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The Ghost of Christmas Spending
Posted by: Billy Hollis on Wednesday, December 26, 2007

I notice (via Instapundit) that retail sales had only a modest increase of 3.6% this Christmas season. The increase lagged behind 2005 and 2006. The NYT predictably calls this “bleak”, but I don’t see why it should be taken that way.

First, it’s still growth, and roughly in line with economic growth during the period. Simple math will tell you that retail sales can’t grow at 8% indefinitely while growth is down around 4%. If it did, retail sales would eventually become the entire economy, which is obvious nonsense. Of course, NYT reporters generally don’t seem to take math beyond basic arithmetic into account in their stories. Not surprising; when I taught calculus as a graduate student, I don’t recall a single communications major who was ever in my class, or in that of any of my colleagues.

Second, I’m not the least bit surprised that retail spending during Christmas is only growing at a modest rate, and I would not be at all surprised to see it begin to shrink in the years ahead, or at least fall below the rate of growth. My reasoning is simple. I want people to stop giving me stuff. I’ve got too much stuff already.

Consumer goods are cheap. So cheap that as a young adult, I would never have believed it would get to this point. It’s not just electronics. Clothing is cheap. I paid fifteen bucks a pair for Levis in college, and I’m paying less than twenty bucks a pair for Wranglers on Amazon (which I like better) thirty years later, which means my inflation-adjusted price is less than half of what I was paying then. And I have quite a bit more disposable income now. Media is cheap, food is cheap, most anything I want to buy is cheap. Inflation adjusted, a bicycle for one of my sons is less than one third the cost that my parents paid for me to have a bike, and today’s bikes are much nicer.

As a result, if we want or need something around here, we buy it. Only big ticket items are excepted, and that’s now down to things like plasma TVs and refrigerators.

The result is that we have more clothes than we can wear, more DVDs than we can watch, more food than we can eat, and more gizmos than we can figure out how to use. We don’t need any more, and increasingly, we don’t want any more.

Too much stuff is a burden. Just finding a place to put it is hard. Remembering where it was put is even harder. Organizing it soaks up the most valuable asset we have now, which is time.

This makes gift giving quite difficult. Most of the people I know are in the same boat, which means finding something they want to have, but don’t already possess, it really hard. We gave a lot of gift cards this year, because the alternative is to spend time finding something we think might be appropriate, and half the time the recipient just pretends to like or want it when the first thing they think when they see it is who they can re-gift it to, in order to get rid of it as fast as possible.

I’m pretty sure our Christmas gift spending has fallen quite a bit in the last five years. We still gather with the extended family and still exchange gifts, but several relatives have dropped out of the process. Plus, the customary amount has not gone up in a long time, which means it’s going down in inflation-adjusted terms. And I’m seeing strong signs that most of the participants are now seeing the whole process as merely symbolic. Except for some of the younger relatives getting things for their young children, there’s just not any real need for much of anything.(*)

If this phenomenon is as common as I think it is, then I’m expecting Christmas spending to become quaint in two or three decades. Why spend money to get something as a gift that’s more likely to be a burden than a boon?

No doubt New York Times writers will then interpret it as economic gloom. Unless a Democrat is president at the time, of course.

(*) Disclaimer to short-circuit the usual suspects: I realize there are still victims of poverty, etc. etc. That doesn't affect the conclusion that a very large portion of the population has more stuff than they know how to manage.
 
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You’re right about the cost of things. I remember 15 years ago getting Nintendo games - $60-70 a pop for the cartridge, sometimes more if you weren’t a smart shopper. These days, XBox and Playstation games are $60, and Nintendo Wii games are $50. The prices have dropped considerably.

Consider, too, that two "must have" items - Rock Band (a video game that cost $180) and the Nintendo Wii - both had major stock issues. You could not get your hands on either of those items, the latter selling for nearly twice its $250 price point on eBay over the season. You’d think that the NYT would look at that phenomenon as a cause, but that’s not the meme.
 
Written By: Jeff
URL: http://www.internationalhouseofbacon.com
Regarding the math education of journalists: I’ve taught a class called Quantitative Reasoning which is supposed to be a college algebra-level "math for English majors" course, and we did cover exponential models, so there really is no excuse for that kind of ignorance. The comm majors weren’t in your calculus class, but they were in my QR class, and I didn’t pass ’em if they didn’t "get" exponential growth.

Regarding gifts: there’s also been an increase in people looking specifically for handmade goods. Handmade things are being used as alternatives to standard consumer goods, because they pass on the message "I really care enough about you to get something you want" without busting the bank. Thus we see the rise of sites like Etsy (www.etsy.com). If you only have $20 to spend, you can get something hard-to-find that says you care.
 
Written By: Wacky Hermit
URL: http://organicbabyfarm.blogspot.com
Absolutely spot on.

Thank god for ebay....
 
Written By: shark
URL: http://
Are gift cards counted as a sale when the cards are sold, or are they counted as purchases only when used? Maybe some of the sales are just moving to a different time period.

:You are definitely right about too much stuff. I tell people I don’t want anything at all, but if they absolutely insist on getting something for me because I am so wonderful, I tell them give a donation in my name to the Salvation Army or Heifer International (at heifer.org). I do, however, still accept free drinks.
 
Written By: timactual
URL: http://
Are gift cards counted as a sale when the cards are sold, or are they counted as purchases only when used?
That’s a good question. I had assumed they were counted when sold, because the store gets the money then. But it may vary by retailer. Perhaps one of our commenters who is familiar enough with retail practices can tell us.
 
Written By: Billy Hollis
URL: http://
Gift cards are only counted as revenue when the card is redeemed. That’s one of the problems with Christmas spending trends - more gift cards mean more deferred revenue.

You do get to pocket the interest in the meantime, so the retailers love them.

With few exceptions we gave either gift cards or nothing this year (i.e. gift cards to the younger poorer crowd/nothing to the older richer ones).
 
Written By: Kevin
URL: http://
GIft cards for the five daughters and four spouses. All purchased on Christmas Eve, the last one at 5:45PM with 15 minutes to spare!!!

Omaha steaks and LL Bean apparel and other gifts purchased on the internet for all out of town relatives and my wife and me.

Grand total of shopping about 3 and 1/2 hours.

Amount spent - About $3,000.

Net revenue booked to conventional retailers as of this date $0.
 
Written By: vnjagvet
URL: http://www.yargb.blogspot.com
And, frankly, we need a new definition of poverty. Most "poor people" have cell phones and TV’s and all manner of goods that were classified as "luxuries" when I was growing up.
 
Written By: SDN
URL: http://
there are still victims of poverty
Are all those who live in poverty "victims" or just some of them?

Sorry to jump on this phrase but I liked the post until I tripped over this line. Do you really believe that someone can be a "victim of poverty?" Maybe just part of the spread of "victimhood" everywhere.

And SDN has it right, the definition of poverty in America is ridiculously broad.
 
Written By: GBW
URL: http://
GBW, I take your point. I was primarily thinking of children, and in some cases young adults, who suffer poverty through no particular fault of their own. Certainly there are plenty of people in poverty through their own devices, and calling them "victims" is not appropriate.

But all of them would be exceptions to the "too much stuff" generality.
 
Written By: Billy Hollis
URL: http://
Gift cards are only counted as revenue when the card is redeemed.
Is that because it hasn’t been subject to sales tax yet? That’s an interesting bit of info.

Billy - I had the same thought when my family talked about the retail sales growth: I asked aloud, "And how fast is GDP growing?" Is there a reason I should expect Christmas sales growth to outstrip income growth every year?
 
Written By: Bryan Pick
URL: http://www.qando.net
But all of them would be exceptions to the "too much stuff" generality.

It’s a nice theory and all, but the personal preferences of your extended family do not form a sound basis for extrapolating to an entire nation. The "we have too much stuff theory" taken to an equally arbitrary level of impact, should lead to the near-term collapse of the retail industry. All you do is add another bullet point as follows:

1. Most people already have a ton of stuff
2. No one wants to get or give Xmas presents anymore due to #1.
3. (ADDED) No one wants to purchase or give much stuff at other times, either.

All the reasons you’ll come up with that #3 is not true probably apply to #2.

The "gee, I sure have a lot of stuff" phoenomeon has probably been experienced by every generation in the past two centuries relative to the prior one, and it hasn’t resulted in a leveling off of property accumulation at any point. I mean, geez, go visit any family making five hundred grand. Observe the very large amount of stuff. Go visit the tiny shared apartment of a Mexican immigrant. A lot less stuff. Obviously, affluence is not causing any widespread ’possession fatigue’, at least not in a manner that affects actual purchasing power. So we’re left with a mysterious decline in Christmas giving that is not reflected in the other 11 months? Don’t find it likely. Besides, mild self-deprecation, *my* extended family’s experience is completely different.


Meanwhile,

The NYT predictably calls this "bleak", but I don’t see why it should be taken that way.

A better reason to think of this as "bleak" than the size of the number itself is to subtract population growth and current inflationary tendencies. Nevertheless, it may not really be all that bleak - unless you lose money for most of the year and expect to make it up in the Christmas season.

Most "poor people" have cell phones and TV’s and all manner of goods that were classified as "luxuries" when I was growing up

And poor people in your era had running water and electricity, which poor people didn’t have when your grandfather was growing up.
Goods are cheap. Services are expensive. Poverty is mostly the same experience as always, the only difference is that few people actually die of malnutrition on the streets in this era, until the ’limited government’ people roll that back.



 
Written By: glasnost
URL: http://
It’s a nice theory and all, but the personal preferences of your extended family do not form a sound basis for extrapolating to an entire nation.
glas, that completely misses the entire point. It doesn’t have to be "an entire nation". Not at all. It just has to be a significant fraction to have an effect on retail sales. That’s all I’m asserting, and the rest of your rant is based on assumed and incorrect premises.

Based on the other comments, you seem to be the only one who doesn’t see the effect I’m positing.
 
Written By: Billy Hollis
URL: http://
glas, that completely misses the entire point. It doesn’t have to be "an entire nation". Not at all. It just has to be a significant fraction to have an effect on retail sales. That’s all I’m asserting, and the rest of your rant is based on assumed and incorrect premises.

I accept your qualification, but it does not make my point go away, which you seem to have missed.

My point was:

Since the number of material possessions owned by the average US citizen has probably risen in every decade of our nation’s existence, why exactly would ’possession fatigue’ be kicking in now, and not ten, or twenty, thirty, forty, fifty years ago? Or if you assert that it existed previously, why is there now a link between this alledged phoenomenon and Christmas sales that never before existed?

Actually, I’m pretty sure possession fatigue and the "too much stuff" phoenomeon has been a cultural force for several decades. No word yet on why we all suddenly start seeing the effect on Xmas shopping this year only.

I’m looking forward to your explanation.
 
Written By: glasnost
URL: http://
glas, the most obvious sign I can point out indicating that this generation is different is simply this: we have the first generation of poor people in history that have a serious obesity problem. I consider that a pretty good sign that we’ve crossed a cusp in consumption.

Otherwise, I can only explain based my own experience, but it seems to resonate with lots of people.

Let’s take clothing as one example. My mother has been doing flea marketing as a business for over twenty years, and that grew out of her passion for garage sales. Once upon a time, twenty or more years ago, clothing was a big part of that resale trade. Almost any kind of clothing better than used underwear had enough value to go through the resale process.

She tells me that faded away about ten to fifteen years ago. Now only a few categories of clothing still sell; outerwear, jeans, and vintage collectibles being the main ones. Other clothing can be marked down almost to nothing, but it’s still very hard to sell. That suggests that the people who go to such sales, when tend not to be high on the income scale, have more clothes than they need. While the wealthy have been in that situation for a while, it’s the first time lower class people have.

It certainly applies to me, and I don’t consider myself wealthy. I’m using closet space that would have served two people when my house was built, and it’s full. My grandparents had about a quarter of the space I have, and were reasonably prosperous farmers, but never had a surplus of clothing.

Another sign is the plethora of people, books, and web sites offering advice on simplification of one’s life. That seems modern to me. Except for some zen-type advice or other religious strictures in previous generations, I don’t recall any significant drive to help people simplify their lives.

We’ve not quite reached saturation on gadgets yet, because innovation keeps changing them, and the desire to have the latest drives many people to constantly want new ones. But the sheer number is causing at least some people to have complexity fatigue; I know because it’s a frequent topic of conversation at the technical conferences I attend.

Of course, I can’t claim all this is definite. Sorry, but I don’t have time for a research project. I’m just asserting that I see a cultural effect, and I’ve lived long enough and have enough historical perspective that I think what I see is real. At least in the area of food, I think it’s undeniable that we’re in a fundamentally different era of abundance in American society. I see strong evidence that other consumer categories are following it.
 
Written By: Billy Hollis
URL: http://
You know, I’ve not researched it, but I have a vauge memory of the last years christmas season not looking as good as it did until well into the spring months. Some re-evaluation was done, but I think some of it involved the aforementioned gft cards.

Hmmm.

Now, I’m curious, and will have to do soem research on this.
If all this is correct, it would suggest we did far better than we’re being told. (Yeah, I know, big shock...)


 
Written By: Bithead
URL: http://bitsblog.florack.us
"Let’s take clothing as one example."

Look at that same criteria from another angle; check out the closet space in older houses. I have seen houses built recently with closets as big as my childhood bedroom, which had a closet that wouldn’t hold a contemporary Barbie’s wardrobe. Check out the average square footage of houses built today with those built 20 or more years ago. The used clothing you give to Goodwill is mostly sent overseas, not to Goodwill Thrift stores. Try to identify poor people by their clothing these days. Impossible. How many houses, even twenty years ago, had anything other than a one-car garage, if there was a garage at all? How many houses built in the last 20 years have only one bathroom? One telephone? One television? Things like televisions are no longer luxuries. Visit your local landfill or transfer station and look at all the computers, televisions, etc. that are being thrown away. Many of them are still functional or in need of only minor repair. We are awash in bigger, better, and more plentiful stuff. Who gets underwear or socks for Xmas (heh) anymore?
 
Written By: timactual
URL: http://
Well, okay, but I don’t really buy it.
 
Written By: glasnost
URL: http://
Bryan,

The cards aren’t booked as revenue until redeemed, because the retailer has no idea how much the goods that it will be redeemed for will cost at the time the card is "sold"/issued. The cards are a liability to the retailer. They represent that the retailer owes someone that amount of money.

When you buy a TV that cost the retailer $70, and you paid $100, it is clear that the retailer made $30. Now when the after Christmas sales kick in and you go to the same retailer, buy the same TV on sale and say a DVD as well with the same $100, the cost may be $80 and the retailer only makes $20. If you wait until March, the retailer may charge $110 for that TV, you have to kick in an additional $10, and the retailer makes $40. So until a sale (i.e. goods transferred) is made, the cards are a liability not revenue.

With the huge shift to gift cards as a giving, the Holiday retail season really extends through January. In some ways retailers are suckers for their extensive after Christmas sales. They are cutting prices right into the redemption of all those gift cards. Thus the cost of the mechandise that a $100 sale brings is generally higher after December 25 than before. Consumers benefit. Retailers bemoan.
 
Written By: Loren
URL: http://
I love to shop on internet... I saved good amount of money on the purchase of winter jacket from Brooks Brothers store through couponalbum.com....
 
Written By: Sue
URL: http://www.couponalbum.com/coupons/brooks-brothers.htm

 
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