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Creative Leisure News
306 Parker Circle
Lawrence, KS 66049
Phone: 785-760-5071
Email: mike@clnonline.com


 


A view of the industry through the eyes of a chain buyer.

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Has the Economy Started To Recover? Have Our Customers?

Two economic-savvy industry retailers have some answers.

by Mike Dolan and Jim Bremer (May 4, 2009)

People around the world are being bombarded with profound pronouncements by economists and politicians that the economy has hit bottom and is beginning to recover – or it isn't. Whom to believe? Our industry is lucky to have two retailers with extensive backgrounds in economics. Mike Dolan, who operates an independent store, Scrapbook 911 in San Antonio, is a retired banker. Jim Bremer, who owns three Tall Mouse general craft stores in Southern California, has a Ph.D. in economics. Jim is also a member of the Sierra Pacific Crafts group and is a former Chair of the CHA board of directors.

So CLN asked, has the economy bottomed out? If it hasn't, of all the economic data that the media reports, which data should we look for that will tell us that it has started to recover? And if the economy has not hit bottom, much longer before it does?

Mike Dolan.

If I knew how to determine the absolute time the economy were to bottom out, I would be a millionaire by playing the stock market. Having said that, the economy is made up of multiple industries. The ones that are in the news the most these days are the banks and automakers. The fear from the banking side is that there are still going to be losses from bad mortgage and credit card loans. Compounding this is the federal government's changing/evolving the new regulations for banks. For example, a number of large healthy banks took advantage of the bail-out money, only to later be told that there are new strings attached. Some of these banks want to give the money back, but the government is saying no, unless you meet some new rules. Yesterday, General Motors announced that the Federal Government might own almost half of its stock as a condition of receiving bailout funds.

Then there is the housing market. In California, Nevada, and Florida, housing prices increased dramatically between 1998 and 2006. We owned a house in Northern California that was worth about $500,000 in 1998. We sold it for $700,000 when we moved to Texas in 2001, and I saw it was sold in 2005 for $950,000. Today, it's worth around $750,000.

For those people who have owned their home over five or six years, there is no crisis, but those that bought in the last three years are facing a disaster. There are many areas in the country that did not see home prices skyrocket, and they are not facing the crisis we are hearing about. To be sure, there is an increase in foreclosures in almost all markets, but you have to remember that foreclosures were at record lows in 2006, and so if they doubled or tripled, they are still not in the crisis category that is seen in California, Nevada, and Florida.

This leads me to the media. Most consumers form their opinions about the economy by what they hear, see, or read from the media. I have read articles that are flat out preposterous in major publications, such as Time magazine. These, like most articles, are written and edited by journalists, not analysts. The vast majority of these "news" stories have a negative tone about the economy and very few highlight the positives.

So when does it all end? When these journalists say so and begin to write more positive stories, whether they are right or wrong. How will we know? When we see the Consumer Confidence Index begin to rise.

The Consumer Confidence Index is issued monthly by The Conference Board, an independent economic research organization, and is based on 5,000 households. It measures the statistical outlook of planned purchasing by consumers. The higher the value, the more optimistic consumers are about the economy, and the more likely they are to spend money on goods and services.

In December 2007, this index was measured at 110.0, while the most recent number, as of March 2009, was 26.0. In a nutshell, this means that only 25% of the households had a positive outlook when compared to December.

Are we at the bottom? Possibly so since the Consumer Confidence Index went from 25.3 in February 2009 to 26.0 in March. While this is a tiny increase, it is the first increase since July 2007. We will have to see if there is continued improvement the rest of the year.

(Note: Since Mike wrote this, the Conference Board’s Consumer Confidence Index jumped 12 points in April, its highest reading thus far in 2009.)

Jim Bremer.

As Mike says, to do an estimate in this situation is challenging because it involves more a sense of consumer perception and behavior. Talking with guests in our stores, it is evident they feel a sense of fear that goes beyond their individual economic state. Guests will share that they have no change in their personal family income, yet they feel obligated to conserve on any purchases. Observing classes, we see guests justifying to each other why they are making a purchase, and in many cases sharing a package of product rather than adding to their stash.

One year ago local gas prices were $1.65 higher than current price. As the price of gasoline rose we had local TV stations posting reporters to question people on what they were cutting from their budgets to afford the increases in gasoline. Local coverage is not reminding people of this current positive price reduction. Instead, the local media is interviewing people on how they are coping with unemployment or the threat of job loss.

We are beginning to see some guests express irritation with the economic slowdown and what they see as a restriction on their choices. Most of this conversation has related to reductions in selection in various clothing stores, which is particularly interesting given the number of store closings that have gone on in our immediate area. In the fall and winter, discussions about store closings, especially the number of clothing chain stores, and the "deals" to be had, were a dominant topic in crops and classes.

In our region there are still large numbers of empty homes and lots of empty shopping centers, both in new developments many of which were never occupied. In the established areas the home sales are strong and housing turnover is active. This is a positive change from a few months ago. News continues to be dominated by layoff reports and lots of coverage of teacher, school, and public service layoffs. This condition is reinforced by the disaster of the California state budget and trickles down to cities and school districts. At this point there is no news of "new" jobs in green industries or infrastructure improvements, even though it is evident that several large companies are setting up for this business – but it is not in the media at this time.

Guest use of credit cards to make purchases is definitely down. This trend started for our stores back in August and has continued to decrease with an increase of cash purchases and a few more checks. Guests are also commenting that they do not want to use their credit cards. Frequently guests move into the check-out lane and tell the cashier that their total may not exceed a dollar number. If necessary, they will put items back to keep to their limit.

Each of these behaviors goes beyond the actual family income and into the realm of fear or of a form of obligation behavior. Obviously the behavior dampens the level of sales and extends the slowdown in business.

Guests are doing their hobby – that is also evident. So they are using their stash, sharing with each other, looking for ways to find unused products and doing more "reuse" or remake of existing items. We do not see signs that guests are giving up on our industry or are not interested in various craft hobbies.

(Note: Retailers, are you noticing changes in your customers' shopping patterns? Email CLNmike@clnonline.com. To read previous "Benny" columns, click on the titles in the right-hand column.)

xxx

 

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