NMSU report predicts drop in holiday shopping this season

October 10, 2011 by Janet Perez, NMSU News Center

Retailers in New Mexico and across the nation could be singing the blues this holiday season.

A report from New Mexico State University predicts holiday sales this year will drop 0.7 percent in the state and 1.8 percent in the U.S. compared to 2010.

“I hope I’m wrong, but my forecast for 2011 holiday retail sales is a lot worse than those of my fellow forecasters,” said Bruce Huhmann, an associate professor of marketing at the NMSU College of Business.

The International Council of Shopping Centers, Shoppertrak, Kantar Retail Group and Deloitte’s Retail Group are predicting a national increase in 2011 holiday sales ranging from 2.5 percent to 3.5 percent compared to 2010.

Huhmann says his predictions for a decline have less to do with the actual health of New Mexico’s and the nation’s economy and more to do with consumer fears.

A falling stock market, unstable home prices, continued high unemployment nationally and dysfunction on Capitol Hill likely portend that consumers will be spending carefully this holiday season, Huhmann said.

New Mexico will fare only slightly better than the rest of the nation in holiday retail sales this year for two main reasons, Huhmann said. The first is that the unemployment rate in New Mexico has been falling at a much more steady pace than that of the rest of the country. Unemployment here remains below the national average and has decreased from a seasonally adjusted 6.7 percent in July to 6.6 percent in August. The unemployment rate in New Mexico stood at 7.5 percent last August. Meanwhile, the U.S. unemployment rate remains mired at 9.1 percent.

New Mexico’s tendency to be more insulated from the rest of the nation’s up-and-down economic cycles is the second reason for the less pronounced predicted drop in holiday sales this year, according to Huhmann. The state’s insularity comes from a large portion of the state’s residents working directly or indirectly for the state and federal governments. However, this insularity could be eroded if the so-called super committee in Congress tasked with getting the nation’s budget on track hits a stalemate.

“While (government employment) is normally a benefit to New Mexico’s economy, the large numbers of New Mexicans affected by government spending could become a drag on the state economy if the congressional super committee is deadlocked and automatic budget cuts come into effect,” Huhmann said.

However, New Mexico faces its own challenges that will keep holiday sales down. The debt load many New Mexico residents are still carrying from the housing bubble bust is shared with the rest of the country.

“This will put a damper on retail sales, especially in urban areas of New Mexico and those that attracted many retirees during the housing boom, such as Silver City,” Huhmann said. “Many of these newcomers to New Mexico were wealthy retirees from other states who are still waiting for their retirement portfolios and housing values to fully recover from the 2007-2009 recession.”

Also, fuel prices are falling. That’s good news for the average commuter in other parts of the country, but not in energy-producing states such as New Mexico, where the “economy is closely tied to commodity prices for wealth creation and job growth,” Huhmann said.

In a survey of likely holiday shoppers in New Mexico, Huhmann found that 70 percent of consumers plan to target their dollars at discount retailers, with 62 percent also spending some money in department stores. Forty-nine percent say they also will buy from online retailers, while 48 percent say they plan to shop at grocery and specialty stores, as well. Twenty-one percent of shoppers say fabric and craft stores, along with drug stores, will get some of their dollars.

As for retailers hoping to get the most dollars from shoppers, Huhmann’s survey found that 37 percent of consumers want sales or price discounts, 24 percent look for a greater range of merchandise selection, 14 percent like everyday low prices, 12 percent prefer product quality, 7 percent opt for a convenient location and 4 percent keep an eye out for good customer service.

“Due to consumer worries over the economy and their personal financial futures, shopping is forecasted to be value-focused. Value is not solely about price, but a balance between price and benefits,” Huhmann said. “We also expect consumers to reduce their shopping trips with a greater proportion of trips driven by value to discounters, retailers holding promotional sales or offering quality merchandise for a reasonable price.”

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