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Retailers’ Perceptions of the 2005 Holiday Season and Expectations for 2006 Monday, December 04, 2006 By Jeremy Hill Retailers in Georgia's Coastal Empire and South Carolina's Lowcountry claim last year's holiday sales were good, but this year's sales will be even better, according to a recent survey by Georgia Southern University's College of Business Administration (COBA). This article is the second of a two-part series by COBA's Bureau of Business Research and Economic Development (BBRED) looking at holiday expectations for the retail sector. The first, a survey of consumer confidence, appeared in the Nov. 27 issue of The Business Report & Journal and showed residents in the area expecting to spend the same amount as last year, even though they are financially better off and perceive the economy to be doing better this year. The question being raised here is, "Are retailers in the Coastal Empire and Lowcountry overly optimistic of the holiday season, or are the consumers 'sandbagging' when they say they expect to spend the same?" To better understand these expectations, we first take a closer look at their perception of the economy and their financial status going into the holiday season. Economy When businesses were asked about the current economy, 33 percent of the retailers thought the economy was better in 2006 than in 2005, a 5 percent increase in confidence over the 2005 survey response. Although an increase, the overall perception of the economy is still mixed, reflected by 26 percent thinking the economy is the same and 31 percent saying it is worse in 2006. The two sectors registering the highest perception of the economy were motor vehicle dealerships at 41 percent better and general retail stores (i.e., office supplies, florists and pet stores) at 38 percent better. Financial Status When businesses were asked about their companies' financial status, retailers were very positive, but not as positive as they were in the 2005 survey. Approximately 81 percent of the retailers said their companies were either the same or better in 2006, down 3 percent from the 2005 survey. The two sectors with the strongest performance were motor vehicle dealerships at 52 percent and building materials at 69 percent. The two sectors recording the hardest financial crunch were food and beverages and clothing stores, both stating 12 percent for the worse category. To further validate these reports, businesses were asked whether they hired additional full-time employees during 2006. In fact, 32 percent of the retailers added new full-time employees to their staffs, only a 5 percent decrease from the 2005 survey. The response suggests retailers in the coastal area have had a fairly strong year. Holiday Season When businesses were asked about perceptions for the 2006 holiday season, retailers gave, again, very positive feedback. Approximately 79 percent said holiday sales would be the same or better in 2006, a 6 percent increase from the 2005 survey response. When examined by sector, the three highest sectors reporting better sales expectations were home furnishings, building materials and clothing stores at 56, 50 and 48 percent, respectively. Analytical Perspective This survey now has three years of data on consumer and retail business expectations of the holiday season. In 2004 and 2005, retailers and consumers were in line in their expectations of the holiday season. This year, however, consumers are dogmatic about spending only slightly more than the previous year and, as reflected, retailers are quite optimistic about growth. The question raised here is not who is right, but who will win out as the season evolves. Two fundamental ways might give retailers the corner. First, perhaps they have a wonderful line of products that will entice consumers to rethink their holiday budgets and to spend a little extra. Some of those items might include new technologies like HD television, iPOD nano, Zune, Playstation 3 or Nintendo Wii. Second, consumers may have been a little over stingy in their expectations for spending in the holiday season. This is evidenced in their perception of the economy and their finances both doing better this year, but wanting to remain at the approximate 2005 spending levels. Since U.S. consumers are not generally good savers, retailers may be counting on them to spend that extra cash! On a cautionary note, consumers will only be able to increase spending if they have had a real increase in disposable income, the amount of income after taxes, unless they turn to financing, i.e., increasing credit card debt or refinancing the home mortgage. In the broader perspective, neither means of financing can be sustained for the longer run. Consumers in the United States are already at the highest levels of debt in history. According to recent data from the Board of Governors, Federal Reserve System, the household debt service ratio, the amount of debt payments excluding mortgages and automotive payments to disposable personal income, is now at 14.4. This means the average consumer spends 14.4 percent of his or her disposable income paying credit card debt. Just two years prior, this debt service ratio was 13.46 percent. Sales Outlook The survey also asks the retailers in the Coastal Empire and Lowcountry their expectations of sales for 2007. When asked if they expected sales to increase, decrease or stay about the same in the coming year, retailers responded rather positively. In fact, 60 percent indicated sales would increase ,and only 6 percent said sales would decrease. When assessing their confidence by sector, it is clear motor vehicle dealerships, building materials and clothing stores are more optimistic, with responses of 67, 69 and 64, respectively, for a better sales outlook in 2007. Another assessment of economic outlook for the retail sector is offered by gauging expected increases in employment. When companies were asked if they were expecting to hire additional full-time employees in 2007, the response was just as strong. About 38 percent of the retail sectors expected an increase in additional full-time employment, down only 4 percent from the 2005 survey. If you are interested in becoming a BBRED sponsor or want more information about the COBA Holiday Poll, then visit us at www.livingoak.org. About the 2006 Holiday Poll The author would like to acknowledge the assistance provided by Mike Thomas and his marketing research class: Holli Bailey, Carolyn Bone, Amanda Corbin, Tabitha Evans, Chris Finnegan, Christine Fogle, Erica German, Rachel Headlee, Crystal Hoke, Vivien Markle, Halee McLaughlin, Yastmin Newby, Chris O'Berry, Brandi Wilson and Alyson Wise |