Releases : Business

A full 76 percent of Americans surveyed recently by Consumer Reports' National Research Center said they will buy fewer gifts this holiday season than in past years, which may cause anxiety for those retailers who depend on holiday shopping for the majority of their yearly profits. Consumer spending shrank in the July-September quarter at a 3.1 percent rate -- the steepest fall since 1980.

However, retailers that anticipated an economic slowdown generally have lean inventories that support the companies' adjusted sales forecasts. Retailers with creative sales promotions and careful attention to expenses are the most likely to be profitable, according to Dee Knight, University of North Texas associate professor of merchandising.

"It has been some time since I have seen so much heavy promotion before Thanksgiving," says Knight, adding that she has received numerous e-mail sales pitches from retailers and is receiving more catalogs than usual.

The discounts, she says, have been advertised days and even weeks ahead of "Black Friday" -- the day after Thanksgiving, which this year falls on Nov. 28. Traditionally the start of the holiday shopping season, the day is known as "Black Friday" because it is the date when retailers begin to operate from a profitable, or "in the black" position, rather than an unprofitable, or "in the red" position.

"Typically, the holiday season represents the lion's share of sales. It's a make-or-break season for most retailers," Knight says. "I expect this holiday season to be very challenging for retailers, but people who can afford it will still buy gifts, though the gifts they will be giving may be different this year."

She points out that even luxury retailers are experiencing diminished profits because of the economy. The Neiman Marcus Group recently reported that same-store sales fell nearly 27 percent, while Saks Fifth Avenue and Nordstrom reported decreases of at least 10 percent.

"During lean economic times, the sale of accessories typically goes up, meaning that shoppers are spending less at a store," Knight says. "They may not buy a whole outfit or even a cashmere sweater -- they'll buy cashmere scarves or gloves to have the luxury at a lower price. Or, instead of buying a complete new set of golf clubs, they'll buy one special driver or putter."

The tactics that retailers have been using to encourage spending include promoting their nationally known brands, such as Martha Stewart bedding and kitchenware at Macy's, over their private label merchandise. Knight notes that national brands "can help retailers bear the burden of inventory that's not selling."

"Their partners can give them a markdown allowance or incentives on future purchases. With private label merchandise, retailers don't have a partner, so it takes creativity to maintain margins," Knight says. "Retailers must also provide something other than discounts. Many retailers are lowering prices, so that in itself may not be enough incentive to go to a particular store."

Special promotions such as a free gift with the purchase of a particular item -- a regular tactic of cosmetics companies, Knight says -- may result in shoppers patronizing one retailer over another, and may ultimately be more cost effective for the retailers.

"For example, free gift wrap may be an attractive incentive for consumers to patronize a particular retailer, and it may be less costly than 10 percent off most items," she says. "Retailers must also make shopping an enjoyable experience."

And although Black Friday may not be the start of deep discounts for holiday shopping this year, retailers will still consider it an important day and plan accordingly to entice shoppers, she says.

"There will always be consumers who make going shopping the day after Thanksgiving part of their holiday celebration. They may have out-of-town visitors, and so decide to go to the mall," she says. "And many of the stores will continue to have early morning openings and special promotions for certain items."

Knight may be reached in her office at 940-565-2433, at home at 940-591-0999 or by cell phone at 940-391-6408.

From Aug. 15 through 17 (Friday through Sunday), Texas will observe its annual sales tax holiday. Shoppers in the state will not pay state and local sales tax on most clothing and footwear priced under $100, as well as backpacks priced under $100 that are used by elementary and secondary school students. Shoppers could save about $8 on every $100 that they spend.

The sales tax holiday, first observed in August 1999, was moved from the first to the third weekend in August last year by the 80th Legislature, since many school districts in Texas are now starting their academic year later than in past years.

Dr. Dee Knight, associate professor of merchandising and hospitality management at the University of North Texas, is available to discuss how retailers are preparing for the weekend, retailers' projections for the weekend, and shopping behavior of consumers.

She notes that many retailers are recognizing that not paying sales tax is not enough incentive for some Texans to spend, so they are providing up to 40 percent discounts on new early fall merchandise as well as big discounts on clearance spring and summer merchandise. The combination of reduced prices and the sales tax waiver may encourage spending, she says.

"Most retailers would not see much response to a 10 percent price reduction on merchandise, but consumers are more likely to respond to the tax-free weekend at a time when many are ready to shop for back-to-school merchandise, especially if other price incentives are also offered," she says.

Knight notes that retailers must be proactive with promotions and advertising to encourage shoppers to spend during the tax-free weekend.

"Some stores will have specials that shoppers can't find online. Other stores will buy special merchandise just for tax-free weekend," she says.

The National Retail Federation, she says, indicates that about 20 percent of parents set aside part of the economic stimulus checks sent to them by the U.S. government earlier this year for back-to-school shopping, so parents' spending during tax-free weekend is expected to increase from last year.

"If they take advantage of reductions on hot weather clothing, plus transitional clothing for early fall, parents shouldn't need to buy their children more clothes until winter," she says.   

The high cost of gasoline, Knight says, may keep some shoppers away from the stores during the tax-free weekend, but "most of us aren't going to skimp on our children."

"If parents have several kids to shop for, gasoline may not be a factor in their decision to go shopping," she says.

So what's the best strategy for making the most out of tax-free weekend? Planning, Knight says.

"Parents should go through their children's closets and decide what they need the most, decide the amount to spend, and let their children know what the plan is before they go to the stores," she says. "With a plan, they will be less likely to overspend or to buy items they don't need, despite their children's begging."
 
Office phone number: (940) 565-2433
Cell phone number: (940) 391-6408

DENTON (UNT), Texas -- As high gas prices are likely to stay where they are for the foreseeable future, Americans will have to make a conversion to alternative sources of fuel, and the most likely candidate is compressed natural gas, says Dr. Mitty Plummer, associate professor of engineering technology at the University of North Texas.

"We will make a conversion, and it's not going to happen faster than 10 years from now," Plummer says. "It is likely to take longer. My personal bet is that probably we will go over to compressed natural gas because here in Texas, we are sitting on top of the Barnett shale formation."

But the conversion takes significant time, he says. "Let's just say we were going to convert to natural gas. You would have to have pipelines. Your gas station would look like a big storage tank full of natural gas, and you'd fill your high-pressure natural gas tanks up very differently than you do with gasoline."

Another alternative is that we might go home at night and plug in our electric cars, he says. "But again that's probably on the order of 10 years to make that transition. You don't just start building batteries; you first have to build battery-building factories. Another scenario might be that people go different ways depending on where they are. Back East, there's quite a bit of coal. They might go to some sort of coal-to-liquid technology that would let them run cars that way."

Plummer holds bachelor's, master's and doctoral degrees in engineering from Texas A&M University. He is a registered professional engineer in the state of Texas and worked in various aspects of the energy business for 22 years before joining UNT.

Plummer can be reached at (940) 565-2846.

On Wednesday, the U.S. Department of Commerce released its first quarter report on the nation's economy, which noted that export sales and a rise in business inventories nudged the gross national product to a preliminary 0.6 percent annual growth rate during the first three months of 2008.

Dr. Terry Clower, associate director of the Center for Economic Development and Research at the University of North Texas, says this estimate is almost certain to be revised downward to show that the U.S. economy "is treading water, at best, but may very well have slipped into negative growth late in 2007."

"Increasing job losses, household budgets stressed by rapidly rising gasoline and food prices, the continuing effect of the sub-prime mortgage crisis, weak housing markets, and concerned consumers offer a litany of negative pressures on the national economy," says Clower, an associate professor of applied economics. "Moreover, even if the economy is still growing slowly, it is not growing fast enough to sustain current employment."

He says that because of technological change "that makes our labor force increasingly productive," the U.S. economy needs to grow by about 1.6 percent on an annualized basis just to support current employment levels.

"The one piece of good news is that the dollar's recent devaluation versus other currencies makes American-made goods and services more competitive in the global market, which is helping to mitigate some of these negative factors," Clower says.

The Commerce Department's report was issued the same week that the U.S. Treasury will begin sending out rebate checks to more than 130 million Americans. The checks, which range from $300 to $600 to individual taxpayers and $600 to $1,200 for couples who filed their 2007 taxes jointly, and also provide $300 for each child, were issued as part of the Bush Administration's economic stimulus plan (read as PDF document).

Clower says that as Americans begin to receive their rebate checks, economists and policymakers are left to wonder how this money will be used. 

"The Bush Administration is counting on taxpayers going out and spending this money," he says. "If this money is used for consumption spending, there will be a slight stimulus effect. However, if taxpayers use the money to pay down credit card debt or to meet rising adjustable-rate mortgage payments, then there will be little to no impact on overall economic performance."

He says that Americans should not be surprised if one or more government officials "tell us over the next several weeks that it is our patriotic duty to go out and spend, just as we saw after the attacks of 9-11."

Clower can be reached at his office at (940) 565-4049, on his cell phone at (214) 202-4692 or by e-mail at tclower@unt.edu.