Holiday Hints: Sales Down, Crashes Up
This column was written by Evan Schuman, the editor of StorefrontBacktalk.com, a site that tracks retail technology, e-commerce and security issues. Retail Realities appears each Friday. Evan can be reached by e-mail and on Twitter.
In the holidays conjured up in Hollywood and in music, the time in America between Thanksgiving and New Year's is happy, hopeful and cheery. But retail predictions this year are suggesting something somewhat to the contrary. In a rare flash of StorefrontBacktalk optimism (optimism is what happens to a cynic when all dire predictions fail. Fear not: it's always short-lived), we think both predictions will be wrong this year, but we need your help to prove it.
On the sales front, the National Retail Federation on Tuesday (Oct. 6) issued its holiday prediction and it startled us with a projection of a one percent drop for this upcoming season. It's uncomfortable being more optimistic than the normally cheerleader-like NRF-it's sort of like forcing Mr. Hyde to negotiate and to play the good cop-but retail conditions give us little choice. Last year's market implosion hit late summer and delivered an absolutely atrocious retail fourth quarter.
But all measures, this year is looking much better. Wall Street's faring better, the American attitudes about the economy are more confident and, most critically, a year has passed. Consumers won't stay in panic mode very long. That said, we're not suggesting that this season will be great, nor that it will even match the 2007 holiday season. But to suggest that this season will be not only as bad as last year, but even worse (granted, only by one percent, but still....) seems unsupported by reality. Last year saw a holiday season drop of 3.4 percent. We won't make that all up this year, but I think it's a safe bet that we'll cut into that number, perhaps doing 1.5 percent to 2 percent better than last year.
An NRF statement attributed to the trade group's chief economist, Rosalind Wells, offers the group's rationale. "As the global economy continues to recover from the worst economic crisis most retailers have ever seen, Americans will focus primarily on practical gifts and shop on a budget this holiday season," Wells said.
Insofar as it goes, that's a legitimate point. But more will be spent this year than last year, when virtually everything shut down. And practical gifts and price-conscious purchases do not necessarily translate into sharply lower spending. Lower than 2007, yes, but not than last year. To be blunt, Americans tend to not be disciplined that long.
The NRF rationale continued: "Though some hopeful signs of a recovery have begun to emerge, like better-than-expected sales in August and momentum in the stock market, continued consumer uncertainty over job security and housing values will take a toll on spending this holiday season." That's a fair point, but it's not advancing their own argument. That's an explanation for why purchases will be generally weak-and they will be-but it's explicitly not an explanation for 2009 holiday purchases will be lower than 2008's holiday purchases. The only way that argument would work is if "uncertainty over job security and housing values" weren't key factors in 2008 or those concerns were expected to be much worse this year than last year. Otherwise, it doesn't explain why this year could be worse than last year.
Last NRF point, from their statement: "And, as retailers become even more promotional, certain popular holiday categories like apparel and electronics may experience deflation due to aggressive sales." I have to respectfully disagree with this. The major retail chains are very smart about such discounts. It may weaken their margin, but the smell of a bargain will likely boost sales-especially in consumer electronics. Given that the NRF predictions are sales numbers (revenue), this argument won't likely fly. Had they been projecting margin/profit, that would be different.
These economy issues are all well and good, but let's move to an area much more closer to our IT and E-Commerce hearts: Site crashes. The E-Commerce programming interpretation of tighter profit margins is the experience suffered last year, where bargains mean that more transactions need to be registered to make the desired dollars. And bargain hunters tend to visit a lot more pages, searching to save with more comparisons. The recent tidal wave of new retail mobile applications will make the ratio of page views over purchases even higher.
It's the new holiday tradition for major retail sites to start crashing extensively right after Thanksgiving. (Hallmark is reportedly starting an E-Commerce Director assortment. Tonight, enjoy your turkey and stuffing by the pound. (Open card) For in the morning your Blackberry will flood you with 'pages not found.')
Will this season be as crashy as last season? With more shoppers, it's quite possible that the crashes will be more common, aided by mobile interactions, which will overload in their own little smartphone ways. The iPhone, AT&T, brand-new (and relatively untested) retail mobile apps and holiday shopping: A more perfect recipe for site outages the world has never known.
By Evan Schuman
Special to CBSNews.com