Holiday Retail Redux

The consumer is dead! Long live the consumer!

This has been a schizophrenic Christmas shopping season. The fall brought disappointing forecasts from outfits like the National Retail Federation, which predicted that sales would rise—but at the slowest rate since 2002. And it made sense. There was ample evidence, from declining auto sales to slowing traffic at Starbucks, that American consumers—beset by a poor housing market, rising inflation and stagnant wages—had finally hit a wall.

Of course, economic actions have a way of defying forecasts. And when it comes time to shop for Christmas presents, Americans have a way of rising to the occasion. By all accounts Thanksgiving Weekend was a blowout for many retailers, as shoppers stormed the gates of Wal-Mart the way French protesters stormed the Bastille in 1789. As they do every year, retailers came up with gimmicks to attract shoppers. This year one of the new wrinkles was competing to see who could open earlier. In 2007, as this list of post-Thanksgiving store openings in St. Louis shows, 5 a.m. became the new 9 a.m. And it seemed to work. ShopperTrak reported that sales on Black Friday, the official start of the Christmas shopping season, soared 8.3 percent from 2006.

The momentum continued with Cyber Monday, the official start of the online Christmas shopping season. Office workers deployed their fast workplace Internet connections to great effect. Comscore reported that online sales on the first Monday after Thanksgiving rose 21 percent from 2006. The emerging conventional wisdom: Christmas 2007 rocks!

But the flurry of activity around Thanksgiving was dampened by real flurries. Early winter snowstorms across the country made it difficult for shoppers to reach the malls. And with analysts shut inside, they had more opportunity to pore over disappointing earnings reports from retailers and Wall Street. ShopperTrak, which had clocked excellent traffic on Black Friday, reported that in the week after Thanksgiving sales at the retail outlets it tracked were down 4.4 percent from the same week in 2006. The emerging conventional wisdom: Christmas 2007 might not rock.

And so it went as December wore on. Readers of the Wall Street Journal's excellent Holiday Sales blog ($ required) could easily feel as if they were on a cyber roller coaster, lurching from good news to bad news. With a week to go, as the season hurtles to its close, the contradictory evidence is on full display. At the beginning of this week Best Buy reported an excellent third quarter, which might lead reasonable people to assume the crucial consumer electronics sector is in fine health. Today Circuit City reported a horrible third quarter, which might lead reasonable people to assume the crucial consumer electronics sector is in trouble. This morning the Commerce Department released data indicating that personal expenditures rose an impressive 1.1 percent in November (translation: the consumer is alive!). And yet, notes economist Bernard Baumohl, the same report showed that personal income rose just .4 percent. "What is particularly worrisome is that in order to finance all this consumption, households are increasingly being forced to sell off their investments in stocks and Treasury securities," he said. Baumohl's conclusion: November may well be the last hurrah for consumers before they begin a period of hibernation in 2008.

I'm inclined to side with the optimists this year, in part because of continuing evidence of a long-term secular shift in consuming habits. Yes, a good deal of the data flow from shopping malls and big box retailers has been negative this Christmas shopping season. But it may be that, broadly speaking, bricks-and-mortar sales are losing market share to online retailers. Comscore reported on Monday that online spending from Nov. 1 through Dec. 18 was up 19 percent from the comparable period in 2006. And sales seemed to rise as the shipping deadlines neared. Online sales last Monday and Tuesday were up 33 percent and 25 percent, respectively, from 2006. Federal Express, which delivers a big chunk of online purchases, delivered a record 11.4 million items on Monday. In fact, there's a degree to which e-commerce may provide the same kind of boost to Christmas shopping that exports have to the American economy. In both spheres, as spending activity by the constituency that historically provided the lion's share of business (the mall-based shopper for retail, the consumer for the U.S. economy at large) has decreased, spending in emerging markets (online shopping for retail, exports for the U.S. economy at large) is booming. And just as rising exports might help compensate for sagging domestic demand, soaring sales at may make up for lagging sales at Barnes & Noble and Toys "R" Us.

I'll close this column—and this year—with one last cause for optimism. Procrastinators are still legion. And (I speak from experience here) they tend to make up for being late by making larger purchases. As the National Retail Federation noted on Tuesday, one in five men had not started shopping for Christmas.