Cyber Santa

5 January 2004


Holiday Spending Soars On-Line, Toy Stores Weak

Christmas is for the young and the young at heart as the saying goes. And that means that toys are a fundamental part of the holiday. While there is an unfortunate materialism and commercialism that has crept into the holiday, the world would be a better place if more people spent more time playing with toys. Based on sales figures, though, there weren't as many toys under the tree as one would hope. However, on-line retail did put a sparkle into the season.

Wal-Mart is the biggest seller of toys in the US, and it does so with a pricing strategy that does great damage to stand-alone stores like KB Toys, Toys R Us and FAO Schwartz. Wal-Mart and other discounters slashed toy prices around Thanksgiving, in some cases selling them at a loss to get people into the stores, making up the cost with sales in other departments. The result was a 7.7% drop in sales at the stand-alone toy stores.

Overall, the spending for Christmas/Hanukkah/Solstice presents as measured by retail sales figures was up about 6.5% according to MasterCard, or more accurately, the credit card racked up 6.5% more in sales. While this may reflect more people buying on credit, it is a fair enough proxy to make this point -- the toy stores did worse than a great many other retailers.

The bright spot was on-line sales, which climbed 37% to $15.8 billion according to a Goldman Sachs report. Amazon.com reported selling 2.1 million items in a single day (around 24 items a second). The reason, which can't be scientifically proved, is convenience. A great many people hate the crowds, the parking headaches and the hunt for gifts. E-tailers provide one-stop shopping from the comfort of one's own terminal. Moreover, the companies have proved themselves capable of shipping orders efficiently, which means out-of-town presents don't require an extra stop at the post office.

The final matter to consider is the popularity of gift cards this year, what one might have called a gift certificate ages ago (the Clinton years?). Millions of dollars have yet to be spent, and thanks to current accounting practices, revenue from the purchase of the cards can't be recognized until the goods walk out the door. So, holiday spending is still going on. It may not rescue the holiday from being an average one for retailers, but it's nice to know 2004 is starting with pent up demand in the shape of gift cards.

Home