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.