The Bad News Behind The Retail Financial Numbers

Written by Evan Schuman
February 14th, 2008

A small 0.3 percent increase in retail spending in January announced on Wednesday caused optimisim to spread, as investors hoped that perhaps the economic impact on retail won’t be so bad. A closer look at the numbers, however, suggests that the original pessimism was the right sentiment.

Yes, government stats included boosts in car sales and gasoline—which are not strictly retail segments—and they reported increases in clothing sales at a time that major apparel retailers were announcing down figures.

But there are two bigger problems. First is the unusual nature of January, when consumers are typically spending giftcards received in December.

The much bigger problem is precisely what they are usually those cards for. If the consumers are spending what they would have already spent and are then using the giftcards to buy higher-priced discretionary items—such as electronics—that they wouldn’t have otherwise bought, that’s great news. But if consumers use the cards to simply reduce the dollars they have to lay out in January, that’s not so good.

The National Retail Federation’s Scott Krugman said his people were seeing an awful lot of spending on necessities, which caused an increase in pharmaceutical dollars. Krugman referenced Wal-Mart giftcards being used to purchase food.

Krugman’s point is well-taken and more than a tad bit discomforting. The idea of giftcards under Christmas trees being used in January to buy bags of onions and whole carrots at Wal-Mart, that sounds like the makings of a very long, cold winter season for retailers.


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