Christmas Crunch?

Growing up in a family that owned more than six small businesses, gearing up for the holiday rush was almost as anticipated as the first snowfall – sadly, sometimes more. That’s because during that time, a clear case between profit and loss for the year was established.

Like many businesses, it also meant we either stayed open another year, or we didn’t.

Fast-forward to 2009. We’re in the midst of one of the largest recessions North America has seen since 1929. According to Statistics Canada, in 2007 Canadians spent about a billion dollars more in the retail sector during the holiday months of October to January than in 2008. US figures are similar.

Experts agree the global financial meltdown has trickled down to consumers; the impact on consumer demand is palpable. However, though it appears people are still spending money – does that mean that the economy is actually rolling?

According to Dr. Lindsay Meredith, a marketing professor at Simon Fraser University, money spent during the holidays can influence the economy:

“The holiday shopping season is vital for the retail sector,” says Meredith, but as he points out, what may be more interesting to measure are what products people are purchasing – and how – during this time.

“Certain sectors are expected to suffer this year into 2010,” says Meredith.

“Mainly, the large ticket items will take the hit: televisions, home entertainment, furniture products; those kinds of things…deemed a ‘luxury’ product.”

“Numbers are not what they were,” says Erick Stockner, director of home theatre merchandising for consumer electronics giant Future Shop.

“We’re certainly down from last year, but we budgeted that and we still expect to have a strong holiday season.”

Not only that, but Future Shop says they’re going through a hiring blitz for the holidays,  adding 5,000 seasonal associates by November 1.

Continue to Part Two

Christmas Crunch? continued

However optimistic figures look for Future Shop, the overall economic forecast is still questionable. In the U.S., the unemployment rate it has been estimated between 15 and 19 per cent. A recent study found that 59 per cent of Canadian consumers are living paycheck to paycheck. Analysts predict that consumers in the near term will focus spending on necessities.  Where “extras” are concerned, purchases will be limited.

“If it’s an essential thing, you are going to go out and buy it regardless of the cost,” says Dr. Daniel Gardiner with the University of British Columbia’s (UBC) Sauder School of Business, “but product category has to be considered.”

That can have a negative impact on the overall economy, says Meredith:

“Through general frugality, consumers hurt small business when they don’t buy restaurant meals or cut back on other services and products.”

“They also hurt big companies when they don’t buy cars or appliances. The trickle down comes when everybody lays off workers because there is no demand,” adds Meredith.

Someone who considers product category is Sarah Duvall Hannay, working mother of a toddler and self-confessed penny-pincher:
“You bet the recession has changed things for us,” says Hannay.

“I’ve turned from a funky, boutique-shopping mom into someone who buys things en mass when they’re on sale. I used to keep all the clothes my son grew out of, but I now take (them) to a consignment store to get some cash back.”

Hannay is not an exception. Experts agree the economic downturn has a strong negative impact on single parents.  This is because single mothers –despite making economic gains– will still fall lower on the income scale, making them vulnerable to economic downturns.

So, will we see more Scrooges during the holidays than Santas? According to many North American surveys, it’s a wait-and-see game. Canadians are said to be taking a cautious approach in their spending habits, despite increasing signs of an economic re-bound. In the U.S., economists expect another 180,000 jobs lost in September, pushing the unemployment rate from 9.7 per cent to 9.8 per cent.

Meredith agrees that U.S. retailers will probably not have a Merry Christmas:

“Consumers are defaulting on their credit card payments, and the banks are writing off these bad debts – there will be a kink in retails spending.”

RBC Economics reports that the stabilization of retail sales is a clear indicator of increasing consumer confidence. That confidence is key to keeping the economic ball rolling, while it makes its gains towards recovery.

“If you can get people to feel good,” says UBC’s Dr. JoAndrea Hoegg, “then spending is going to go up, people will enjoy themselves at Christmas and spend more money over the holidays.”