The biggest problem with this, of course, is that we don't know how much discounting had to be done to generate this sales growth. Anecdotal reports are that it was massive, and sufficient to reduce total profit even after the increase in unit sales.There are other problems with even taking the top line sales numbers as an indicator of likely good sales growth for the season. First, there are only 27 shopping days in the buying season this year vs. 32 last year, because Thanksgiving is so late. While buying tends to be concentrated at the front-end and back-end of the buying season (because retailers have trained consumers to play a game of chicken, waiting for last-minute sales), and this ameliorates the effect somewhat, this is a huge difference in that there are about 15% fewer days, so the average day should be a lot higher this year than last to get same aggregate sales for the season. Second, Black Saturday is not as big a shopping day as Black Friday, but it is one of the big days of the season, and it was down vs. last year. Third, e-commerce sales for the four weeks of November through Black Friday actually declined vs. 2007, which is the first time this has ever happened. comScore forecasts flat online sales for 2008 vs. the 2007 season, which would be hard to reconcile with much growth for in-store shopping.
The evidence so far is that this shaping up to be an even worse Christmas shopping season than most informed observers anticipated even a week ago. The S&P Retail Index went down substantially more than the market yesterday, as it integrated the data from Friday and Saturday.
One other thing to point out, of course, is that these figures are not adjusted for inflation. And we had substantial inflation earlier in the year. So even without the fact that every store I saw was offering massive, massive discounts to get those sales, they wouldn't be that exciting.
Man, you guys are always looking for the soot-colored lining aren't you? :-)
I don't think anyone is trying to say everything is fine as a result of better than expected numbers on "Black Friday", but I do think they are encouraging based on the fact that everyone *was* expecting dismal numbers. The numbers weren't. I'm no economist, but this tells me there is a lot of consumer capital sitting out there on the sidelines with people mostly just being cautious with it, but are more than willing to spend at the right price. A lot of it is psychological as well -- if we all start thinking things are on the up and up -- by George, they probably will be!
Anyways, while stronger than expected sales may be tempered by some marketplace realities as you've described, I'm pretty sure if we were heading towards the apocalypse there would have been a steep drop or something else the media could have trumpeted in our faces.
Hey, but congrats -- you've succeeded in making me feel slightly less cheery this morning ;-)
Couldn't you feel it in the air? That pent up need, all the stuff people have been doing without? An urge so strong some shoppers had to trample a man to death to feed the need?
Being good Americans, we simply rose to the national pent-up need for burning excess calories in malls, and spent as if the economy depended on it.
I'll be doing my share today. The answering machine met it's planned-failure date months ago, and I'm missing all those important calls from telemarketers trying to sell me a warrenty on it.
Hope you're liking the new digs, Megan. Hope you also doing your part shopping to support the economy as you furnish your share in McArdle style. Hope there's peace with roommates.
At what point do plummeting oil prices start to have a real effect on consumers? Especially given how people must have been bracing for heating oil fill-ups.
I second what Josh said. I think the numbers were encouraging and if gas were $5 a gallon, they would have been way way worse.
National Treasure tbogg has to address this dang near annually. Here's what he said two years ago:
Megan hints at understanding this with here standard CYA graf at the post's end, but if that's how she feels, she really ought to change the post's title.I think everybody understands that Black friday sales are in no way an indicator of consumer confidence, or that this holiday shopping season will be the same as previous ones. Not to mention consuming more than we save is part of the problem. What this black friday proved was that if you offer ridiculous deals on the retail side than yes people won't duck a great deal.
What matters is not the discounts on offer but the absolute level of gross profit dollars earned. The achilles heel of retailing is high fixed costs. In normal environments, assuming constant gross margin, retailers need to increase same store sales by generally 2-3% in order to avoid deleveraging SG&A expenses. The rise in sales leads to a rise in gross profit dollars, which covers the normal increase in SG&A expenses, which allows the retailer to hold operating margins flat. Today is obviously not a normal environment. Retailers will trade sales for gross margin, provided that the tradeoff leads to higher gross profit dollars, regardless of what it does to the margin rate.
Don't you really need the whole Christmas selling season to make any conclusions?
If people are planning to skimp you might see Black Friday sales go up since people want to get the best deals they can to make their limited funds go as far as possible and then they spend less later on.
Honestly, some of this econometric stuff escapes me (like the way that one definition of "recession" is looking at the first derivative of GDP while another looks basically at the second derivative) but it would seem that there has been a similar deflation in the second part of the year, since the inflation was dominated by energy prices.
One other thing to point out, of course, is that these figures are not adjusted for inflation. And we had substantial inflation earlier in the year.
Megan, I defer to you in matters economic, but isn't the dollar significantly deflated from this time last year? (If I'm reading my Economist correctly, the price index is down a not-insignificant amount from this time last year.)
I tend to agree with your analysis here... but I think that an increase in sales is largely because the American instinct toward consumption has not been broken yet. Too many people are still thinking that if they get a good deal on something they want (but don't need) today, they can pay for it next month.
But I just want to make sure I'm reading the inflation numbers right.
I have to say, based on my rather unscientific observations, the crowds at stores on Friday specifically, and the weekend in general, were quite large. Granted this doesn’t fit into the currently vogue “brother-can-you-spare-a-dime” media narrative, but I, for one, am not getting my doom-and-gloom forecasts from the same media that couldn’t form a critical thought for the last 8 years.
The deflation is in oil prices, not core prices, which got a little giddy before the financial crash. Core inflation was rising more slowly than CPI, but still faster than it should have been.
Comparing 2008 vs 2007 is hard for a couple reasons:
- Thanksgiving is 5 days later (11/27 vs 11/22) and Chaunnuka is 17 days later (12/4 vs 12/21). So November same store sales that come out in next couple days will be much worse but part of it is timing of holidays (and part is that the consumer is broke, but hard to separate these two factors)
- Because of the prevelance - in normal times - of gift cards the Holiday season doesn't end on December 24, it really extends into January as consumers redeem gift cards. retailers know this and plan accordingly. However the snag this year is that there is some anectdotal evidence that consumers are scaling back on gift card purchases since they have seen cases where retailers have gone out of business and the gift cards have no value. So, you may see some people buy a widget before 12/24 instead of the gift card they bought last year - this will push sales from Jan into December - so you may see OK numbers in December but then weakness in Jan. It will be hard to quantify this - I think alot of gift cards are last minute shoppers.
So really what you will need to do is to combine the full November-January period to get a meanigful end result and to base it on any shorter period of time is going to be highly misleading.
I don't think there is one retailer that has raised their earning guidance (except maybe Wal Mart) and tons that have lowered guidance for Q4. The bottom line is retailers placed their inventory orders in the summer ie 'before Lehman' and while they had anticipated a weaker season than 2007 their plans were based on the Pre-Lehman world and they have to clear the floor of high inventories. In summary, retailers this year will win the same award as won by Gary Coleman in Avenue Q.
ed, I'm afraid you misundertand. Megan more than "hints at understanding" this, as she points it out both at the beginning at the end. "I was going to do a post on why we shouldn't get excited about Black Friday's 3% increase in sales year-over-year," etc. What you don't understand is that her title of "not so black after all" means "not so [in the] black after all," as in not so profitable. Not "black" as in the sense of "dire." After all, in general parlance "Black Friday" is used to refer to the profits that retailers make on that day, regardless of whether or not that was the origin.. (With various urban legends of questionable truth about retailers going into profit for the year starting that day, etc.)
All of that would be obvious if you read the post at all, considering that the entire post is about not getting excited about the 3% increase. But once again you're too hasty to criticize rather than read.
In any case, this is sort of interesting, as another shopping tracking data service claims that:
1. Sales were up 19% on the weekend after Black Friday, and up 16% on Monday, and
2. Sales for both the weekend (combined) and for Monday were and are larger than on Black Friday.
So that completely contradicts the data that Jim Manzi uses on sales. Doesn't say a thing about margins, though.
"The deflation is in oil prices, not core prices, which got a little giddy before the financial crash. Core inflation was rising more slowly than CPI, but still faster than it should have been."
Has the deflation just been limited to oil prices? Commodity prices almost across the board have collapsed in the second half of the year, and the dollar has risen by about 20% versus some major foreign currencies. When gas prices were over $4 per gallon, those who pointed to core inflation numbers to assuage inflation concerns were roundly dismissed, for good reason. Food and energy costs have a big impact on most consumers' spending.
As of September, the last observation reported the year-over-year in the deflator for GAFO sales -- roughly what Wal Mart sells-- is -0.7%. Of course that is compared to a -2.9% a year ago
So your comment about inflation is not correct.
Can anyone tell me why this day is named the way it is? I always took this name to be synonymous with the market crashing. Why would the name the busiest holiday shopping day "black Friday" ?
Toph: Black is meant to mean profit (opposite of losing money when you are in the red). The phrase is suppose to imply that it is on the day after Thanksgiving that the retailer is finally 'in the black' or making a profit as this is the busiest time of year.
This year though with weaker sales it is maybe less black and more red, maybe sort of dark maroon.
Another thing to consider is that despite all the talk of deflation, inflation was still greater than 3% and if you consider population growth the number should be ~1.5% higher than that.
Now you also need to consider that the fall in house prices and the commodity bubble pop are the major deflationary factors. So inflation on your typical christmas gift is higher than the 3.2% average.