NEW YORK — Christmas is not what it used to be.
The rising popularity of gift cards, planned promotions by retailers and a change in the buying habits of consumers are changing the traditional holiday shopping season, which is getting stretched, tweaked and clipped, all at once.
According to government data, sales for the November-December shopping period as a percentage of annual volume have dropped almost 3 percentage points in just over 20 years, a noteworthy figure considering the hundreds of billions of dollars typically spent during this season.
But even though shoppers are spending less, the holiday fourth quarter is still undoubtedly the most important sales period for retailers, some of whom depend on it for more than 50 percent of total operating profits.
The reasons the sales period has lost importance, however, vary. The holiday shopping season begins as early as October and lasts until as late as February, consumers’ gift choices have evolved and gift card sales have become increasingly important.
Nonauto and food sales in November and December as a share of annual sales began declining in 1995. November-December GAFO sales (sales at general merchandise, clothing and accessories, furniture, electronics and appliances, sporting goods and office supplies stores) dropped to 22.6 percent of annual sales in 2004, compared with 24 percent in 1995, U.S. Census Bureau data shows. That two-month share was just under 25.5 percent in both 1988 and 1983. Breaking out clothing and accessories sales, the percent of yearly sales garnered in November-December 2004 dropped to 24 percent versus 25.1 percent in 1994.
“The holiday season has lost importance in terms of the sales dollars,” said Mike Niemira, chief economist and director of research at the International Council of Shopping Centers. But Niemira said it’s important to note “the caveat is that over an extended period of time, the whole pricing environment has changed.”
Wal-Mart, for example, had its first Christmas floor set the first week of November, Bed Bath & Beyond set its holiday assortment in mid-October and Old Navy launched its first holiday TV ad campaign on Nov. 3. So it’s not altogether surprising that retailers aren’t seeing huge spending upswings in December, as in years past. Spending is now more spread out.
Historically, retailers wouldn’t have thought of starting their holiday marketing campaigns prior to the day after Thanksgiving, or “Black Friday.” But to get a leg up on the competition and spur holiday-related sales via promotions, retailers have shifted the timing of their first holiday assortments. Niemira said during the Eighties, for example, shoppers weren’t going to get a bargain until the post-Christmas sales when retailers were eager to clear out leftover inventory.
Yet, despite the earlier merchandise sets and ad campaigns, 72 percent of consumers surveyed during an online poll said they planned to start their holiday shopping after Thanksgiving. And 68 percent of the 119 consumers polled by consultancy Capgemini exclusively for WWD said the holidays have not declined in importance to them in terms of how much they’re willing to spend on gifts.
Economists and analysts expect holiday sales to rise anywhere from 4 to 6 percent over last year. Analysts from investment brokerage Merrill Lynch have forecast real general merchandise sales during Christmas to rise 5.8 percent, which would be the fourth-lowest increase in the past decade. The results would also come in below the five-year average of 6.3 percent and the 10-year average of 6.2 percent, the analysts said.
Another factor affecting sales is the types of presents consumers are buying. “I think it’s sort of just getting tired with the same old physical goods and the same kinds of offerings,” said Annette McEvoy, president of retail consultant A. McEvoy & Associates. “I think we do see a big trend in the Baby Boom population, which drives the economy. They really are into services for themselves. They’re far less into products and things — they’re a bit disillusioned. They’re thinking of pleasing themselves and how it extends to others.”
McEvoy cited U.S. Labor Bureau of Statistics data that shows the value of education, health and money gifts outweighed gifts of apparel, home goods and jewelry in 2003, the latest annual data available.
Pat Conroy, vice chairman and national managing principal for Deloitte & Touche USA’s consumer business industry practice, said consumers are expected to spend big on charitable donations this holiday season. Data from Deloitte’s recent survey of over 17,000 consumers shows that charitable donations ranked fourth in spending categories.
Conroy explained in an interview that many survey respondents “said there is no such thing as a ‘must have’ gift” this year. He said consumers are realizing that “people should appreciate what they have” and, consequently, “struck a chord in terms of all the charitable gifting.”
Niemira said, “The question that’s interesting is if the holiday season is less important, then what’s more important?” The answer could be that post-Christmas spending is what consumers now save their energy for.
“January is not really a throw-away month anymore. It’s more meaningful because people spend gift cards,” said Howard Tubin, senior analyst at Cathay Financial.
Pent-up spending might reach to February, as consumers save up for more expensive (and likely heavily discounted) high-definition TVs to watch the Super Bowl, Niemira predicted.
According to the Deloitte survey, gift cards were the number-one gift purchase among those surveyed, while gifts of apparel came in second, though down slightly from the prior year. In total, Deloitte expects nonauto holiday sales to increase 6 to 6.5 percent from November to January, down from last year’s 8.6 percent increase.
Although January is being painted as a potentially big sales month for retailers, thanks in part to gift card redemptions, GAFO sales from recent years show otherwise. From November through January — the months that make up the fourth quarter for most retailers — GAFO sales as a percent of annual sales fell to 30.6 percent in 1995 from 31.1 percent in 1994. By 2004, the share of annual sales had fallen to 29.7 percent. In 1983, by comparison, the three-month share of annual sales was 32.1 percent.
As retailers begin to realize that spending during the crucial holiday season has changed, their reactions need to improve, especially in inventory management, both Niemira and Conroy stressed. Retailers likely need less inventory than they think during the holidays. In addition, it would be beneficial, Niemira said, for retailers to better integrate online offerings with what’s available in local stores.
“You have to help the consumer on the time element for shopping and not think about [online shopping] necessarily as competition for in-store sales, but as a supporting factor,” Niemira said.
Conroy said because gift cards have become so important, retailers need to find a better way to take advantage of that demand — and make consumers feel compelled to use gift cards.
“They might have incentives to get people to use the gift cards early,” Conroy said, such as an additional discount or a coupon. “You need to put the deal on the table because we are a deal-addicted culture.”