Consumer spending posts best annual gain since 2007
Washington, D.C. — U.S. consumer spending rose more than expected in December as Americans spent at the fastest pace in three years. The Commerce Department reported that spending rose 0.7% in December, the sixth straight monthly increase.
For all of 2010, consumers boosted spending 3.5%, the best performance since pre-recession 2007, when spending rose 5.2%. The government reported that consumer spending rose at a 4.4% rate in the final three months of 2010.
Many economists expect a cut in Social Security taxes will lift January’s spending and incomes even further that last month.
A funny thing happened on the Internet
A lack of disclosure among retailers regarding their online operations makes it challenging to understand what went on online this past holiday season. While comScore reported it was a record year from a sales perspective with November and December sales advancing 12% to $32.6 billion, data from the online measurement firm also showed that most major retailers saw fewer unique visitors to their websites in December 2010 than during the same month the prior year.
The number of unique visitors to Target.com declined 11% to 37.3 million in December 2010 compared to 41.8 million in December 2009. Walmart.com, the second most heavily trafficked site behind Amazon.com, saw its number of unique visitors drop 5% to 51.4 million while Best Buy dropped 1% to 29.3 million, Sears fell 21% to 18.4 million and Kohl’s declined 1% to 14 million. Amazon.com increased 6% to 91.1 million.
The year-over-year decline in unique visitors is not as alarming as it appears at first blush due to the fact that shopper conversion rates are said to be higher. The consulting firm Kantar Retail conducts a monthly survey branded as ShopperScape and its data shows that almost across the board the percentage of people who visited a retailer’s site and also made a purchase is well above the prior year. For example, Kantar’s data shows that 31% of those who visited Target.com in December made a purchase compared to 23% the prior year. That’s not as good as it sounds. The benchmark when it comes to conversion is Amazon.com with 80% of those who visit its site making a purchase and Walmart and Kohl’s both enjoy a 46% rate.
Narrowing the price gap a little more
A monthly pricing survey conducted by Credit Suisse in December shows that Walmart remains the lowest price on a basket of 60 products across two major markets, Target is closer than ever and is actually less expensive for those who take advantage of the 5% Rewards program.
Target was Walmart’s closest competitor in December with prices that were 3.7% higher. Largest prices differences were seen with such conventional supermarket chains as Kroger, Safeway and Supervalu, whose prices were higher than Walmart’s by 10%, 17% and 19% higher, respectively. Drug chains Walgreens and CVS were higher by 23.8% and 24.7%, respectively.
“Our monthly pricing survey showed that Walmart’s price gap remains relatively stable, an encouraging trend that suggests more rational pricing for the entire industry,” according to the Credit Suisse report from earlier this week.
Overall, the firm said 2010 proved to be a challenging year in consumables pricing and unit demand and noted that concerns over Walmart’s aggressive pricing strategy turned out to be overblown.
“Our survey results indicated Walmart’s average pricing gap relative to competitors in both Dallas and Chicago narrowed to its lowest level in nearly three years,” according the firm.
This is seen as an encouraging sign by those in the financial community who interpret the data as evidence of a rational pricing environment, although concerns about an acceleration of product inflation persist.
According to Credit Suisse, meaningful inflation failed to surface in 2010 although the situation began to change during the past five months with moderate inflation in food and health and beauty products.
“We believe inflation is poised to possibly accelerate further in 2011 largely due to higher prices in dry grocery. We think the ability to pass on further price increases ultimately depends on the health of the consumer, the degree of consumer demand elasticity, and the overall competitive environment, i.e. Walmart. We believe dry grocery inflation will be easier to pass through versus commoditized categories such as dairy and that the retail pricing environment will remain rational, consistent with the last five months of 2010.”