What do a mechanical barking dog, the Xbox, Guitar Hero - the air-guitar
computer game - and the Wii all have in common?
Each of them were Christmas “IT” products - must-have, hot items that sold out
during the holiday season. Each of their manufacturers created the products
months before Christmas and devised elaborate marketing campaigns to ensure
that their item was the key product parents fought over to put under the
tree.
This year, there is no IT product. By its very absence, the must-have
electrical or mechanical gadget has become a sign of the times.
As America slides into what is expected to be one of the deepest recessions
since the 1930s, most retailers are hoping merely to tread water as families
stop spending on anything other than essentials, such as food and petrol. So
grim is trading on Main Street USA - which typically takes $290 billion
(£189 billion) to $310 billion a month - that liquidators are reporting
record inventories.
Bill Angrick, chief executive of Liquidity Services, a group that buys unsold
products from many of America's biggest retailers, said that his auctions
this week and last had increased by more than eight times compared with the
same period last year. Anxious that they may be left with too much
merchandise, retailers have started to sell goods to liquidators even before
they reach their own shelves.
Matthew Katz, a partner at AlixPartners, the American retail consultancy,
estimates that there is more than $20 billion of liquidated goods stuck on
the high street, boosted by bankrupt stores with closing down sales. “In the
past,” he told The Times, “retailers who were really struggling
would wait until the first quarter of the year to liquidate their stock. It
would be a case of: ‘Let me get through the holiday season. Let me try and
sell as much inventory as possible during the peak shopping period and
generate as much cash as I can and then I'll start liquidating.'
“Now things are so dire that retailers do not want to wait until the first
quarter to be in line with everyone else trying to liquidate stock. They are
trying to liquidate the merchandise now, for fear that liquidators will be
overwhelmed next year.”
Those struggling stores seeking to liquidate stock are forced to compete with
retailers who have entered Chapter 11 bankruptcy protection and who have
slashed prices to stimulate demand. Circuit City, America's second-biggest
electronics chain, sought bankruptcy protection this month after its
suppliers became so concerned about the prospects for the company that they
withdrew credit lines.
The pain experienced by America's retailers was no more acute than at the
weekend, traditionally the three busiest shopping days of the year.
Nicknamed Black Friday - because it has typically come to represent the day
that retailers move into the black - the day after the Thanksgiving holiday
is the day that Americans flock to shopping malls to eye new discounts on
everything from furniture to clothing and to begin their Christmas shopping.
Black Friday may not be a public holiday, but many Americans take the day
off, anyway, to go shopping as retailers start their sales.
Last year, it is believed that Americans spent $20 billion on Black Friday
alone. This year, the National Retail Federation estimated that traffic -
the number of shoppers entering their stores - was down 8 per cent compared
with the same weekend in 2007, itself a subdued year. Retail experts expect
sales to be down over the whole Christmas period, which would constitute the
first contraction since the recession of the early 1990s.
Wall Street will also be awaiting data that shows how much American retailers
had to discount to lure shoppers into their stores. Desperate to stimulate
sales, retailers took
24 full-page adverts in the 40-page main section of The New York Times
to advertise their reductions. It is unlikely to have been enough. Retailers
were already trying to stave off the collapse in spending in the months
ahead of Black Friday - to little avail.
According to Michael McNamara, vice-president of MasterCard SpendingPulse,
which compiles sales estimates based on cash, cheque and credit-card
payments, clothing sales were down 19 per cent in the first two weeks of
November compared with the same period the year before, after falling by
5.5per cent in September and by 12.2per cent in October.
Worse, Mr McNamara explained that the rate of decline in sales of electronics
and household appliances was accelerating. In August, sales fell 5.5 per
cent compared with the same month the year before. September sales declined
by 13.8 per cent, October's by 19.9 per cent, and November's by 22.1 per
cent.
Dean Hillier, a partner at AT Kearney, the retail consultancy, said: “This
year, Black Friday could become the next iconic symbol of the financial
crisis. It is quite dire out there. It could well be the case that Black
Friday stops being known as the day retailers move into profit, and instead
relates to the next big crisis. We think that sales overall will be down
this year, but whether it will be by half a per cent or by as much as 6per
cent, we just don't know yet.”
The American economy relies on consumer spending more than any other developed
country. More than two thirds of economic growth is derived from consumer
spending, of which retail sales are a big contributor. But Americans have
cut back on their expenditure amid fears that they may be one of the 240,000
people a month who are losing their jobs. Banks have also withdrawn lending
facilities as they struggle to cope with their own losses and have cut
overdraft and credit limits.
One area of retail is thriving, however. Wal-Mart, the world's largest
retailer, boasted last month that profits had surged by almost 10 per cent
in the third quarter of the year as cash-strapped Middle America traded down
to discount stores. It has been preparing for this recession for two years,
having switched its strategy and taken its ranges more upmarket.
Mr Katz said: “Be in no doubt about how smart Wal-Mart have been. They have
exploited the kind of retail traffic they have to sell a range of other
goods. They are one of the smartest operators in the world.”
Nation of shoppers
$300bn - what Americans spend in a typical month on everything from clothing
to groceries to petrol
$20bn - what Americans are estimated to have spent on Black Friday in 2007
(too early for 2008 data)
$410bn - what Americans spent last year between Thanksgiving and Christmas
Source: Mastercard SpendingPulse
