SAGE Advice: A Blue Christmas for Retailers?

By: Leo J. Shapiro and Steve Yahn For newspapers and their retail advertising partners, Christmas Day will bring the denouement of a distressing drama: an economy that has been blooming except for holiday sales.

According to results of our latest Leo J. Shapiro and Associates? national monthly poll of consumer behavior, across-the-board buying confidence of consumers was up in December compared with November.

Yet consumers' anticipated holiday spending plans -- which hit their lowest point in more than 30 years in October but then spiked in November, are down again, to the lowest level in a decade of Decembers.

In October, our poll measured a record number of consumers -- 54% -- saying that they would be spending less for Christmas, covering our three decades of Christmas sales season buying outlook tracking.
In November, however, prospects brightened; our national poll revealed that the percentage of consumers planning to spend more for Christmas rose.

Historically, the percentage of consumers who say they plan to spend more for Christmas tends to rise from November to December. But this year the percentage of consumers who said they planned to spend more in the holiday shopping season homestretch than in the same period last year remained flat, at 22% -- a disquieting sign for retailers, to say the least.

In sum, the percentage of consumers planning to spend less on Christmas this year than last stands at 48%, six points higher than in December, 2004.

Curiously, though, as holiday spending plans sag, there has been a strong surge this December in the willingness of consumers to spend freely for day-to-day goods and continue to plan major purchases. This increase reflects a gain in consumers' optimism about their ability to cope financially in the coming months.

Consumers report improvement in their financial situation and moderation in their fear of accelerating inflation. It looks as if President Bush gets some of the credit, as his approval rating jumps from 35% in November to 39% in December. Still, ultra-high heating bills and chilly weather -- both current and anticipated -- are likely to temper all spending, both holiday and day-to-day.

Why are consumers? selectively pulling back on holiday spending while at the same time planning to spend more freely on day-to-day and durable goods?

It may be that retailers have themselves to blame. By jumping the gun on Christmas sales, retailers have made Christmas less of a gift-giving celebration and more of a commercial occasion to take advantage of discounts. In a variation of an observation by comedian David Steinberg, retailers need to put the "Christ back into Christmas" and the "Ch back into Chanukah."

Some retailers, thinking that many consumers will defer gift-buying until after Christmas in order to take advantage of anticipated mark-downs, are posting sale prices now and promising that they will remain until New Years. Savvy post-Christmas gifters are not likely to be cajoled into spending now when they know they can shop far and wide for post-Christmas bargains.

Retailers that sell higher-end gift merchandise that has not yet been discounted are faced with the need to clear out their inventory of Christmas merchandise while generating profits from the sale of higher-margin goods.

So retailers and their newspaper advertising partners must tap the greatly increased willingness of consumers to buy gifts for themselves.

BOTTOM LINE

Between now and mid-January, retailers and their newspaper advertising partners are challenged to achieve two seemingly irreconcilable objectives: clearing existing inventory and making a profit.

Advertising discount prices alone can clear inventory, but at the expense of reducing or eliminating profits. Persuasive, information-rich advertising can generate profitable sales, but at the expense of slowing purchase decisions to the point where the inventory-clearing hectic pace of buying is not achieved.

Courage and art are required to develop large-space advertisements that serve a double purpose by letting consumers, in the comfort of their home, visualize what they would find while shopping the store.

Advertisers must bring the entire store into the home with large-space ads that allow consumers to browse the full store?s offerings. Such advertisements let consumers discover the profit-generating products which are worth buying, whether or not available at a discount, because they promise to make life better. As mathematician and songwriter Tom Lehrer put it in his modern-day Christmas carol, "Hark, the Herald Tribune sings, advertising wondrous things."

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Leo J. Shapiro is founder of SAGE -- Survival and Growth Enterprises -- as well as Leo J. Shapiro and Associates, a leading consumer-behavior market research firm (leos@ljs.com). Steve Yahn is affiliated with SAGE and has his own communications consultancy yahninus@yahoo.com). Erik Shapiro, senior research analyst at Leo J. Shapiro & Associates (eriks@ljs.com), and Lisy Wang, President of Mai Kai Te marketing consultancy (info@maikt.com), also contributed to this column.