Experts Focused on Holiday Consumer Spending
RADFORD -- The final out hadn’t even been made in the 2010 World Series before ads featuring Santa and his elves made their first appearances on television this year.
“The shopping season started earlier than ever, demonstrating what the industry calls ‘Christmas Creep,’ with several well-known large retailers starting their holiday promotional campaigns in early November,” said Andrea Stanaland, associate professor of marketing at Radford University.
Stanaland, Clarence Rose and Charles Vehorn, faculty members in RU’s College of Business and Economics (COBE) recently talked about holiday shopping and some of its implications for the individual consumer and the nation’s economy.
The holiday season is important to retailers because the end-of-the-year sales results often determine whether or not they are profitable, according to Vehorn, assistant professor of economics and a former economist for the General Accounting Office and the International Monetary Fund. The profit margin for retailers is so small that the key is volume. To generate volume, the retailers rely on advertising and promotion to drive traffic.
Both the consumer and the retailer recognize the personal nature of holiday gift-giving according to Stanaland, whose research into mutual fund marketing and its impact on consumer behavior has received national attention.
“Gifts can be viewed as an extension of the gift-giver's personality, increasing the importance of the process to the shopper,” said Stanaland. “Essentially, the basis of all gift-giving is some type of relationship and gifts can be considered symbols of that relationship.”
Giving the perfect gift and managing their individual budget presents a consumer with a formidable challenge, said Rose, a professor of finance and accounting and associate editor for the Journal of Financial Service Professionals, whose research publications on financial planning have been cited in national publications including the Wall Street Journal. “A person should recognize their limitations on spending and perhaps look for ways to enhance family enjoyment other than gifts at the holidays.”
Rose warned, though, that for many consumers, the holidays can be a financial disaster. “Without a plan, they can be paying off the holiday for several months,” he said.
Rose and Vehorn agree that the current economic climate will shape both consumer and retailer behavior during this holiday season. An unemployment rate currently hovering around 9.6 percent will affect consumer spending, Rose said, but even those who are working will likely behave differently. A major reason for that is changing perceptions of wealth and stability, according to Vehorn. The evaporation of wealth caused by the collapse of the housing market, turbulence in investment portfolios and other assets could also affect the consumer buying patterns upon which retailers rely.
“The American consumer has all of a sudden focused on credit card debt and spent their money in paying it off,” said Vehorn. “The retail community is hoping they will see a turnaround.”
That said, early returns from the 2010 holiday shopping season have been encouraging for the retail industry, according to research cited in some recent editions of the nation’s leading newspapers. The Wall Street Journal recently cited a report from International Business Machines (IBM) Corporation’s Coremetrics that online sales were 31 percent higher on Cyber Monday than on Black Friday with the average order value increasing by 2.1 percent. The Washington Post cited market research firm comScore who said Black Friday was the biggest sales day of the year so far, raking in $648 million, up nine percent compared with last year.
A strong holiday shopping season could bode well for a strengthening economy. Vehorn pointed out that statistics from the Bureau of Economic Analysis demonstrate the power of the consumers who collectively generate as much as 60 percent of the Gross Domestic Product (GDP) through personal consumption expenditures. An individual’s purchase of a good or service indirectly translates into jobs and services that support others across the country’s economy. As consumers spend more aggressively during the last month of the year, December looms large for the retail sector of the economy.
“For the individual consumer being prudent and rational is the thing to do,” said Rose, who recommends that consumers make a list and check it twice, just like Santa Claus in the ubiquitous holiday song ‘Santa Claus is Coming to Town.’ “The main thing from a household or family standpoint is to do what is important and avoid getting caught up in the temptations that are presented,” said Rose.
Those temptations can seem to be everywhere. Stanaland explained that with holiday shopping, consumers are especially prone to "situational factors" which are unique to the particular shopping occasion and the shopping environment. There can be traditional retailer tactics such as sensory marketing or using the sounds and smells associated with the holiday season to influence consumers or the creation of a sense of urgency through time-limited deep discounts or promotions. Price is what economists talk about all the time because price is the discipline of the market, said Vehorn. Stanaland pointed out that consumers’ attention to price and their own price discipline will make a difference this year as retailers have responded to today’s value consciousness by providing more discounted products.
“The consumer’s desire for discounts and bargains has caused some industry experts to worry that brand equity in many product categories has been permanently diminished,” said Stanaland. “It is a vicious cycle-- retailers cater to consumer demands of discounts, which further convinces consumers that products are just not worth regular price.”
Rose observed that retailers seem to recognize the severity of the situation faced by consumers and have made an effort to adjust their offerings to make things more affordable for the consumer.
“A consumer needs to be cautious even when taking advantage of sales,” he said. “There can always be a problem if credit becomes the last recourse--a costly, long-term problem.”
Going out and spending for the holidays would seem to be a win-win. Giving gifts certainly helps our consumer-driven economy, especially the retail sector, and the recipient of a unique or valued gift will certainly appreciate the gift giver’s thoughtfulness. The question then becomes as Vehorn asked, “At what price?” Or as Rose would put it, “On what terms?”
December 9, 2010