Weekly Wrap: Investing in Retail, Revenge Shopping, and Rising Entrepreneurship
Some analysts are singing the blues over retail stocks. Their version of “Deck the Halls” might go like this: “‘Tis the season to be wary of investing in retail.”
However, consumer surveys indicate those concerns are a lot of fa la la. As a result, retail investors could be singing, “Deck the malls with Christmas shoppers!”
Some analysts look at the roughly six-point drop in consumer confidence last month and fear the Christmas season will hit retailers like a lump of coal.
“We believe the consumer perspective warrants attention,” writes Lisa Shalett, Chief Investment Officer, Wealth Management for Morgan Stanley. “Negative sentiment, especially heading into the year-end holiday season, could presage market weakness, catalyzed by lower-than-expected spending and disappointing corporate earnings.”
Spirit of the Season
Projecting September’s consumer confidence into the holiday season ignores the spirit of the season.
What kind of Bob Cratchit humbug is this “spirit of the season” talk, you ask.
It is more a historical fact. Each year about nineteen percent of retail sales occur during November and December, according to the National Retail Association. In addition, recent history shows an upward trend.
Survey Says . . .
Last year holiday spending increased 8.2 percent over the year before to $777 billion. Likewise, this year, surveys are showing consumers’ intent on spending more. Just take a look.
“With early holiday shopping slated to begin in October again this year, retail sales for the ‘75 Days of Christmas,’ are anticipated to grow 6.8% excluding automotive and gas, and e-commerce sales to grow by 7.5% compared to the same time period last year,” according to a Mastercard SpendingPulse Survey.
Deloitte, an audit and consulting firm, projects holiday retail sales will increase seven to nine percent from November through January. That will result in $1.28 to $1.3 trillion in total retail sales, according to Deloitte.
At the same time, Deloitte expects e-commerce sales to be up 11 to 15 percent. That will result in $210 to $218 in online sales, according to Deloitte.
Shoppers Are Saying . . .
Numerous other surveys show shoppers are planning to spend more this year than last.
The Power Reviews Survey found 34 percent of consumers plan to increase spending this year. At the same time, market research firm NDP found 29 percent of consumers plan to spend more this year. In addition, Klarna, a fintech firm, reports 34 percent of shoppers will buy more this year.
Covid fears are subsiding with the increase in vaccinations and decrease in infections. That will mean more shoppers in stores.
“We anticipate strong consumer spending for the upcoming holiday season. As vaccination rates rise and consumers are more comfortable being outside of the home,” says Daniel Bachman, Deloitte economic forecaster.
Consumer comfort inside the home has also increased. According to the NPD report, one-third of those surveyed said they plan to spend more because they will be seeing family and friends during the holidays.
Revenge of the Spenders
Americans emerged from the restrictions of war and the great flu pandemic of 1918 to usher in a new era of social change and free-spending that F. Scott Fitzgerald dubbed The Roaring Twenties.
A parallel can be drawn between that time 100 years ago and what today is called revenge spending. That is when we spend more as a stress release following a time of forced restraint.
We naturally adjust our spending and saving habits to suit the times we are in.
We began saving more following the economic collapse of 2008. On average, Americans saved between seven and nine percent a year after The Great Recession.
The savings rate skyrocketed during the pandemic. Americans went from saving 7.2 percent of their incomes in December 2019 to a record 33.7 percent in April 2020.
“That means that for every $100 of disposable income, consumers saved $7 in December,” says A. Lee Smith, research and policy advisor with the Federal Reserve Bank of Kansas City, “and by April consumers were saving almost $34 of every $100 of disposable income.”
We began to spend more and save less as vaccines rolled out, the economy began to reopen, and restrictions of travel and large gatherings ended.
The saving rate dropped to 9.8 percent by May.
According to the MassMutual Consumer Spending & Saving Index, Americans spent $765 more per month in the summer of 2021 than in 2020. Millennials and Gen Zers were even more carefree. They averaged $1,016 more per month. Dining out and travel topped all spending categories.
Those with excess savings can afford to splurge a little. That is not bad. In fact, increased consumer spending helps businesses survive and prosper. However, there are dangers.
Overspending can risk your financial security if it becomes chronic.
How to Prevent Overspending
Here are some ideas for controlling revenge spending.
- Develop a budget and stick to it. I know, this is right up there on your wish list with eat your spinach or get a colonoscopy. It may not be fun, but it is good for you.
- Build splurges into your budget. You can still have fun – even if you stick to a budget. Allow an amount you can afford for something you enjoy. Just don’t let them bid you up beyond what you can afford at that art auction for a Banksy.
- Control impulse buying. This is where a lot of sales are made. We like to think we make thoughtful buying decisions. However, any good salesperson knows that we buy on emotion. We use reason to justify our purchases.
- A good way to control impulse buys is to delay our purchases. Give yourself a cooling-off period. Wait 24 or 72 hours before making a big purchase outside your budget. The same goes for marriage proposals.
It is fine to eat, drink, and be merry. Just know that tomorrow is coming. Be prepared to pay the bill.
So, inflation is here, the supply chain is clogged, workers are registering their discontent in strikes and resignations and many are still reeling from other effects of a historic pandemic.
Sounds like a great time to start a business. At least that is what millions of Americans have felt over the past year-plus.
According to the U. S. Census Bureau, a record 4.3 million people filed new business applications in 2020. Another 3.8 million have filed so far this year.
In addition, the number of self-employed reached an eight-year high in July.
Reversing a Trend
The dramatic upturn in entrepreneurship is a reversal of a 40-year trend. During that time new business starts were flat or declining.
In 1980, 12 percent of employment came from new businesses. That figure had dropped to eight percent by 1981.
New Day in Entrepreneurship
This boom in entrepreneurship was brought on by the pandemic. As a result, economists are hesitant to say how long it will last. However, most are hopeful.
“The pandemic forced a big realignment that we never would have seen otherwise,” John Lettieri, president and chief executive of the Economic Innovation Group told the New York Times. “What I hope is that this was the definitive moment where the sclerosis broke.”
What New Entrepreneurs Say
Starting a new business is not for everyone. However, according to a Salesforce survey starting your own business is available to anyone.
Salesforce surveyed people who started businesses between April 2020 and April 2021 and came up with interesting results.
- 55 percent think now is a better time to launch a new business than before the pandemic.
- More than 63 percent are starting businesses in entirely new industries. Only 37 percent are working in an area in which they have experience.
- About 22 percent started with less than $1,000. Similarly, 30 percent started with under $10,000 in funding.
- About 80 percent are marketing directly to consumers. Conversely, the remaining 20 percent are aimed at other businesses.
- About 70 percent of those surveyed say their business was digital. As a result, overhead is low.
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