The Plow Horse Economy Goes Shopping

rocking-horseWhen American families gather for Thanksgiving meals, American retailers hope the conversation turns to shopping. National chains and local merchants alike are gearing up for their make-or-break season.

Early signs suggest consumers might open up their wallets a little wider this year. The “Plow Horse Economy” is still growing, slowly but surely. Unemployment rates are down considerably from their recession highs while the “wealth effect” of home and stock prices boosts confidence for upper-income Americans.

Another factor might help middle-class consumers spend more, too. Gasoline prices are down more than 20% from this year’s high. According to Yardeni Research, lower fuel prices will give consumers a $110 billion annual windfall. A large part of that money will go toward other discretionary spending – holiday gifts, luxury items, restaurant meals, etc.

I believe those additional dollars circulating through the economy will spur on the Plow Horse, creating new jobs and making businesses more profitable. The additional sales and income tax revenue will help federal, state and local finances, too. Everyone wins when the economy picks up the pace.

At the same time, not every retailer will win. People may shop more, but they won’t necessarily buy the same goods from the same merchants they did in the past. Last month’s retail sales data from the Commerce Department showed an overall sales increase, but much of the gain came from online merchants instead of “brick and mortar” stores.

The chart below from the Wall Street Journal shows e-commerce sales as a percentage of all sales. It excludes restaurant, car and gasoline sales since you can’t do those things online (yet).


While 10% is still a small proportion, the growth rate is amazing. E-Commerce sales doubled in the last five years and I think will only accelerate from here.

Some analysts say retailers should prepare for brutal price competition during the holidays. Shoppers are no longer shy about finding an item in a store, then searching online for a better price. Mobile devices make it quick and easy.

To combat this “showrooming” phenomenon, Wal-Mart (WMT) and many other chains have authorized store managers to price-match identical goods a customer finds at Amazon (AMZN). In so doing, they may save revenue but sacrifice profits. We won’t know how much impact the practice has on the bottom line until companies report fourth-quarter financials in late January.

Nevertheless, the holidays are here and both consumers and merchants will try to make the most of it. We may not see a return of the frantic shopping seasons in the pre-2008 era, but is that a bad thing? I think not. The tough years helped us appreciate our families, friends and faith. The cautious but steady Plow Horse may be just what we all need this year.


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