A view of the industry through the
eyes of a chain buyer.
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
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?
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
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
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
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
(Note: Since Mike wrote this, the Conference Board’s
Consumer Confidence Index jumped 12 points in April, its highest
reading thus far in 2009.)
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
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
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 CLN – email@example.com.
To read previous "Benny" columns, click on the titles in
the right-hand column.)