PrintI’ve previously referred to a “confidence disconnect” between consumers and business, and it seems to be continuing. Depending on which stats you look at, sales over the weekend increased between 6 percent and 13 percent over last year, which indicates that consumers are still pulling out their wallets and supporting the economy. But from a business standpoint, although the numbers are quite good at the surface, they may not be as good as they seem.
Several factors make the strong top-line numbers less positive from a business standpoint. The first, and potentially most significant, has to do with whether the sales are profitable. Given the wide range of deals and discounts employed to get buyers to make a purchase, profitability took a hit last year—and it may this year as well. The second is whether strong sales over the kick-off weekend will augur similarly strong results over the entire holiday season, or whether retailers have merely succeeded in bringing sales forward rather than increasing them overall. Evidence from past years runs both ways, and the effect on Black Friday itself was negative, as earlier store openings on Thanksgiving seem merely to have led people to start shopping sooner rather than to buy more goods. The National Retail Federation projects overall sales will increase 4.1 percent this year, which is relatively strong, but it’s less than last year’s 5.6-percent increase.
The other question, from a traditional retailer’s perspective, is how many of those sales are made in a store versus online. On Black Friday itself, in-store sales decreased while online sales increased substantially. Combine that trend with the new one of Cyber Monday, and it seems that online shopping is taking an increasingly large part of total retail sales. Why? Superior prices and convenience. Many buyers are now looking at products in the store, then buying online for less—something I do myself. For consumers and the economy as a whole, this is a good thing, but there is no denying that it is tough on traditional retailers.
Overall, it seems that the season has gotten off to a good start. Although a strong start doesn’t necessarily mean a strong overall result, it seems to me that it is much better than a weak start. From an economic standpoint, the mix of in store/online doesn’t mean that much, so I am inclined to ignore how sales are distributed. Overall, strong sales mean that consumer confidence and willingness to spend are also strong, so despite retailers’ concerns, we have a good signal for the economy going into the holiday season.
