a tac­ti­cal advan­tage within a weak economy.

Dr. James New­ton serves as chief eco­nomic advi­sor to Com­merce National Bank and is an aux­il­iary fac­ulty mem­ber in eco­nom­ics and sta­tis­tics at OSU-Marion and OSU-Newark. Dr. Newton’s views do not nec­es­sar­ily reflect those of Com­merce National Bank or OSU-Marion/Newark.

Posted by Jim Newton on Oct 30 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.