All eyes were on retail spending last year, and with good reason. The country is still waiting to recover from a stalled economy, as unemployment continues to hover at around 9%, and the housing market fails to show any strong signs of a recovery. Retail trends are a powerful indicator of what the future may hold because consumer discretionary spending accounts for about 70% of the nation's economic activity, according to USA Today.
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Last Year's retail shopping season started off with a bang, when the National Retail Federation announced record-breaking Black Friday spending that totaled more than $52 billion. The larger crowds also meant larger transactions. Deal seekers spent an average of $398.62 on Black Friday, compared to $365.34 in 2010. They didn't stop their spending once they returned home from the stores, either. Online spending averaged $150.53 that weekend, accounting for just over 37% of the total weekend's spending. (For related reading, see Consumer Spending As A Market Indicator.)
The momentum continued into Cyber Monday, the online version of Black Friday that takes place the Monday after Thanksgiving. Cyber Monday features steep discounts, and for many retailers, free shipping and returns. This year's Cyber Monday shoppers broke records, spending around $1.25 billion and making it the heaviest online spending day of the season for the second consecutive year, according to comScore.
Free Shipping Day took place on Dec. 16, 2011, and according to comScore data, attracted spending of more than $1 billion online, representing about a 14% increase from last year. Overall, retail e-commerce spending for the first 56 days of the November – December 2011 holiday season amounted to around $35 billion spent online, representing about a 15% increase over spending in that same time period last year.
Consumer Confidence up
Appropriately, the Consumer Confidence Index (CCI), a monthly measure of how consumers feel about the economy, rose from 55.2 in November 2011 to 64.5 in December. The numbers are a positive indication of brighter days ahead for retailers, but can the momentum continue, and do consumers actually have the money to spend?
Layaway, a once nearly extinct idea based on allowing cash- and credit-strapped consumers to "hold" their purchases for a small fee and series of payments, made a comeback this holiday season, as retailers like Walmart, Kmart and Toys R'Us started promoting their layaway programs long before the holiday shopping season officially began in November.
According to BIGInsight's Consumer Intentions and Actions Survey "more than one in 10 consumers planned to utilize layaway for holiday 2011." Because retailers account for the sale when the customer actually takes the item home, and most programs allowed for final payment right up until Christmas, the real economic effect on layaway's comeback won't be seen by the mega-retailers until Q4 earnings announcements, but if credit card spending this holiday season was any indication, the numbers could be noteworthy. (For more information, read Layaway Plans: Get The Goods Without Going Into Debt.)
FirstData, an organization that tracks payment processing, reported that this year's holiday shoppers were more willing to utilize credit throughout the season, and that the perfect storm of deep retailer discounts, consumer confidence and credit cards "propelled credit growth rates close to double-digit levels." Typically, there is a bit of a spending lull between Black Friday and the last week before Christmas. Last year, according to First Data, consumers kept right on shopping and charging.
The Bottom Line
Whether the retail momentum will continue remains to be seen. The increased use of credit cards this holiday season may indicate that consumers are just plain tapped out, and may be drawn into a further spending retreat once holiday shopping bills start arriving in the mail. Regardless, the retail season proved to be fruitful by most accounts. Thomson-Reuters analysts predict that "some 22 major chains should post an aggregate 4.3% increase in December sales at stores open at least a year."
However, analysts also acknowledge that part of the spending momentum this year was driven by aggressive retailer discounting, subsequent pressure to compete and customer service programs like extended hours and layaway. While consumers relish in these opportunities and conveniences, the strategies also cut into retailer profit margins, which may not result in good news for investors. (For related reading, see Analyzing Retail Stocks.)