Almost everyone is familiar with the polarizing question Dirty Harry once proposed we ask ourselves, “do I feel lucky?” However, not many people can remember the previous lines spoken by Clint Eastwood as well as the context of the iconic cinematography. As he held the “most powerful handgun in the world,” Eastwood’s character of Harry Callahan could not remember if he fired five, or all six rounds held in his revolver. Dirty Harry states that he was “caught up in the excitement” and he cannot remember if he is out of ammo, which prompts the luck affiliation. As businesses prepare for the upcoming
holiday sales-season, they will be reviewing particular economic data in hopes of answering one question, “do you feel wealthy?”
How you feel about yourself and specifically how wealthy you feel referred to as the “Wealth Effect.” Investopedia defines the Wealth Effect as:
“The wealth effect is the premise that when the value of stock portfolios rises due to escalating stock prices, investors feel more comfortable and secure about their wealth, causing them to spend more.”
Today, one’s wealth is influenced by the increase in the value of your home and retirement accounts. The rise and fall of your portfolio, in theory, affects how you feel and spend. Below are two critical reports released last Friday which are closely monitored by retailers. These reports are the University of Michigan’s Consumer Sentiment report and the Monthly Retail Trade Survey conducted by the U.S. Bureau of the Census. As you can see, these reports are providing conflicting messages. Consumers based on the University of Michigan are feeling pretty good about their situation and have been since January 2015.
However, their spending is not reflective of their positive attitude. Since January 2015 consumers are looking up the pointed gun and confidently saying they are feeling lucky and then walking away.
Consumer spending represents over 66% of all commerce in America. When consumers catch a cold the economy catches the flu. Considering that the annual growth of the entire US economy is about 2%, it would not take much for slower consumer spending to send the economy into a recession. So, why are people not spending? Maybe one’s 401k balance and house value are not overriding concerns about terrorism, presidential election, slow economic growth, and or stagnant personal income.
Retailers are in a particular dilemma now, trying to guess how inventory to stock for their customers. Will the overall positive sentiment of consumers hold to the holidays and if so will consumers open up their pocket book and buy? Added to determining if consumers will buy is where will they be buying? In the past, the key to sales was physical store locations and specifically in malls. Now people are not going to the malls to shop but doing their buying on the internet. A research report by Green Street Advisors released earlier this year stated that occupancy of malls is declining, and the report cut its projection of annual tenant sales growth by 50% to a mere 1.2%. So expect more annoying pop-up ads on your computer especially those that take over your screen.
Consumer spending is two-thirds of the US economy and holiday retail sales can make or break annuals sales goals for many companies. According to the National Retail Federation, holiday sales represent about 20% of total yearly retail sales and as much as 30% of many company’s annual sales. The jewelry industry is at the highest dependency of holiday sales that represent as much as 40% of their annual sales.
So… next time you are in the check-out line at your favorite
box store mom-n-pop shop, you may not remember if there were five price checks or six. You will have to ask yourself, “am I feeling wealthy?” Well, do ya? Punk! (sorry, I couldn’t help myself)