Are Retailers Too Optimistic About Mother's Day Sales Potential?

Implications: The NRF's Mother's Day survey seems to overstate Mother's Day sales potential.  Here's a contrarian's point of view.

Analysis: According to the National Retail Federation, consumer spending on Mother’s Day gifts will decrease by about 0.3% (three tens of one percent) this year. That number smacks of extraordinary optimism in the face of current retailing sales trend.  

Most retailers have reported declining sales this spring.  For instance, March comparable stores sales declined between (2.3%) and (22%) for Saks, Target, Nordstrom, J.C. Penney, Gap, and Limited Brands.  Wal-Mart’s store for store sales only increased by 0.7% in March and that was with the benefit of Easter sales.  

The NRF may expect that rebate checks will push Mother’s Day gift buying higher.  Expected to hit bank accounts as early as May 2nd, early estimates were that about 25% of the rebate would be used for discretionary items.  The remainder would be used to pay down debt and fund high living expenses.  But their estimates may be wrong now.   

Economists estimated higher gasoline prices would cost consumers an additional $400 per year in January 2008.  Then gasoline averaged about $3.00/gallon and diesel fuel was $3.31.  Since then average prices for gasoline and diesel fuel have increased by 13% and 22% respectively.  With crude oil peaking at $120 per barrel, average gasoline prices are heading for $4.00 per gallon this summer.  That would be a 35% increase since last July. 

If that occurs, incremental gasoline costs could more than double.  That would further reduce what little is left of middle America’s discretionary income as they use it and more of the rebate to pay for driving costs, food, healthcare, and the cost of shelter.  

Surprisingly, NRF also predicts that more customers will buy jewelry this year for Mother’s Day gifts.  According to their numbers, jewelry sales will increase to $ 2.7 billion this Mothers Day.  That’s a 28.6% increase over last year.  The logic is that fewer customers will buy even fewer more expensive gifts  this year.  Their research may be correct.  But current trends are to the contrary.  Signet Group PLC said first quarter comparable store sales were down about 4% when it recently announced its year end sales results.   

Jewelry sales may also benefit from the unusual amount of clearance product in the market place this year.  Friedman Jewelers is liquidating over $400 million of retail inventory.  Zale has announced it's clearing about $200 million at retail and Finlay needs to sell about $150 million in goods to recover from the loss of about 144 jewelry departments form Macys and Lord & Taylor. 

However, while consumers may benefit from the up to 70% off sales, it will take a lot of incremental purchases to offset the decreased selling prices in the market place.  Units would have to increase significantly to achieve NRF's sales numbers, not to mention the increase in unit sales necessary to match off last years profitability.  

While the NRF survey may be correct, the projections seem to defy current trends.  That’s true about a lot of numbers floating around the media today.  No one likes a pessimist. But denial assn’t a very good way to plan a business either.  We are in a recession, at least as far as the consumer is concerned and it’s only getting worse.  Property values continue to fall. Inflation is heading toward high single digits, even by the government’s metrics.  Job growth has turned negative, as has average income growth if population expansion and inflation are factored into the numbers.   

Granted the stock market has shown some rebound, but that has more to do with global investors holding hundreds of billions of US dollars than material improvements in the US economy.  For 2008, consumers won’t be leading any economic expansion and it remains to be seen just what will change over the next 18 months to reignite growth.