At 6:15 every morning except Sunday, a tractor-trailer truck inches into an alley behind a Ross Dress For Less store in Westwood. Each time, it stops at the same spot a makeshift loading dock and each time the driver honks twice. Moments later, a crew of workers gathers around the vehicle and begins hauling out boxes and boxes of merchandise.
Within 30 minutes or so, the day’s shipment is inside Ross’ storage room and the truck is gone. The merchandise will be sorted, displayed and within a few days, much of it likely will be sold.
The early-morning routine, which is played out in retail outlets all over Los Angeles, is a testament to two realities: A finely tuned transportation network that can pretty much deliver goods wherever and whenever they are needed, and a voracious consumer who can be counted on to keep buying especially if the items are discounted or on sale.
As retailers prepare for the all-important Christmas rush a stretch of six weeks or so when up to half of all annual sales will be generated the question is whether both can be counted on this month and next.
So far so good. The shipping and transportation side has held up well despite the nation’s growing trade imbalance, which has resulted in empty cargo containers being sent to Asia to accommodate the rush of holiday-related imports. (See story, page 10)
As for consumer spending, the early indications point to a decent but not great Christmas sales season. Forecasts call for retail sales increases nationwide in the 4 percent to 6 percent range for November and December, generally in line with last year’s 5.5 percent gain. But given global financial jitters and Wall Street gyrations, retailers and analysts alike are tentative in their forecasts.
“I’m feeling a little strange about making any predictions this year,” said Richard Giss of Deloitte & Touche LLP’s L.A.-based trade retail services group.
“It’s not going to be a double-digit, gangbuster year,” said Linda Smith Frost, marketing manager at the Century City Shopping Center & Marketplace. “But it’s going to be a solid year, up slightly from last year.”
Frost said the center’s business so far this year serves as a good indicator of what to expect for Christmas. For the entire mall, sales were up 2.8 percent for the first nine months of 1998 compared with the like period in 1997.
That modest increase has picked up recently, with sales for September alone 3.3 percent higher than the same month last year, she said. Traffic also increased 3.2 percent in September vs. the like period last year, she said.
“I think consumer confidence in terms of buying is still pretty positive,” she said. “I still think, overall, compared to past years, it’s relatively high. Unemployment is low; the inflation rate is just about nil for the year. When people are working, and inflation is not eating up the money, they’re spending.”
And indeed, consumers do seem to be spending.
Cameron Maxfield, who was shopping last week at the Beverly Center with his 2 & #733;-year-old son Elijah, said he spent about $5,000 on holiday gifts last year, and is aiming at $2,000 more than that this year.
“I spend more now because I have him,” said Maxfield, 22, referring to his son. Maxfield, who works for a computer-chip manufacturer in Alhambra, said he plans to buy the same types of things he bought last year: computer games, electronics and clothes from Eddie Bauer, The Gap and specialty skateboarding shops. Asked if he has any concerns about the economy, Maxfield shook his head.
Nancy Grillo, who also was shopping at the Beverly Center, said she typically spends less than $1,000 for gifts each holiday season. This year, she said, she will probably spend a little less than normal not because of any concerns about the economy, but because her daughter is pregnant with her first child.
“I probably won’t buy a lot this year and make up for it next year,” said Grillo, 54, of Hollywood. “It’s more fun to shop when there are kids around.”
The overall picture, however, is laced with economic inconsistencies. Consider the recent news:
Consumer confidence slid sharply in October to its lowest level in nearly two years, as did expectations for the next six months. (For the Pacific region, consumers are less confident about the current situation and more confident about the next six months.) While not foolproof, a sharp drop in the index is usually one of the early warning signs that a recession may be in the offing given that consumer spending fuels roughly two-thirds of the entire economy.
But then, just two days later, came word that the nation’s gross domestic product for the July-September quarter did much better than expected expanding at a 3.3 percent annual clip, compared with a more modest 1.8 percent in the previous three months. Of particular note was consumer spending: up a sharp 3.9 percent this year.
Even more striking was September data showing that for the first time since the Great Depression, Americans spent more money in a single month than they earned resulting in a negative savings rate of 0.2 percent.
Confused? So are economists, retailers, manufacturers and policymakers who have been struggling to determine whether the United States is moving toward a recession or whether the nine years of economic expansion (closer to three years in Los Angeles) can be sustained through the turn of the century.
At this point, the betting is against recession. The 50 forecasters in the Blue Chip Economic Indicators survey expect the economy to grow at a 2.1 percent clip in 1999 significantly slower than 1998, but growth nonetheless.
Deloitte & Touche LLP released a consumer mood survey last week, noting that 78 percent of Americans planned to spend at least as much on gifts this holiday season as they did last year.
In Los Angeles, consumers plan to spend an average of $735 lower than consumers in the Northeast, who plan on spending $1,128, but higher than Midwesterners, who plan on spending $688.
Consumers, according to the study, actually are far more optimistic than retailers. While 29 percent of consumers believe the economy will improve in the coming year, only 22 percent of retailers agree. But 78 percent of retailers believe the economy will be worse in 1999, as opposed to 30 percent of consumers who share that view.
Carol Sanger, vice president of corporate affairs for Cincinnati-based Federated Department Stores Inc., which has three Bloomingdale’s and 18 Macy’s stores in Los Angeles County, said the company is looking for modest sales increases of between 3 percent and 3.5 percent.
“We ordered based on our plan for this year,” she said. “We have not made any alterations based on any external factors with the economy.”
Analysts say that chains like Federated are likely to take the biggest hit this season, as customers look to stretch their dollars by shopping at discount chains, such as Wal-Mart, Sears, JC Penney and Ross Dress For Less.
“If the consumer confidence does wane, (consumers) are still going to buy, but they’re not going to want to pay full price,” said John D. Olinski, an analyst at L.A.-based Wedbush Morgan Securities.
Indeed, the Deloitte & Touche survey found that 79 percent of customers will shop at a discount department store this holiday season.
Katie Loughnot, director of investor relations for Ross Dress For Less parent Ross Stores Inc., which has 31 stores in L.A. County, said total sales were up about 10 percent for the first eight months of the year growth likely to continue through the end of 1998.
“Obviously, with what’s going on externally, we’re cautious with our outlook,” Loughnot said. “But we feel with a value retail format, we’re an attractive alternative for consumers, even in an environment where their budgets might be under pressure.”
That price-consciousness has not been lost on the mainstream department stores, either.
Preston Antonini, senior vice president and regional director of the L.A., Riverside and San Bernardino Macy’s stores, said discount stores have emerged as a major competitor if not on an item-by-item basis, at least in terms of a customer’s attention and time. “That’s the competition,” he said.
Given the competitiveness of the discounters, as well as the uncertainties of the economy, Antonini said Macy’s will stick closer to the basics such as khaki pants, fleece sweaters, sleepwear and tennis bracelets. Stocking those items, he said, is less risky than more fashion-oriented items customers might buy during years of strong economic growth.
“No matter what happens with the economy, we think we have the pricing behind the items that people will come out and buy the items anyway,” Antonini said.
Another strategy being employed this year is placing conservative orders prior to the holiday season, and then supplementing them with just-in-time deliveries.
“I think what we’ve seen is, they’ve been more cautious early on,” said Olinski of Wedbush Morgan. “So they have been more cautious in ordering early with the intent of chasing merchandise with the more popular items.”
But many retailers, including Federated, say that strategy is too risky and does not work for items that have to be ordered in bulk long before the season begins. Furthermore, Antonini said, it is better to have too much merchandise, then sell it at a discount after Christmas, than not to have enough prior to the holidays, sending customers to other stores.
Nonetheless, Olinski said some retailers are taking that chance.
“It certainly creates more risk to do that,” Olinski said. “It seems like retailers have to pick their poison. They either go into the season lighter and take the risk that they will be out of stock on things that sell well, or they load up and they risk being stuck with too much merchandise at the end of the year.”
Some retailers fear that the perception of a possible downturn may be the biggest challenge this season.
“I think that with a lot of merchants, the momentum they’ve got right now, they would like to keep it,” said Sharron King, general manager of the South Bay Pavillion at Carson. “I think they would be more apt to keep it if there weren’t these rumblings in the media as to what they think will happen for the holidays.”