June 19, 2008
Best Buy, Toys “R” Us Feeling Good About the Holidays
There’s plenty of gloom to go around these days. It’s for that reason that two separate reports coming out of the Reuters Consumer and Retail Summit are of interest because they suggest that for Best Buy and Toys "R" Us, at least, this year’s Christmas selling season should be a good one.
Michael Vitelli, executive vice president for customer operating groups at Best Buy, said the consumer electronics chain had been successful in recent months in capturing share of key categories including cell phones, computing and flat panel televisions.
For the holidays, Best Buy is looking to build on that performance by tracking and analyzing sales data to adjust its product mix and by offering “clear winners” such as video games and Blu-ray high-definition DVD formatted equipment and titles.
Best Buy also plans to tailor promotions to consumers through its Reward Zone customer loyalty program. Further, it has planned to test kiosks in some stores that would allow consumers to load music directly onto their MP3 players.
Jerry Storch, chief executive of Toys "R" Us, also spoke at the Reuters event. He said that he expected that consumers would still be willing to buy “cool” toys for their kids for the holidays.
“I certainly believe people won’t spend money the way they spent money in the past… for example, on the extravagances of life, on expensive vacations,” he said. “But toys as a whole, even expensive toys, aren’t very expensive.”
The retailer is pushing ahead with its strategy of converting existing stores to a format that places Toys "R" Us and Babies "R" Us side-by-side.
Discussion Questions: Do the expectations of Best Buy and Toys "R" Us for the holiday season suggest that it may turn out better than is commonly thought at present or are these retailers possible exceptions to the gloomy rule? What is there about one or both of the two chains that makes you expect that they will have a strong 2008?
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The holiday season, while looking bleak now is unlikely to be a washout. High oil/gasoline prices are changing the consumers buying patterns. This trend will continue through 2009. The expectations are much will change after the election. The uncertainty will go away. I predict holiday sales will exceed last year by 2.5% to 3.0%. In other words, sales will be decent, but nothing to write home about.
Internet and gift cards sales will continue to increase as a percentage of holiday sales. All retailers will not share the same this season. Basic apparel, children and home entrainment will lead the pack, but not by much.
While I wish them well–don’t I always ?–self-promotional statements that someone expects a good Holiday season because its products are “cool” and “not really that expensive,” or because it is capturing market share, hardly qualify as predictions about the overall economy (even if we make the leap of faith they are correct)…on the contrary, if this is the best the upsiders can come up with, I’ll stick with the gloom-n-doom set.
Investing in the hardware, software, and analytics to understand consumers is time consuming and expensive. Once that happens, developing strategies, changing organizational processes, and creating new work requires training and time. Deciding today that becoming consumer-centric is a good strategy does not mean that your company will be ready for this holiday season.
Best Buy has invested in the hardware, software, analytics, organizational change, and training so they are positioned to reap the rewards of knowing their consumers and being nimble enough to adjust to quick changes in consumer buying patterns. This season will be an interesting test to tell whether this consumer-centric orientation works.
If you do not think positive and if you do not plan positive, how will your business ever be positive? That said, some are too big to change and react and some have the wrong plans. Those who have fresh, sellable merchandise in a fun and appealing environment with all the right information coupled with state of the art customer service always do well. These retailers spend little time worrying about media speculation regarding the economy and its impact on retail and put their time and effort in to the things they can control.
Consumers who are freaked out about $4 milk and $50 fill ups at the pump are holding off on buying a number of items they want. But conversations with numerous people in the past few weeks indicate that they’re not planning on a miserly holiday season. Most people I’ve talked to have indicated that some of the luxuries they’ve withheld from themselves during the year will appear under the tree in December. Many retailers should be feeling some relief, however temporary, in January.
Yes, I expect the holiday season will turn out better than is commonly thought at the present. Our latest Consumer Demand Index is in negative territory for the first time ever, but consumer buying intentions for specific durable and non-durable goods are down only marginally or in some cases even stabilizing. The explanation is again in the large percentage of consumers (56%) that are in a wait-and-see, sit-on-the-fence mode, declaring themselves not ready to make any major purchases in the next 3 months.
This uncertainty and insecurity are being driven by pronounced price increases for food and fuel, which have been sudden, rapid and pronounced. Consumers don’t know if these increases are temporary or not, and so are cutting back drastically on discretionary spending. In fact, 78% of Americans think the US is in recession (it isn’t–the economy grew .9% in the first quarter), even though 72% rate the financial situation of their own household as “good.”
What else is there about Best Buy and Toys “R” Us that makes me expect that they will have a strong 2008 holiday season? Electronics and toys are always strong in the fourth quarter; our 7 years of CDI data confirm it. [Feel free to email me for a free sample issue.]
These guys sell the must-haves and gotta-haves to 2 key demographics: 18-35 year old males and kids that watch a ton of television. so no, these categories will probably not suffer as much this season.
Overall though, I see a softer season ahead with specific weakness in apparel and home furnishings. Now of course I could be wrong and the clothing industry will start catering to customer’s needs and make double digit increases this year. But as I see it, soft in most, hot trends should do well again. Hopefully TRU and BB will have good allocations this year and will be able to sell through instead of selling out!
It is refreshing to see some companies not in the “duck & cover” mindset that has plagued retail since end of 2006. Those who will invest in their people and connect the dots from their marketing to the consumer seem poised to reap the rewards of a consumer base overwhelmed and tired of bad news they can do little about.
Retailers well-positioned going into 4th quarter with good merchandise content, strong marketing and a significant value proposition will end up with better comp sales than we saw in 2007. Those weak LY comparisons have something to do with it, but retailers have had most of this year to adapt to the new economic realities, and to adjust their strategies accordingly. There is also some history pointing toward a decent holiday season–think of 1991-92 as a parallel, with an economic slowdown followed by a Presidential election.
They’re exceptions to gloom. Best Buy will profit from a spike in HDTV and nextgen mobile phones. Toys “R” Us simply doesn’t have much competition anymore. I think Christmas will start out with a very poor Thanksgiving weekend as consumers wait for the inevitable discounting to follow it. That poor Thanksgiving weekend is going to panic Wall Street analysts and retailers will feel immense pressure to make the numbers at any price. Bottom line, consumer spending is just not there. Unless consumers are in the very top earning echelons, they’re cutting back on the holidays.
Best Buy, Toys “R” Us, and many other retailers will do better than expected this Christmas because (1) their competition either stopped building so many new stores or closed a lot of stores and (2) self-cannibalization is minimized because these chains aren’t in a high-growth location expansion phase. There’s only so many shopping dollars to go around, so fewer locations = more dollars per surviving location. And the competitors aren’t just specialty stores. They also include Wal-Mart and warehouse clubs.
Retailers should never rest on their laurels or get too excited about projections. Many shoppers are cutting back on expenses in general, and this will have an effect on their holiday purchases as well.
These retailers may find themselves with key, must-have items that may insulate them from the rest of the market. But as of this point it’s hard to imagine that the general economic conditions will improve much between now and then, especially if we continue to sail into the headwind of current gas prices. It’s inconceivable that after last year’s experience that every mass merchant doesn’t already have plans in their back pockets to crash prices at the slightest hint of softness in order to protect volume and market share. Just like last year.
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The holiday season, while looking bleak now is unlikely to be a washout. High oil/gasoline prices are changing the consumers buying patterns. This trend will continue through 2009. The expectations are much will change after the election. The uncertainty will go away. I predict holiday sales will exceed last year by 2.5% to 3.0%. In other words, sales will be decent, but nothing to write home about.
Internet and gift cards sales will continue to increase as a percentage of holiday sales. All retailers will not share the same this season. Basic apparel, children and home entrainment will lead the pack, but not by much.
While I wish them well–don’t I always ?–self-promotional statements that someone expects a good Holiday season because its products are “cool” and “not really that expensive,” or because it is capturing market share, hardly qualify as predictions about the overall economy (even if we make the leap of faith they are correct)…on the contrary, if this is the best the upsiders can come up with, I’ll stick with the gloom-n-doom set.
Investing in the hardware, software, and analytics to understand consumers is time consuming and expensive. Once that happens, developing strategies, changing organizational processes, and creating new work requires training and time. Deciding today that becoming consumer-centric is a good strategy does not mean that your company will be ready for this holiday season.
Best Buy has invested in the hardware, software, analytics, organizational change, and training so they are positioned to reap the rewards of knowing their consumers and being nimble enough to adjust to quick changes in consumer buying patterns. This season will be an interesting test to tell whether this consumer-centric orientation works.
If you do not think positive and if you do not plan positive, how will your business ever be positive? That said, some are too big to change and react and some have the wrong plans. Those who have fresh, sellable merchandise in a fun and appealing environment with all the right information coupled with state of the art customer service always do well. These retailers spend little time worrying about media speculation regarding the economy and its impact on retail and put their time and effort in to the things they can control.
Consumers who are freaked out about $4 milk and $50 fill ups at the pump are holding off on buying a number of items they want. But conversations with numerous people in the past few weeks indicate that they’re not planning on a miserly holiday season. Most people I’ve talked to have indicated that some of the luxuries they’ve withheld from themselves during the year will appear under the tree in December. Many retailers should be feeling some relief, however temporary, in January.
Yes, I expect the holiday season will turn out better than is commonly thought at the present. Our latest Consumer Demand Index is in negative territory for the first time ever, but consumer buying intentions for specific durable and non-durable goods are down only marginally or in some cases even stabilizing. The explanation is again in the large percentage of consumers (56%) that are in a wait-and-see, sit-on-the-fence mode, declaring themselves not ready to make any major purchases in the next 3 months.
This uncertainty and insecurity are being driven by pronounced price increases for food and fuel, which have been sudden, rapid and pronounced. Consumers don’t know if these increases are temporary or not, and so are cutting back drastically on discretionary spending. In fact, 78% of Americans think the US is in recession (it isn’t–the economy grew .9% in the first quarter), even though 72% rate the financial situation of their own household as “good.”
What else is there about Best Buy and Toys “R” Us that makes me expect that they will have a strong 2008 holiday season? Electronics and toys are always strong in the fourth quarter; our 7 years of CDI data confirm it. [Feel free to email me for a free sample issue.]
These guys sell the must-haves and gotta-haves to 2 key demographics: 18-35 year old males and kids that watch a ton of television. so no, these categories will probably not suffer as much this season.
Overall though, I see a softer season ahead with specific weakness in apparel and home furnishings. Now of course I could be wrong and the clothing industry will start catering to customer’s needs and make double digit increases this year. But as I see it, soft in most, hot trends should do well again. Hopefully TRU and BB will have good allocations this year and will be able to sell through instead of selling out!
It is refreshing to see some companies not in the “duck & cover” mindset that has plagued retail since end of 2006. Those who will invest in their people and connect the dots from their marketing to the consumer seem poised to reap the rewards of a consumer base overwhelmed and tired of bad news they can do little about.
Retailers well-positioned going into 4th quarter with good merchandise content, strong marketing and a significant value proposition will end up with better comp sales than we saw in 2007. Those weak LY comparisons have something to do with it, but retailers have had most of this year to adapt to the new economic realities, and to adjust their strategies accordingly. There is also some history pointing toward a decent holiday season–think of 1991-92 as a parallel, with an economic slowdown followed by a Presidential election.
They’re exceptions to gloom. Best Buy will profit from a spike in HDTV and nextgen mobile phones. Toys “R” Us simply doesn’t have much competition anymore. I think Christmas will start out with a very poor Thanksgiving weekend as consumers wait for the inevitable discounting to follow it. That poor Thanksgiving weekend is going to panic Wall Street analysts and retailers will feel immense pressure to make the numbers at any price. Bottom line, consumer spending is just not there. Unless consumers are in the very top earning echelons, they’re cutting back on the holidays.
Best Buy, Toys “R” Us, and many other retailers will do better than expected this Christmas because (1) their competition either stopped building so many new stores or closed a lot of stores and (2) self-cannibalization is minimized because these chains aren’t in a high-growth location expansion phase. There’s only so many shopping dollars to go around, so fewer locations = more dollars per surviving location. And the competitors aren’t just specialty stores. They also include Wal-Mart and warehouse clubs.
Retailers should never rest on their laurels or get too excited about projections. Many shoppers are cutting back on expenses in general, and this will have an effect on their holiday purchases as well.
These retailers may find themselves with key, must-have items that may insulate them from the rest of the market. But as of this point it’s hard to imagine that the general economic conditions will improve much between now and then, especially if we continue to sail into the headwind of current gas prices. It’s inconceivable that after last year’s experience that every mass merchant doesn’t already have plans in their back pockets to crash prices at the slightest hint of softness in order to protect volume and market share. Just like last year.