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Consumers Get More Stuff For Less Money?

12:21 PM, Dec 30, 2008 • By JIM PREVOR
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Most retailers won't report their sales results until the customary 1st Thursday after the 2nd, which is January 8. Still that hasn't stopped the downbeat headlines trumpeting the plummeting of retail sales, mostly based on the SpendingPulse Holiday Wrap-up Report put out by MasterCard Advisors. The report claims that "excluding gasoline, total sales were down 2% to 4% this holiday season compared to the same period in 2007."

One possibility is that when all the numbers are in MasterCard's estimates may be wrong this year. While MasterCard has complete access to sales activity on the MasterCard payments network, it has to estimate other sales, including the use of cash and checks. With credit card companies cutting credit limits and raising interest rates and fees it is entirely possible that MasterCard's model -- just like those used by so many Wall Street investment bankers -- will prove to be off this year.

In addition, many of the fastest growing retailers in the country are so-called "deep discounters" such as ALDI and they don't accept credit cards making MasterCard's estimate even less reliable.

Yet even if the estimates are correct, if you combine a 2 to 4 percent drop in sales, measured in dollars, with reports of far deeper discounting by retailers and manufacturers, the implication is that consumers bought more of most items than they did last year. In fact if reports of deep discounts on luxury goods and electronics turn out to be representative, it is very possible that this Christmas season consumers purchased substantially more goods than in 2007.

After all, if a store offers a 50% off sale it has to increase sales by 100%, in term of numbers of items sold, in order to stay even on dollar sales.

Of course whether sales are strong or weak, the profits of retailers and manufacturers, who often help retailers fund discounts, are at risk from deep discounting. The U.S. probably is over-stored and retail will have to adjust. That adjustment, just like adjusting from a surplus of homes, auto manufacturing capacity and who knows what else, will not be painless.

Still, how consumers are suffering in a recession is an important point of public interest so before we all collapse in despair, isn't it worth noting that a more accurate headline than "Retail Sales Plummet" is "Consumers Get More Stuff For Less Money?"