It's hard to miss today's lead story posted by just about every major media outlet in the country: Economy Contracts 6.3%, Worst Dip Since '82.
Retailers are feeling the worst of it as consumer spending, which accounts for more than two-thirds of domestic economic activity, fell 4.3% in the fourth quarter. As the Chicago Tribune reports, the losing streak continues: "And the pain has persisted in the current quarter. New claims for unemployment benefits last week rose to a seasonally adjusted 652,000 from the previous week's revised figure of 644,000, the Labor Department said Thursday. The total number of people claiming benefits jumped to 5.56 million, higher than economists' projections of 5.48 million, and a ninth straight record-high."
These bleak economic stats make the latest retail report from Nielsen all the more puzzling. "All was Not Gloom and Doom," the market research firm states, reporting that '08 holiday sales actually increased by nearly 6%. Huh?
"The early predictions were gloomy: The recession gripping the U.S. would make for a dismal holiday shopping season for retailers," Nielsen wrote. "And while many retailers certainly felt the effects of the economic downturn, holiday dollar sales in 2008 actually increased 5.8 percent, or $99.5 billion, across grocery and drug stores, mass merchandisers and convenience stores."
And, as the firm reports, there was a little secret sauce for retailers that made the '08 holiday season a surprising success: "All in all, marketers who remained sensitive to consumer sentiment, delivering either a substantive value or comprehensive experience, fared well during the holidays. Consumers were willing to spend money in categories that delivered on the product promise, satisfying a deep-seated consumer need or want at a fair market price. Moving forward into 2009, this is a lesson well-learned to remain competitive as the economy continues its downward spiral."
In its full report, Nielsen outlines the categories that drove the highest sales spikes. Musical instruments and accessories topped the list with more than half (52%) of the purchases for the year made in the eight weeks ending December 2008: women’s and children’s fragrances, baking supplies/ingredients, and computer electronics products were also perennial holiday favorites.
The growing desire for computer electronics products is still giving some retailers a much needed boost. As Reuters reports, Best Buy managed to beat analyst projections in the fourth quarter. The retailer's quarterly revenue rose 10 percent to $14.7 billion, helped by the opening of new stores and the inclusion of its European operations. Sales at stores open at least 14 months, or same-store sales, fell 4.9 percent.
And the good times keep on a rollin' at video game king GameStop, as its quarterly revenue jumped nearly 22%, also beating analyst projections.
"Based on our expectations of continued proliferation of the hardware installed base, the upcoming new title slate, increasing consumer enthusiasm for our trade-in model, and further expansion of video games as primary, mainstream entertainment, GameStop expects 2009 to be another record year," the company said.
Beyond the retailers catering to budget conscious consumers or those turning to electronics and games for entertainment, the wheels are falling off. The LA Times chronicles the misfortune of sporting goods retailer Sports Chalet in this thorough piece, and CNN Money details how two recently laid off retail execs are trying to land on their feet, with mixed results.
But according to Stevan Buxbaum, retail analyst with consulting firm Buxbaum Group, there is likely to be a phoenix that rises from retail's ashes.
"Many retailers are going out of business because the concept doesn't work anymore or because of financial problems. It's not because people working for them were incompetent," Buxbaum told CNN. "Retailing is like a disease. Either you have it in your blood or you don't. Many people will lose their jobs and go elsewhere, but many others will find a way to create a new business or become entrepreneurs. This is the history of retailing. From the ashes a phoenix will rise. This is how two guys years ago created a company called Home Depot."
Michael Sharkey is the Editor-in-Chief of Retail Merchandiser.
