Three Thoughts of Annual Spending Spree

Our household was probably not untypical: one item ordered on 14 December with a promised despatch date of 20 December has – at the time of writing (well into the New Year) – still not appeared (and I know it is not lost in the post as I’ve not yet had the usual e-mail confirming despatch). Another – a gift ordered online on 4 December by an extremely disappointed stepdaughter for her Dad – is also still in limbo.

We all know of those expert reports which tell us that such disappointments online usually mean the shopper will never visit the culprit site again: this year’s failure to deliver could thus well impact future buying behaviour. One problem is clearly lack of delivery capacity: our regular cheerful postman, arriving at 4pm in the days before Christmas, reported he’d never known a year with so many parcels to process, while the various couriers (struggling to find houses in rural areas after dark) were considerably more bad-tempered about the entire business. Customer deliveries apart, with so many online retailers taking a “virtual” approach to inventory and calling off stocks from suppliers at short notice, as needed, it is hardly surprising that the elongated supply chain did not always run smoothly.

My second Christmas thought inevitably focuses on prices. I was amazed in mid-December to find 50% discounts on current winter clothing collections (my elderly Mother who’d asked me to buy her a few things was understandably delighted). Clothing prices have fallen steadily in recent years thanks to low cost sourcing in China, Romania or wherever: even allowing for initial hefty retail mark-ups, price cutting on this scale – well before the Sales had “officially” started – wasn’t going to do much for profit margins. Watching the profit warnings in coming weeks will be interesting.

For years retailers have been dabbling with revenue management tools to improve markdown and pricing optimisation: some have even invested in slick demand forecasting applications to match their buying habits to shoppers’ capacity to spend. So why did it all go so horribly wrong this year?

Perhaps it is rather like the “black Monday” phenomenon in the US. Four days after Thanksgiving retailers finally move into the black for the year thanks to those massive holiday discount promotions on the day after the annual turkey feast. Numerous discussions with US retailers over the years still leave me confused about the practice: with nothing much to do with their Friday off work US consumers head for the shops. So retailers slash prices. The result is that no one buys very much in the weeks leading up to Thanksgiving and the Christmas shopping spree starts with a Sale.

Why not leave the price cutting until after the spending starts to improve margins, I naïvely ask. The reply is usually along the lines that if everyone else is price cutting then any retailer who does not will miss out on sales.

It was rather like that here this year: with high street retailers nervously holding their breath in early December to see if sales picked up, as soon as one started the price cutting, nerves broke and the rest rapidly followed. SPSL suggests that retail traffic was down by 3.2% in December compared with 2006 figures: following the abysmally low footfall levels in November the price cutting was perhaps not surprising. Even so, if shoppers expect a “post Thanksgiving black Monday” phenomenon next year, wise shoppers (unless they are buying online) will clearly delay their Christmas spending sprees until the discounting begins. Or perhaps retailers will finally embrace optimisation technology so they actually manage to match demand to supply and sell less but at better margins?

There are always those who cannot resist a bargain and as various reports so far this year have confirmed, credit card spending has been going through the roof.

My third thought inevitably concerns the credit crunch. The discounting both pre- and post-Christmas may have persuaded consumers to spend – but at what cost? Watching the TV news reports of the Sales on Boxing Day I was intrigued by the woman clutching five or six handbags and heading for the checkout. Perhaps she was buying them to re-sell on eBay? Perhaps not.

There are always those who cannot resist a bargain and as various reports so far this year have confirmed, credit card spending has been going through the roof. Add rising food and fuel prices and continuing concerns about mortgages and one suspects that the next few months will be extremely lean in a great many households.

It doesn’t take a great deal of financial nous to appreciate that if consumer spending stalls then the economy is in for a very bumpy ride. Retailers may have managed to clear some shelves and grab some “disposable income” with all that seasonal discounting but what about February’s trade. Or March’s. Or April’s.......

Reigning back the open to buy, minimising risk with “safe” merchandise or opting for limited quantities of short run ranges, and making the most of business intelligence to improve that supply-demand balance and glean any customer insights that might help sales rather look like the priorities for 2008.