Shopping for a Deal

If you are finding it difficult to figure out what is going on in the U.S. retail sector, you are not alone. One day the government reports that retail sales in August rose a larger than expected 0.8 percent. A few days later the New York Times uses the first page of its business section to report “A Dismal Retail Season.”

The explanation begins with the fact that the government’s figures include booming sales of cars and home furnishings, as well as languishing sales of apparel. Low interest rates are having the predictable effect of channeling Americans’ spending into high-ticket items. Cars and sports utility vehicles (the SUVs beloved of soccer moms and abhorred by environmentalists) can be had on a zero-interest financing basis, and so are moving off the lots in near-record numbers. And mortgage rates are so low (below 6 percent for 30-year mortgages) that new immigrants are quickly joining the home-owning class, while higher-income groups are trading up to bigger and more opulently appointed houses.

All of which means that there is less to spend with shopkeepers trying to persuade teenagers to discard last year’s look and slip into jeans that are so low slung as to require the purchase of new, compatible underwear. Which is one reason, but only one reason, why back-to-school sales were so disappointing. The other reason is that the slow and uncertain recovery has hit teenagers in two ways. First, many found it difficult to find summer jobs, are finding it difficult to get part-time work during the school year, and are watching baby-sitting rates decline as competition for these assignments heats up. Second, some parents have been or expect to be affected by the soft labor market, and are said to be taking the drastic step of cutting back on their children’s allowances.

Retailers won’t know until the Christmas season rolls around whether these are temporary deterrents to teenage buying, or reflect one of the more permanent shifts that seem to be going on in the retail sector. Start with what may be an anti-brand-is-chic movement. There can be no denying that a few hot brands have their labels moving briskly off the shelves. Burberry, a 155-year-old company that until recently appealed to customers so old that they rarely outlived their plaid-lined Burberry trench coats, has managed to retain its Britishness while confining its historic plaid to only 10 percent of its apparel, a formula sufficiently successful to allow its recently issued shares to perform relatively well in a down market. And Puma increased its attraction to affluent young shoppers by decking out Serena Williams in a body-clinging, faux leather, black “cat suit” for her appearance at the U.S. Open tennis tournament. The fashion-conscious seem to feel they might do better turned out in clothes designed for the ample Ms. Williams than in those frocks featured on fashion house runways and apparently intended for the likes of actress Calista Flockhart.

But Burberry and Puma are exceptions to what seems to be a new trend built on the assumption that it is chic to buy unbranded apparel in discount stores. A survey by Brand Keys, a New York market research firms, found that 57 percent of those polled say that labels and logos are less important to them than they once were, with women 7.6 times more likely to downplay the importance of labels and logos than were men. The Wall Street Journal report quotes the president of the marketing consultancy, Robert Paddikoff, as saying, “What you’re seeing is a kind of back-to-basics value shift. It’s less the actual effect on the pocketbook and more the pride in being a wise customer.”

This may explain why profits are down at Gucci, sales are off at Tiffany, Prada cancelled its planned initial public offering, and the Versace family is trying to raise capital from non-family sources. And it may explain why sales are booming at discounters Wal-Mart, Kohl’s, and Target. But price might be only one reason for the discounters’ success. Consumers’ rush to buy household goods takes them into these stores, where they can conveniently pick up that extra pair of jeans, or shoes, or a blouse or shirt after buying that new barbecue, or shower curtain (no, not the $6,000 variety favored by former Tyco CEO Dennis Kozlowski). In the case of Wal-Mart, the world’s largest retailer, its instant success in adding foodstuffs to its product offerings has increased its allure as a one-stop shopping center—something like a mall all under one roof.

The real question for retailers is how much of what is going on is a reflection of current but transient economic conditions, and how much reflects more enduring trends. This is no easy question, especially in an industry in which change is swift and unpredictable. After all, it wasn’t so long ago that analysts were spilling gallons of ink to write the obituaries of “bricks,” doomed to be displaced by “clicks.” In the event, pure webtailers have disappeared, and the traditional in-store retailers have learned how to supplement in-store sales with sales over the Internet.

On the bright side, from the point of view of retailers, is the fact that there has to be a limit to the number of cars that Americans will buy, and to the ability of the auto manufacturers to absorb the approximately $2,500 they give away on each vehicle when they absorb interest charges on finance deals. So deals may disappear and consumers may shift their purchases back to soft goods, perhaps even by Christmas. But apparel retailers will still have to compete with the next high-tech toy—DVD machines that can record as well as play, or flat-screen TVs, or the next generation of gadgets that allows teenagers to listen to music on a nonstop basis, wherever they might be inflicting their presence. And it is a reasonable guess that consumers will continue spending more and more of their dollars in discount stores, demonstrating that they are both thrifty and chic, in a counterculture sort of way.

This article appeared in London’s Sunday Times on September 22, 2002, and is reprinted with permission.