Holiday Shoppers Ready to Open Their Wallets Wide
The holiday shopping mood in recent years has been like a Christmas tree with a few lights out, dimmed by lingering recession, foreign currency crises and the possibility of an economic slowdown.
But as the Christmas shop-a-thon begins this week, the lights are on, with consumers bent on continuing the yearlong spending spree that has pushed retail sales growth to its highest level in a decade. And there seems little stopping this spending juggernaut.
The erratic stock market hasn’t slowed consumers, nor have concerns about the year 2000 computer bug. Even the Federal Reserve’s interest rate hike Tuesday--the third this year--isn’t expected to chasten shoppers over the holidays.
Typical are people like Jenifer Ahlberg of Costa Mesa, whose husband, David, is coming off a terrific year of sales at Yamazen Inc., a machining company.
“We can afford to splurge,” said the 40-year-old mother of two, whose family just bought a new Isuzu Trooper and began Christmas shopping by picking up antiques and toys in Santa Barbara. She’s budgeting $1,200 for holiday presents--$400 more than last year.
Such enthusiasm has clearly rubbed off on retailers.
Profits Nationwide Expected to Rise 17%
Merchants nationally are expecting their holiday profits to jump an average 17% from last year, one of the highest readings in recent memory, according to an annual holiday survey by Deloitte & Touche and the National Retail Federation.
“We think it’s going to be our biggest Christmas in our 51-year history,” said Tom Campbell, a corporate director at Ken Crane’s Home Entertainment, an electronics chain based in Torrance.
And it would be hard to bet against him, given the underlying economic conditions.
California’s jobless rate dropped to a 30-year low this fall. Personal incomes have been growing at a remarkable pace, especially for higher-end households, bolstered by stock market gains. Housing activity remains brisk, and sales of automobiles in California are on pace to hit an all-time high this year.
About the only dark spot is on the labor front, where severe worker shortages could cause trouble for some merchants. But even that isn’t likely to slow the phenomenally brisk traffic that retailers have been seeing all year throughout the nation.
“I’ve been amazed,” said Ira Silver, J.C. Penney’s economist in Plano, Texas. “People’s closets must be very full, and their garages too.”
Before last Christmas, Silver projected a 4% to 5% increase nationally in holiday sales. The actual increase turned out to be 6%. This holiday figures to be even stronger, he said, “probably the best in the decade.”
California should top that. The state’s job growth is stronger, and bigger increases in population and housing sales and starts have pushed retail sales this year above national levels.
Retailers’ Optimism Can’t Be Quenched
Nationally, consumer confidence remains very strong but has declined somewhat in recent months, according to the University of Michigan. That same pattern occurred last year as stock market gyrations lowered expectations in the second half of 1998.
But what’s different this holiday season is the steady optimism among retailers, undaunted by the Fed’s quarter-point boost in a key short-term interest rate last week.
By historical standards, interest rates are still very low, and credit is widely available. “Let’s face it, consumers have everything in place for a merry holiday season,” said Sung Won Sohn, chief economist at Wells Fargo.
That will certainly help propel the U.S. economy into a record ninth straight year of growth. But Sohn thinks the Federal Reserve will push up interest rates again next year, doing whatever is necessary to slow consumer spending to a more moderate pace, to keep inflation in check.
Usually consumption of goods and services accounts for about two-thirds of economic activity, but this year spending has been driving 95% of the nation’s growth, he said.
“It’s unstable; it can’t be sustained,” Sohn said.
One major reason consumers have been spending so heartily this year is that more workers have jobs--and better-paying ones. In California, about 400,000 more people are working today than a year ago. Joblessness fell last month to 4.8%, the lowest rate since the Vietnam War.
This time last year, Ricky Garner, 33, was unemployed and sleeping in a Los Angeles shelter.
But late this summer, with the help of the nonprofit agency Chrysalis, Garner found work as a security guard at a building in Hollywood. He said he’s making $6.25 an hour, enough for him to move into an apartment downtown.
He has plans to buy a sweater for his mom and, for his girlfriend, a long-awaited engagement ring. “It’s going to be a blessed Christmas,” he said.
The other big driver in consumer spending has been the bubbly stock and housing markets. Many people have turned their stock options into discretionary income. Others have seen their assets rise in value and, feeling richer, they have been more inclined to spend.
That explains why business at home furnishings, electronics and luxury goods stores have been so brisk this year, a trend that’s expected to carry into the holidays.
Gloria Salcedo said sales at her Salmo’s Custom Sofa stores in Huntington Beach, Corona and San Marcos, are running 50% higher this year.
“I think the stock market is really influencing sales,” she said. “Even if people don’t have the money . . . they say, ‘My job is secure; I’m going to charge.’ ”
Southern California’s housing market has been robust, although brokers report some recent slowing. On average this year, California homeowners have been netting $65,000 in equity from the sale of their homes, said economist G.U. Krueger at the California Assn. of Realtors. Much of that is plowed back into other houses or investments, but the rest is spending money.
“That’s money for Santa,” said Krueger.
Job growth statewide has been steady, led by the Riverside-San Bernardino area, followed by Orange and Ventura counties. Those areas saw strong fourth-quarter sales last year, and this year should be no different.
The picture is more disparate for Los Angeles County.
Retail managers in middle- and upper-income areas say they’re heading into the holidays with great momentum. Stores at the Beverly Center have already seen sales gains of 8% to 10% this year, says General Manager Laurel Crary Globus. On the whole, it’s been even stronger at Northridge Fashion Center, which is extending its Saturday hours.
But in Downey, Phil Chau sat forlornly in his Decor Furnishing store earlier this month, lamenting the slowdown this year. Affluent area residents have left for wealthier communities, he said, and younger families with smaller incomes have moved in.
“There’s no holiday spirit,” he grumbled.
Regardless of income, consumers are seeking deals more than ever. The Deloitte & Touche survey found that 80% of consumers nationally will be shopping at discount stores such as Wal-Mart and Target--up from 60% in 1996.
Some consumers see value in high service or quality, which will boost upscale shops, said Richard Giss of Deloitte & Touche in Los Angeles. But for many, he says, value means low prices. And that prevailing attitude has forced retailers to keep offering discounts to attract customers. One ramification of that: Average consumer costs for apparel, a holiday staple, have actually fallen in the last couple of years.
Still, many merchants figure they will still make big profits this holiday season. Retailers have pressured their suppliers to lower their costs. They’re also counting on sheer sales volume to make up for lower profit margins, and, in industries like electronics, there just aren’t as many rivals now.
But the competitive pressures are even more intense this holiday season because of aggressive promotions by Internet retailers. One in 10 holiday shoppers is expected to shop online this year, twice as many as last year.
“It’s the consumers who are going to win,” said Bill Mow, chairman of Bugle Boy, an apparel firm based in Simi Valley. But he doesn’t see retailers losing, either.
“I think we’re going to blow the numbers away,” he said.
