Holiday 2009: A hardlines home run and a happy New Year for retailers

After last year’s retail debacle, holiday 2009 marked a dramatic turnaround for the nation’s merchants, based on early reports from the trade and data tallied from Customer Growth Partners’ field research -- particularly for long-suffering hardlines retailers. Sales of toys, home furnishings, major appliances, margin-challenged consumer electronics, tools, sporting goods and even jewelry saw their strongest performance since 2007 or earlier, according to CGP data collected from thousands of store checks in over 50 major mall and off-mall venues across 15 states, from November through the Christmas-New Year’s week -- now the second biggest only to the pre-Christmas week.

After the gloomy consensus forecast of -1% to flat growth this holiday season, American consumers defied the predictions -- and the 10% unemployment rate -- by putting their toes, and more, back into the shopping waters again this Christmas. Although government figures won’t be out until next week, we believe the perennially late pre-Christmas rush -- not disrupted by the Dec. 19 northeast snowstorm -- will bring the November-December holiday period year-over-year growth to at least 3%, exceeding even our own industry-high forecast of +2.6% growth.”

After 30 months of pent-up demand, and despite inventories in some stores that were a leaner than some customers may have liked, most hardlines retailers saw topline sales far exceed their fears -- and approach their fondest hopes. Savvy retailers that offered quality merchandise with the value that consumers demand -- since nobody wants to pay “retail” -- while maintaining the cost efficiencies they implemented since last year’s freefall, will show robust profitability this holiday quarter. However, some retailers--particularly mall-based department stores and specialty stores offering undifferentiated and overpriced merchandise -- saw their market shares continue to decline.

The holiday season’s hottest sellers were virtually all hardline gifts, according to CGP’s analysis, and included some unexpected hits:

• The Zhu-Zhu pet, of course, was the most popular children’s gift, with the hype aided by its manufacturer, Cepia LLC, limiting production to only one factory in China until very late in the run-up to the shopping season, despite simple manufacturing costs under $3.
• Mattel’s Mindflex game disappeared from store shelves -- whether Toys “R” Us or WalMart -- literally within hours of each shipment, and remains in short supply.
• Led by an improved Amazon Kindle, e-Readers were the biggest new Consumer Electronics category. Barnes & Nobles’ Nook e-Reader, a competitor to the Kindle, was in huge demand, but -- despite earlier promises -- was late to the Holiday dance, and even many pre-orders are still not being fulfilled until mid to late January.
• Most surprisingly, Black Friday sales of major appliances -- at Sears, Lowe’s, Home Depot and Best Buy -- supported by manufacturer incentives, went through the roof as one-day discounts of 20-50% on selected models ignited three years’ of pent-up demand, and provided a signal that the housing market may finally be coming out of its long slump.
• Sales of “mature” CE categories -- including flat panel TV’s, smartphones, media players, and netbooks -- continued to blossom, as mass merchant distribution expanded and prices resumed their ongoing deflation of some 15% to 25% per year.
• Although luxury is always late in the holiday season, “hard” luxury -- jewelry and watches -- purchases usually take place very late, within a week of Christmas. This year, despite mall jewelers’ weakness, both Tiffany and Signet saw strong results, particularly in silver gifts, entry-level jewelry, and even “statement” jewelry -- above $50k-- as both Wall Street and the tourist trade returned.
• Finally, furniture, not normally a holiday gifting item, continued its long slow recovery, and by the Christmas-New Year’s week was seeing its strongest sales velocity in several years, as the housing slump showed signs of recovery -- and of course as furniture merchants put out the 20% plus sales signs.

Not all the hot gifts were in retailers’ hardlines division, however. With over two years of pent up apparel and accessories demand ready to burst, despite unemployment fears, many women decided that  two winters of skimping was enough, and began to splurge -- on boots, UGG’s and otherwise--and winter boots became, along with leggings, the hottest gift -- or self-gift -- in the softlines arena.

Holiday heavy hitters spanned the hardlines spectrum, ranging from kitchen, tabletop and furniture specialist Williams-Sonoma, to Bed Bath and Beyond, Toys “R” Us, CE players Best Buy and Hhgregg, and home-improvement majors Home Depot and Lowe’s, the latter four of whom enjoyed an unexpected boon with the major appliance spurt.

But on an absolute dollar basis, the biggest winner of holiday 2009 may well have been WalMart, whose “Save Money/Live Better” positioning -- backed up by a fully integrated consumer insight-based merchandise and marketing strategy -- came into its full flowering in Mike Duke’s first Holiday at the helm. Although over 50% of its sales are in the low-margin food and consumables business, where persistent food-cost deflation tends to tamp margins further, holiday gift-giving increases the general merchandise percentage above 50% in the fourth quarter, led by consumer electronics and other hardlines such as toys and sporting goods.

But one of its key research insights is that customers shop at WalMart if it offers them quality merchandise, with speedy service, at what they believe to be the best prices, especially if the company keeps its promise to match any competitor’s price. But CGP’s price checks on a basket of merchandise over the Holiday season confirmed that the strength of WalMart’s low-price positioning is sufficient for it to execute a “parity-plus” pricing strategy, i.e. generally but not always as low as any competitor -- unless asked by a customer with the competing ad in hand.

In summary, retailers enjoyed a relatively robust rebound season, in line with and probably exceeding CGP’s prediction of +2.6% growth after 2008’s freefall. We had two or three years of pent up demand, 18 months of an almost too healthy 4% to 5% savings rate, followed by an initial turnaround in the economy. We may have 17% underemployment, but for the 83% of consumers with full-time jobs, all it took was the spark of some Christmas season advertising to ignite this pent-up demand, and hardlines merchandise flew off the shelves -- if it was priced right.

Craig Johnson is president of Customer Growth Partners, New Canaan, Conn., a consulting and research firm serving the retail and other consumer industries. He can be reached at johnson@customergrowthpartners.com. Founded in 2001, CGP has conducted both proprietary and public forecasts of holiday retail sales annually since then.