In the end, what matters to business success is free cash flow.
There was a lot of positive reaction to the fact that Black Friday retail sales in the U.S. were up about 3% vs. last year. Many observers thought this indicated we might dodge a bullet again this Christmas shopping season. The biggest problem with this, of course, is that we don’t know how much discounting had to be done to generate this sales growth. Anecdotal reports are that it was massive, and sufficient to reduce total profit even after the increase in unit sales.
There are other problems with even taking the top line sales numbers as an indicator of likely good sales growth for the season. First, there are only 27 shopping days in the buying season this year vs. 32 last year, because Thanksgiving is so late. While buying tends to be concentrated at the front-end and back-end of the buying season (because retailers have trained consumers to play a game of chicken, waiting for last-minute sales), and this ameliorates the effect somewhat, this is a huge difference in that there are about 15% fewer days, so the average day should be a lot higher this year than last to get same aggregate sales for the season. Second, Black Saturday is not as big a shopping day as Black Friday, but it is one of the big days of the season, and it was down vs. last year. Third, e-commerce sales for the four weeks of November through Black Friday actually declined vs. 2007, which is the first time this has ever happened. comScore forecasts flat online sales for 2008 vs. the 2007 season, which would be hard to reconcile with much growth for in-store shopping.
The evidence so far is that this shaping up to be an even worse Christmas shopping season than most informed observers anticipated even a week ago. The S&P Retail Index went down substantially more than the market yesterday, as it integrated the data from Friday and Saturday.
On the other hand, according to the guy at the local church where we buy our Christmas trees, he’s selling a lot of trees as people focus on spending time with family. So maybe there’s a silver lining.