Snow And The Future Of Retail Sales

Shopping is local. Travel is not. People who had plans to go to Florida which were then canceled may not be able to get new reservations or rebook vacation homes. People who planned to drive ten miles to buy clothing and appliances can easily reschedule their trips.

The shoppers who stayed out of stores in January, though,  may never come back. One of the factors will be whether people are disappointed in the lackluster pace of the recovery. People may also look at their paychecks and see that the tax cuts for 2011 have not yielded as much as they thought. In addition,  retailers  face rising costs because of rising commodities prices that will at some point need too be passed to consumers. No one can say whether those plans will be successful

Retail sales are among the most fickle parts of the economy. They can turn on a dime as was the case during the holidays. Early discounts brought shoppers into the market. The trend began to exhaust itself as Christmas approached and shoppers had already tapped their bank accounts.

The positive news for consumers is that the largest retailers have decided to sharply cut prices while the economic recovery remains uneven. Wal-Mart (NYSE: WMT) has elected to chop prices on hundreds of items. It is easily able to afford the decision. Target (NYSE: TGT) will have to follow its larger rival to keep from losing market share. Other big retail operations which did poorly in the latter part of last year,  such as Best Buy (NYSE: BBY), will need to draw people back into their stores to pick up lost momentum

It will be a bad omen if people do not return to shops in February, particularly if retailers have lowered prices. It will mean consumers have become dispirited which could last well into 2011.

Douglas A. McIntyre