Not So Good

It's probably no surprise to Financial Armageddon readers that many media outlets are trumpeting this weekend's jump in retail sales, with some even suggesting (praying?) that it means consumers are finally emerging from their recessionary funk:

"Retail Sales Break Records, Cyber Monday Up Next" (USA Today)

Buyers are expected to log in for online sales on Cyber Monday.

Retail sales broke records during Thanksgiving weekend, hitting an estimated $52 billion in stores and online and more records the National Retail Federation said Sunday.

This year's sales are up from $45 billion last year. A record 226 million shoppers visited stores and websites over Black Friday weekend, up from 212 million last year. The average holiday shopper spent about $400 this weekend, up from $365 last year.

Big Black Friday weekends aren't always a sign of consumers' confidence in the economy: The previous top weekend was in the depths of the recession in 2008. But this year's holiday shopping was more of a splurge than a scrounge for cheap necessities.

But as is usual nowadays, there's less there than meets the eye.

Among other things, there are a multitude of costly factors that helped bring about this "splurge," including:

Steep discounting

"Black Friday Deals Lure 'Extreme Couponing' Consumers: Retail" (Bloomberg)

Emily Findley, 12 weeks pregnant, set up camp outside a Best Buy Co. location in Greensboro, North Carolina -- 32 hours before the store was scheduled to open at midnight on Black Friday.

Sleeping on a makeshift bed of blankets on the sidewalk under the yellow Best Buy sign, the 24-year-old teacher and her husband Charles were determined to get their hands on a 42-inch, flat-panel Sharp Corp. television for $199.99, a savings of about $300, she estimated.

"I compare this to extreme couponing," said Findley, who plans to spend about $500 on holiday gifts this year, up $200 from 2010. "It's worth it. I want to save money."

From Mall of America in Bloomington, Minnesota, to The Galleria in Houston, retailers unleashed a blizzard of deals as Black Friday -- the biggest shopping day of the year -- got off to its earliest start ever. The discounting has been more widespread than last year as retailers tried to woo shoppers spooked by global economic uncertainty and stagnant job growth.

Earlier sale times, longer store hours

"Black Friday Draws Younger Shoppers" (Bloomberg)

Retailers may have lured more shoppers on Black Friday as an earlier start to their bargain bonanzas drew younger consumers.

Toys “R” Us Inc. opened at 9 p.m. on Thanksgiving, an hour earlier than last year. Wal-Mart Stores Inc. (WMT) started offering its deals one hour later, followed by midnight openings at Macy’s Inc. (M), Best Buy Co. and Target Corp. (TGT) that drew young consumers to the biggest retail day of the year for the first time.

“It was definitely a younger customer, under 20 for the most part, and they were shopping in groups of friends, four and five at a time,” Macy’s Chief Executive Officer Terry Lundgren said yesterday of the crowd of 10,000 that waited at the chain’s flagship store in Manhattan. “It was almost a continuation of whatever social experience they were having hours before.”

Easier credit terms

"Retailers Try to Lure Shoppers with Layaways" (CBS News)

CBS News correspondent Tony Guida reports that shoppers say they worried about over-extending themselves in these tough times, but retailers are ready for them with an old favorite.

The layaway is back.

Born in the Great Depression when people had little spending money and no credit, layaway is tonic for today's great recession.

Retailers, fearing empty aisles, are turning to an old gimmick to rev up holiday sales.

"It shows that retailers are desperate to get people to spend money when they don't have much money," says Jack Otter, executive editor of CBS Moneywatch.

The Myles family, for instance, is buying bikes for the kids on layaway at a New Jersey Toys-r-us, saying they're doing so because layaways let you "not overextending yourself."

Walmart - the nation's largest retailer - revived layaway for electronics and toys a month ago. It's been a big hit.

"We're getting new customers. We're getting great layaway purchases," says Laura Phillips, senior vice president for Toys and Seasonal Merchandising at Walmart.

Free shipping

"Free Shipping Erodes US Retailers’ Profits" (Financial Times)

Free shipping for online purchases is eroding the profitability of US retailers as they are compelled to offer the service – pioneered by Amazon – by fierce competition for the dollars of seasonal shoppers.

With end-of-year sales starting after Thanksgiving this week, on the day known as Black Friday, retailers including Walmart, Target, JC Penney and Macy’s have already reported reduced profit margins after introducing free shipping.

The proliferation of free shipping, albeit with restrictions, is a sign of retailers’ anxious attempts to woo consumers on tight budgets who have been hit hard by the weak US economy.

It also reflects the ability of Amazon – the dominant online-only retailer – to set a bar for price and other services that squeezes bricks-and-mortar rivals trying to capture a share of growing online sales. Wall Street expects their margins to shrink further before Christmas.

“The cost of getting the customers’ attention is going up, whether it’s because of free shipping, marketing or promotions,” said Adrianne Shapira, managing director at Goldman Sachs.

Increased advertising and marketing spending

"Holiday Outlook: A Boost In Ad Spending" (Media Life Magazine)

Strong retail spending will lift the ad economy

After a big slowdown in ad spending during second quarter of this year, it looks as though the media economy will be getting a retail-fueled bump to finish out the year.

Several ad categories stand to gain from what's expected to be a good, though not great, holiday spending season.

Those categories include spot television, which lagged during the first half of the year following a decline in automotive spending, as well as spot radio and internet, which has been strong all year long.

"I'd definitely say holiday spending is up," says Scott Kushner, vice president and associate media director for local broadcast and network radio at RJ Palmer in New York.

"I think it will be stronger than last year."

Adding extra services

"Retailers Pulling Out the Stops For Holiday Season" (Gazette.Net)

More midlevel department stores, which have lost customers to discount retailers, are offering personal shoppers to attract consumers who have used the service at upscale stores, Hamilton said.

“Advertising these services also makes these stores, like Macy’s and J.C. Penney, seem upscale,” she said. “Like expanded store hours, this additional service is made possible by the high number of job seekers. Plus, personal shoppers may work mainly on commission, meaning that their cost to the stores is relatively low.”

Pressures on household budgets

"For Black Friday First-Timers, Not a Night of Conversion" (New York Times)

Some first-time Black Friday shoppers said the tough economy had made getting deals a necessary part of buying Christmas gifts and for everyday staples.

In Dawsonville, Ga., Meredith Blinder, 23, a photographer, met her sister, Elizabeth McDermott, 21, and a cousin at an outlet mall. All first-time Black Friday shoppers, the women said they wanted to watch the frenzy, and liked the late-night opening time.

Ms. Blinder, who recently got married, said she and her husband cut coupons and used generic goods instead of name-brand items. She said the deals she got at the mall, like 40 percent off on a sweater and scarf from Ann Taylor Loft, helped her budget, too.

“If you’re saving money on shopping, you can reallocate that to other things,” she said.

At the Times Square Toys “R” Us just after 10 p.m. on Thursday, Yasmin Santiago and Dexter Valles were trying to fit several boxes of diapers into a small hand cart. The couple, parents of twins, said the special on diapers was worth the late-night trip, since Ms. Santiago was on leave from her job as an assistant teacher.

“We have twice the children, and half the income,” Mr. Valles said.

The truth is, while revenues may have seen an uptick that makes for breathless headlines, odds are that profits will have suffered equally as dramatically over the past few days as retailers pulled out all stops and competed head-to-head for cherry-picking and cash-constrained customers who are still in no position to spend like they once did.

I would also point out an ironic twist to this weekend's "positive" turn-of-events. As ShopperTrak founder Bill Martin notes in "Black Friday Sales Rise 6.6% to Record: ShopperTrak," the end-of-the-week increase was" the largest year-over-year gain in [that firm's] National Retail Sales Estimate for Black Friday since the 8.3 percent increase we saw between 2007 and 2006." For those with short memories, that weekend arrived just before the economy and just after stocks began to careen into a dark abyss.

Déjà vu all over again?

Comments

[Rick]

An Austrian view: Money-pumping is making its way through the economy and inflation is back --making things look like a recovery at first. But it's more like an inflationary depression in the works...

[Tom]

People are being bilked into spending money they don't have on crap they don't need and will be sorry after New Year, when all that junk will be even cheaper.

[Tom]

sorry for the dbl but i forgot to include this:

http://www.ritholtz.com/blog/2011/11/no-black-friday-sales-were-not-up-16-not-even-6/

[RPY]

"I compare this to extreme couponing," said Findley, who plans to spend about $500 on holiday gifts this year, up $200 from 2010. "It's worth it. I want to save money."Sleeping on a makeshift bed of blankets on the sidewalk under the yellow Best Buy sign, the 24-year-old teacher and her husband Charles were determined to get their hands on a 42-inch, flat-panel Sharp Corp. television for $199.99, a savings of about $300, she estimated.

"It's worth it. I want to save money."
____________________________________________________

If they really needed to save money, they wouldn't be buying something they don't need in the first place,like 42-inch, flat-panel television.

They can't be suffering to much!
____________________________________________________

"What remains of democracy is largely the right to choose among commodities. Business leaders have long explained the need to impose on the population a 'philosophy of futility' and 'lack of purpose in life' to 'concentrate human attention on the more superficial things that comprise much of fashionable consumption'. Deluged by such propaganda
from infancy, people may then accept their meaningless and subordinate lives and forget ridiculous ideas about managing their own affairs. They abandon their fate to corporate managers and the PR industry, and,
in the political realm, to the self described 'intelligent minorities' who administer power."
All that is left of America is banality and self-delusion."- Noam Chomsky

[The Fed had their own sale...friends & family only, of course]

Secret Fed Loans Gave Banks Undisclosed $13B

Standing Access

Even without tapping the Fed, the banks get a subsidy by having standing access to the central bank’s money, says Viral Acharya, a New York University economics professor who has worked as an academic adviser to the New York Fed.

“Banks don’t give lines of credit to corporations for free,” he says. “Why should all these government guarantees and liquidity facilities be for free?”

In the September 2008 meeting at which Paulson and Bernanke briefed lawmakers on the need for TARP, Bernanke said that if nothing was done, “unemployment would rise -- to 8 or 9 percent from the prevailing 6.1 percent,” Paulson wrote in “On the Brink” (Business Plus, 2010).

http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income.html

[John G.]

Very nice comparison, Michael, to Christmas 2007!

As Rick points out, the money-pumping may enliven our Frankenstein economy a bit, but we will then have an inflationary mess on our hands, which will kill whatever profit margins that remain, causing the inevitable contraction/depression.

[My lawyer friends say its been a banner year]

MF Global looting can continue! Missing funds and fees likely to go higher: Guest Post by MFGFacts.com

An abuse of a Federal Bankruptcy court?

This discussion of the paved potential for abuse and more looting, does not even consider that is is not at all remotely in the Trustee’s interest to rapidly return customer (non-creditors) assets and liquidate MFGI. All confusion, all delays, the bigger the mess and less efficient, the more a Bankruptcy Trustee and supporting Bankruptcy industry will earn from the estate of MFGI. Now estimated to be well over $100 million or more per year! Added to this, and in spite of most recent announcements, few US customers will see a 60% recovery going into December. The requirements for a 60% recovery are so rigid; we are now finding out, few can qualify according to the Trustee rules. Who knows what additional hurdles for recovery are going to be created in the hunt for fees?

To reiterate English’s call, it is now imperative that Judge Glenn immediately demand disclosure of all trading and intercompany transfers. Without urgent action to secure these records, protection of customers is impossible, and the integrity of the Court forever in peril.

http://www.zerohedge.com/contributed/mf-global-looting-can-continue-missing-funds-and-fees-likely-go-higher-guest-post-mfgfac?

[roger]

Competition is at a fever pitch, big box
management should be fined for inciting riots
and disturbing the peace, consumers relentless
search for the cheapest bargains are destroying
their future chances for employment. A Nation who
gives up it's pride, it's self respect and ethics
in order to acquire cheap garbage is a Nation in
decay. The best shopping holiday ever ? more like
the last hurrah's.

[Propaganda works on weak minds]

No, Black Friday Sales Were Not Up 16% (not even 6%)

No, retail sales did not climb 16%. Surveys where people forecast their own future spending are, as we have seen repeatedly in the past, pretty much worthless.

We actually have no idea just yet as to whether, and exactly how much, sales climbed. The data simply is not in yet. The most you can accurately say is according to some foot traffic measurements, more people appeared to be in stores on Black Friday 2011 than in 2010.

Another absurd example: Does any one actually believe “nearly one-quarter (24.4%) of Black Friday shoppers were at the stores by midnight on Black Friday”? Perhaps the NRF competing with the NAR for title of most ridiculous trade group.

http://www.ritholtz.com/blog/2011/11/no-black-friday-sales-were-not-up-16-not-even-6/

[sharonsj]

Here's how I spent Black Friday: After not getting up early, I went to the local Salvation Army thrift shop, which was having a special half-off everything except furniture sale. There I spent $20 buying 10 long-sleeved tops to get me through the winter. The place was packed all day long and plenty of people had overflowing shopping carts.

However, if I was 30 years younger, I'd stand on line to get a TV for $199. My 7-yr-old set is dying and scraping up $350 won't be easy.

[robert in london]

I wonder how much of this manic behavior is driven by reselling? Be interesting to see any correlation with increased activity on the buy and sell sites.

[Lord Essex]

This crisis is all about debt and the numbers are frightening. The situation was summed up neatly in this IMF youtube video. Ignore the book spin, focus on the numbers:

http://youtu.be/j9lJbDjxDqM

[Air Jordan 7]

youtube video. Ignore the book spin, focus on the numbers: