Half Empty or Half Full?

Consider for a moment all that has gone on in the world since the end of the 2001 International CES in Las Vegas. September 11 and the war on terror tops the list, followed by the overall economic slowdown, the stock market crash, the demise of many 401(k) programs and now the looming war clouds surrounding Iraq as we begin to prepare for the traditional holiday selling season.

Under these conditions it seems almost miraculous that sales of electronics and appliances were steady and then strong from last fall through around mid-summer. But national retailers finally conceded that the myriad scandals from Wall Street and other economic bad news finally took their toll during the summer as sales slowed down for many. (Still, as reported by TWICE during the last month or so the sales of privately held independent retailers seem to have held up better than the publicly held national chains and they are bullish for the balance of the year.)

If we are facing a flat or tepid retail climate for the fall and holiday seasons, to put it philosophically, has the industry's fate been half empty or half full since the beginning of 2001? Of course rationalization does not improve store traffic, comp sales, overall sales and bottom lines. While I don't have a crystal ball I think the fate of the industry for the balance of the year will be half-full. Granted, the economic indicators look rather murky for the next few months, but there seems to be some rays of sunshine in the gloom.

First off last week the Conference Board issued another set of consumer confidence numbers for September, which are down, not surprisingly. During the last four months for the category that covers mostly appliances and TVs, the intention to buy was about the same during June and July, went up three points in August when the stock market went through tremendous gyrations, then sagged again for September. On an individual basis each product category listed was down for September, but not dramatically so.

In the spate of reports from publicly held retailers we reported on earlier this month, if you read between the lines many seem to be overly cautious in their fourth quarter predictions, for fear if they were too optimistic their stocks would get hammered if they were wrong. For instance, while Best Buy CFO Darren Jackson said at a Goldman Sachs retail conference that the chain was cutting costs and saw "a significant change in consumer behavior" during July, he still noted, "We hope we are overreacting."

Arch-rival Circuit City reported that total sales and same-store revenue were up 10 percent during the second quarter ended Aug. 31. But much of the gain was due to a poor performance during the same quarter last year and plenty of promotional activity during the quarter. Glimmers of hope came from Good Guys, who predict stronger sales for digital TVs and other digital products, RadioShack, which will be stocking up with more gift-type merchandise (DVD, camcorders and portable audio), and Harvey Electronics, which has seen custom installations and digital TV sales driving the business.

So what does all this mean for the balance of the year? In my humble opinion, if we are not at war, the world political climate remains relatively stable, and the stock market at least finds a bottom, the industry should have a holiday selling season. But it will probably be a late breaking one. The challenge for the industry will be on the margin side, which is no surprise. Retailers will cut prices to the bone on commodity products, while trying to push upscale digital CE product without cutting prices too much.

So I guess I'm a glass-half-full kind of a guy. Let's hope that industry's glass doesn't turn out to be half empty by New Year's Eve.