We've all been inundated with media reports about the current (sad) state of the economy. One that stood out in particular for me was the report that said people were out in malls, but not really buying much in the stores. It then went on to say that people were spending more online. The conclusion drawn was that consumers were not spending by choice. I however, had a very different experience.
Due to a lack of planning on my part, I joined the crowds just before Christmas. I had to buy two fairly common items – a pair of boots and a pair of slippers, which I decided to buy at the retail store so I wouldn't have to wait for shipping. Silly me. Neither item was in stock. The sales person told me that he would help me to order them online. He then went on to tell me that he felt badly because they were actually out of stock on most of the commonly purchased items. When I looked around, most of the sales people were actually just helping people to place online orders. At the end of the day, I found some great boots at an independent retailer, who actually had products in stock and could sell them to me. I decided to order the slippers online and wait for the shipping.
I also noticed that Amazon had sold out of the Kindle. Hmmm… More people wanting to buy things that are not available, and yet we are told that the consumer is not spending by choice. My observations are pointing to a very different conclusion. The consumer is not spending because there are fewer things available for them to buy.
I know that companies are trying their best to avoid a glut of inventory. I know that everyone is carefully considering their purchases, and companies are carefully considering how they run their businesses. But I worry that too many business decisions are being made out of the fear of what might happen, rather than the reality of what is happening. Economics is certainly a field where self-fulfilling prophecies are the rule more then the exception. We modify our behavior based on what we think will happen. No matter how prudent it seems to reduce inventory levels, companies cannot post sales on products that are not offered for sale.
The current weak economy will pass. The timing will depend on when we can shake our fears and create the economy everyone is waiting for.
I had the same experience buying boots for my kids at a sporting goods store. Of the 15 boots they had on display, they only had 2 in stock.
An element that compounds the problem is many retailers have had less access to credit in order to finance inventory due to the shut down in the commercial paper market and banks being tighter regarding lines of credit.
Having said that, consumers as a whole can no longer continue to live on borrowed funds with aggregate negative savings rates (i.e. spending more than they make, piling on debt). Savings rates were positive in November for the first time in months. The net result of more saving, is less spending which means there will be many marginal stores and chains closing or filing for bankruptcy.
You’re right JD. Thanks for keeping me honest on the credit issue.
As someone who focuses on the consumer’s experience I get a bit tweaked when I see consumer behavior attributed to the consumer’s choice without accounting for their circumstance.