News Column

Economic Outlook: Retail Strategy

November 25, 2011

By ANTHONY HALL

Sales

Say it isn't so! Black Friday is not always the day U.S. shoppers will find the best deals.

That depends on what the shopper is looking for, The New York Times reported. And, paradoxically, prices vary in the days between Black Friday and Christmas depending on the sales volume of Black Friday itself.

If sales are robust on Black Friday, one would think stores could afford to drop prices to keep merchandise moving out the door. It works the other way: The object of Black Friday is for stores to move items out the door. If heavy sales on Black Friday accomplish a fair share of this inventory reduction, then stores see no need to force the issue with a continuation of discounts.

In reverse, if sales are light on Black Friday, discounts will continue as store owners drop prices to ensure inventory is reduced by the end of the year.

For the best prices on individual items, Black Friday is certainly not the best day to buy fruit cakes or Christmas decorations. For the very same reason -- for merchandise reduction -- stores will slash prices on holiday-specific items the day after the holiday, making Black Friday a great day to buy a cardboard cutout of a turkey, but not a stand-up Santa Claus.

Toys do not have to have a Christmas theme to be linked to Christmas shopping -- even a board game is primarily bought for under the tree in December or it is not bought at all. On Dec. 26, a store has no need of having a board game on its shelf -- or at least a very diminished reason for having one there. That makes Black Friday through Christmas a good time to buy a toy or a game. They are hot potatoes for retailers.

But the day after Christmas, toys and board games have considerably less chance of being bought, so prices are slashed further on the other huge sales day, Dec. 26.

For Black Friday, retail analyst say prices are cut for cheap Chinese mock-up items much more frequently than high quality items. The numbers are certainly skewed when a department store offers a $20 toaster for half price but marks down its showroom apparel or bedroom set items only 5 percent or not at all. The store can use the toaster to brag about huge discounts, but not sacrifice too much profit at the same time.

"Black Friday is about cheap stuff at cheap prices, and I mean cheap in every connotation of the word," Dan de Grandpre, an industry analyst at Dealnews.com told the Times.

That pattern can be found in both the electronics stores and computer departments. For Black Friday, look for sales on the low-end laptops or televisions -- not so much for the stuff at the top of the line-up.

From an economic angle, The Wall Street Journal pointed out consumers are spending more, as a percentage of their discretionary spending, on goods than they are on services in comparison to recoveries from previous recessions.

That means consumers are spending on cars but cutting back on car repairs. They are traveling less, going out to dinner less and spending less at the hair salon.

The service sector, of course, is critical for jobs. Restaurants, hair salons and even repair shops are labor intensive.

Consumers have cut back on car repairs by 14 percent since the recession began, a figure that could be skewed by the 2009 Car Allowance Rebate System program or Cash for Clunkers, in which the government shelled out $3 billion to replace gas guzzlers with newer cars. This Thanksgiving, airlines are experiencing a 12 percent reduction in passengers compared to Thanksgiving in 2006, the Journal said.

"Services account for about half of GDP, and over half of jobs. Particularly discretionary services … people have been putting off getting their cars repaired because of concerns about jobs and income growth," said Alan Krueger, chairman of the White House Council of Economic Advisers.

In international markets Friday, the Nikkei 225 index in Japan was flat, off less than 0.1 percent while the Shanghai composite index lose 0.72 percent. The Hang Seng index in Hong Kong dropped 1.37 percent while the Sensex in India fell 1.03 percent.



Source: Copyright United Press International 2011


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