Volume 3, No. 10
December 2007

Be Sure To Read BIZ MO's Regular Feature Writers:

Mike Gould
Small Business &
The Internet:

Mel Muskovitz
Family Responsibilities
Discrimination - What
Employers Need to Know

Ann Arbor Area BUSINESS MONTHLY magazine brings the reader the latest business news and information important to the businesspeople in Washtenaw County. Each month articles cover real estate, legal, Internet, employee concerns and the climate of business in the greater Ann Arbor area. There is news about company employees and feature articles on local businesses. We cover business news from Ann Arbor, Chelsea, Dexter, Manchester, Milan, Saline, Whitmore Lake, and Ypsilanti.

Retailers Batten Down The
Hatches For Holiday Season

Nicola's Books in Westgate, Ann Arbor

Nicola's Books in Westgate Shopping Center.

By Alex Harrison

It's the most wonderful time of the year-or rather the most nerve-racking time of the year, especially if you're a retailer in the Ann Arbor area. Whether big-box or mom-an-pop, everyone is feeling the pressure of making crucial holiday profits during these last weeks of 2007.

The murky outlook for holiday sales this year is a nationwide forecast. While ten years ago double digit sales increases (over any previous year) were the norm, this year sales are expected to grow only four percent from last years holiday figures; this, according to industry expert Dr. Richard Feinberg of the Purdue Retail Institute at Purdue University. "The expectation for retailing is probably the lowest in the last 5 years," says Feinberg. Not exactly music to the ears of those who have increased spending for promotional events in order to bring more consumers into their stores, all the while depending on this crucial month to stay in the black for the year.

Starting Early to Finish Ahead

Nicola Rooney is busy as usual at her independent book store, Nicola's Books, in Westgate Shopping Center. Though it's a week before Thanksgiving, the holiday merchandise is already displayed-greeting cards, children's classics, and plenty of copies of the years' anticipated best sellers. Regular customers are already coming in to do their holiday shopping-today for example, Nicola helps someone place an order for a classic, The Velveteen Rabbit as a gift set complete with the plush bunny. Even with the assurance of loyal repeat buyers, Rooney is preparing for what may be a cool holiday sales season.

"I'm not wildly optimistic about this Christmas season," says Rooney. She explained that her best sales year was three year ago-in line with national figures for 2004 which indicated an 8% holiday sales increase. Unfortunately, the last several years have not seen such increases. Rooney also agrees with national statistics which indicate that holiday retail sales account for (on average) up to 40% of annual sales, but more importantly up to 75% of all profit in any given year. "For us, a perfectly respectable year means breaking even for all the other months of the year," says Rooney. "We may make a little profit in November, but what happens to our December is critical in terms of whether there is anything left in the bottom line at the end of the year."

Like many retailers large or small, Rooney started her holiday promotions well before Thanksgiving. In fact, Nicola's Books tends to have more promotional events in November than in December. "People get so busy during those last weeks before Christmas that it's just not as profitable to schedule elaborate events at that time." Rooney hopes that by offering sales and promotions during the pre-holiday season, she'll attract customers in a steady flow, rather than a mad dash. "We want our customers to shop early so that they find what they're looking for in stock," she says. It is also her hope that by preventing a mad dash her store can focus more on quality customer service, an attribute that sets her apart from most of the chain book stores in the Ann Arbor area.

Jill Damon, co-owner of 16 Hands, a gallery and gift shop on Main Street, is starting her promotions early as well. Two weeks before Thanksgiving, the store offered a week of free shipping to online customers, a strategy that has proven wildly successful for retailers with an online presence. For the second year in a row, 16 Hands also offered a postcard promotion for people on their mailing list. "Starting the Sunday after Thanksgiving and for the next five days following, customers received 20% off their purchases with the presentation of the post card," explains Damon. "We also let our postcard recipients know that they could bring a friend with them to take advantage of the same discount. That promotion has really paid off for us. We're really trying to bring new customers in while encouraging our existing customers to come again."

Truly, the biggest incentive for the consumer is the "Sale". The Purdue Retail Institute expects to see an increase this season in sale offers that then offer coupons at Point of Purchase, promising greater sales if the customer comes back during an appointed time before Christmas. Dr. Feinberg explains that "this strategy is employed by retailers to try to get the consumer to revisit during a crucial week, and represents the fact that retailers cannot guarantee that a consumer will ever come back."

The larger retailers such as Wal-Mart are expected to continue announcing aggressive sales and discounts-they announced price cuts on many of their toys back in October. Feinberg points out that although smaller retailers will have a hard time matching offers from the larger retailers and will struggle to meet or beat the four percent sales growth expectation, even stores that can offer substantial sales aren't necessarily better off.

"Big discounts and sales may be good for the consumer but it may not be good for retailers. A four percent sales increase may not mean a 4% increase in profitability," says Feinberg.

For small retailers like 16 Hands, rolling out the holiday promotions earlier is a way to jump start cash flow earlier in the season. Purchasing extra inventory for the holiday season can be costly, so earlier sales can help to offset that burden. Damon also hopes that more evenly distributed holiday sales will keep seasonal staff hours to a minimum. "Even before the holidays, we've had to make several adjustments to keep profits up, such as decreasing staff hours and keeping inventory lower," she says. The shop has also chosen to be more strategic when it comes to their advertising budget.

Long Wish-lists, Light Wallets

By now, many of us have grown weary of nightly news coverage varying only narrowly between topics such as the down housing market and soaring gas/energy costs. As unsavory as they may be, the national and local retail market cannot ignore the implications of these issues on holiday sales. While gas prices nationally are averaging about $2.96 per gallon, Ann Arborites have to adjust to pumps charging between $3.19 and $3.25. "Gas prices are just like a tax on consumer spending. For every dollar spent on gas there is one dollar less to spend on the holiday," says Feinberg. "This disproportionately affects lower income consumers which hurts discounters the most."

Feinberg also predicts that home heating oil will have a significant effect on consumer spending since costs are expected to go up 25% or more this season. Ann Arbor may have experienced an Indian summer that kept many people from cranking up the thermostat until these last couple of weeks-but rest assured, the cold weather is coming, along with higher home heating bills.

Retailers cannot turn a blind eye to the fact that in Michigan, there's one foreclosure for every 102 homeowners, placing it in the top five highest states for foreclosure rates. Even for homeowners meeting their mortgage payments, the down housing market has left many with less credit to draw from, which means less purchasing power overall. Fortunately for the consumer, it is predicted that discount retailers will offer increasingly attractive sales up until the last minute-since Christmas falls on a Tuesday this year, it is expected that Saturday, December 22 will actually turn out to be the busiest shopping day of the year in terms of sales.

Multichannel Retailing Fills in Crucial Gaps At a November 2, 2007 media briefing, the National Retail Federation announced the results of its sixth annual eHoliday Study, which surveys both retailers and consumers about online spending and sales. "There seems to be a shift that we're seeing in spending, from traditional retail to online retail.

According to our research 44% of consumers will be buying at least one gift online this season," says industry expert Scott Silverman, an executive director at the NRF. Online sales for 2007 (including the holiday season) are expected to reach 260 billion dollars, up 20% from last year.

Research is also indicating that shoppers are becoming more comfortable buying online. Where online spending was predominantly on tech products several years ago, apparel, gift cards, electronics, DVD's, and books are now the most commonly purchased online items. The Purdue Retail Institute estimates that retailers without strong a strong web presence could be missing out on 2-5% more sales annually.

For Jill Damon of 16 Hands, putting their inventory online has been a strategic move with a very positive outcome. "It has had a tremendous impact, year round really, but particularly during the holidays. Our web sales this year have more than doubled over last year," says Damon.

After revamping the website this year to make the click and ship process even easier for customers, she is hoping for a similar growth pattern over the next six weeks of the holiday season. Taking a multichannel approach-employing a website and catalog in addition to the brick and mortar retail location-is proving to be a rising trend nationally.

As Damon notes, it's becoming particularly useful to Michigan businesses. "The internet sales have really helped us to deal with the Michigan economy. We can obtain and keep customers who aren't affected by such a heavy downturn." For example, tourists who make their way to Ann Arbor during the summer season can have easy access to the inventory at local shops throughout the year, and particularly when it comes time for holiday gift giving.

According to the National Retail Federation, successful mutlichanneling will include promoting the retailer's website in-store and vice versa. Consumer research points toward an increased use of consumers who spend time researching gifts online prior to making purchases. Providing a source of information about their products that customers can access 24/7 is a great way to demonstrate customer service without the headache of holiday crowds.

In socially conscious Ann Arbor, groups advocating buying local are making an effort this holiday season as well. The Main Street Area Association will be holding their annual Midnight Madness event on the evening of December 7th, hoping to draw shoppers and their holiday dollars with special sales, promotions, and family entertainment.

The association also puts on "Festive Fridays" every Friday evening leading up to Christmas in order to promote the downtown shops. Think Local First, another Ann Arbor organization, will be sponsoring Buy Local Week from December 1st through 8th. Member retailers will hold special events and promotions throughout the town.

So this year, local retailers will again face an uphill battle to make profitable gains throughout the holidays. While times may be tighter, corporate retailers like Macy's are reporting third quarter earnings that are actually higher than expected. Savvy shoppers will continue to hunt for holiday bargains, and savvy retailers in the Ann Arbor area are doing their best to follow consumer trends in order to keep customers happy and turn a profit by the time they ring in the New Year. Only time (and sales receipts) will tell.