Ho-ho is turning to oh-oh, Twin Cities holiday shopping study finds

At the same time that Twin Cities shoppers are planning to cut back on overall spending this holiday season, they are planning to direct more of that shrinking budget to Internet shopping and less to more traditional in-store purchases, according to an annual University of St. Thomas study of Twin Cities holiday shopping trends.

This double-whammy effect — a smaller slice of a smaller pie — likely will be felt most heavily by the region’s major malls and smaller retailers.

Results of the seventh-annual study, just concluded by three marketing professors at the university’s Institute for Retailing Excellence, suggest that holiday shopping in the Twin Cities will decline by more than the predictions of several national surveys. That’s not good news for Twin Cities retailers, since even last year’s numbers were flat.

According to results from the survey, aggregate household spending for holiday gifts is expected to be 10.9 percent less in the Twin Cities this year than in 2007. National surveys, meanwhile, are predicting slight increases in spending (2.2 percent by the National Retail Federation and 1.7 percent by the International Council of Shopping Centers) to decreases of 5 percent by Brand Keys and 6.5 percent by Deloitte and Touche.

According to data collected and analyzed by researchers Dr. Lorman Lundsten, Dr. Dave Brennan and Dr. John Sailors at St. Thomas’ Opus College of Business, holiday spending will total $663 per metro-area household, down 11.7 percent from last year’s $751. It also is the lowest amount in the seven years of the study, even without adjusting for inflation. In 2006, respondents said they planned to spend $758, in 2005 they said $750, in 2004 they said $796, in 2003 they said $779, and in 2002 they said $792.

Planned average household spending chart. Click on chart for enlarged version.

“In the first three years of our survey, the Minnesota findings mirrored national predictions,” Brennan noted. “For the last four years, however, respondents to our Twin Cities survey said they planned to spend less, on a percentage basis, than the numbers reported in the national surveys.”

Based on the local responses and the population of the greater Minneapolis-St. Paul metro area, the researchers predict that the metro-region shoppers will cumulatively spend $832 million this year, down from last year’s predicted $934 million. This represents a decrease of 10.9 percent.

Planned holidy spending chart. Click on chart for enlarged version.

“That is down $102 million from 2007, which is a substantial drop,” Brennan said. “And when factoring in the rate of inflation, the total estimated spend in 2008 will be an additional 2.5 percent less than 2007 when factoring out the increase in energy and food.”

This year’s total predicted spend of $832 million also compares to $935 million in 2006, $914 million in 2005, $959 million in 2004, $928 million in 2003, and $924 million in 2002. These numbers reflect the change in the metro region’s population, but are not adjusted for inflation.

More are saying ‘less’

According to the St. Thomas research, more than half of Twin Cities shoppers plan to spend less on their 2008 holiday purchases, while very few planned to spend more.

There was an especially large swing in the percent of those planning to spend less. This year 53.9 percent plan to spend less compared to 27.5 percent last year. The number planning to spend about the same this year, 41.6 percent, is down from last year’s 58 percent. And the small number planning to spend more, just 4 percent, is down from last year’s 14.5 percent.

The professors noted that their findings are based on what consumers predicted when they completed the surveys in October. Actual spending might be different because shoppers could spend more or less than they planned once they get into the stores.

“There were three broad categories of economic concern in October that could have influenced the survey responses,” Brennan said. “There were high gasoline prices, the housing-market meltdown and more recently the sub-prime financial-liquidity crisis that precipitated the plunging stock market.

“While gasoline prices have come down, the other factors are still there, including growing unemployment and the global economic slowdown resulting in nervous consumers. In other words, we feel the situation has not changed enough since October to significantly alter the survey findings,” he said.

This year’s holiday spending survey included 659 responses from households in the greater Twin Cities metropolitan area and portions of western Wisconsin. The respondents generally reflect the demographics of the area and previous holiday spending surveys. Respondents this year were somewhat more likely to be female (58.9 percent) and a bit older (67 percent are age 45 and older).

A peek under the tree

What will Twin Cities-area shoppers buy with their $663? The professors created an index to analyze the relative popularity of a dozen gift categories. It sheds light on the “what’s hot” question and allows year-to-year comparisons.

The categories — listed by most-popular first — are: books, gift certificates, clothing and accessories, cash, toys and hobbies, entertainment, sporting goods, furniture, consumer electronics, video games and related gear, computers and related gear, and jewelry.

Planned purchases graph. Click on chart for enlarged version.

That’s close to last year’s list, but there have been some changes. Books moved to the top spot after being No. 2 last year. Clothing, No. 1 last year, slipped to No. 3. Gift certificates are No. 2 this year, up from No. 3. Cash moved up a spot, to No. 4, and toys dropped a spot, to No. 5.

At the lower end of the popularity scale, consumer electronics fell from No. 7 last year to No. 9 on this year’s “top 12″ list.

The survey results showed that shoppers planned to reduce spending in all 12 categories. The categories least impacted this year are books, gift cards, clothing and cash gifts. Categories most impacted were the more expensive big-ticket products like jewelry, computers, video-game items and home electronics.

Where they spend

For the pa
st seven years the survey has asked shoppers where they plan to spend their money. Their responses didn’t change much … until this year.

“For retailers, the channels of distribution are changing,” Lundsten explained. “Instead of going to a store, buying something and bringing it home, more shoppers are purchasing gifts on-line, through catalogs and over the phone. Instead of going to the store, shoppers are having the presents delivered to their homes. After tracking this since 2002, the shift this year is significant.”

This year, shoppers said they plan to spend 31.5 percent of their budget at the nine regional shopping malls or downtowns and another 32.9 percent at other metro-area stores. Meanwhile, they plan to spend 12.5 percent using catalogs or the phone, and finally, 23.1 percent via the Internet.

The stores are losing ground to catalogs and the Internet. Last year, shoppers were going to spend 80.8 percent of their budget in stores; this year it’s 64.4 percent. Last year shoppers were going to spend 19.3 percent using catalogs or the Internet; this year it’s 35.6 percent.

Spending by category  pie chart. Click on chart for enlarged version.

Internet shopping alone has increased from 7.3 percent in 2002 to 23.1 percent in 2008.

“Many large retailers sell products the on the Internet as well as in stores,” Lundsten noted, “so for them the impact of this change will not be so significant. Several factors converge here if you are, for example, a smaller retailer in an upscale mall.

“In addition to fewer people in the stores, they will have a smaller overall holiday budget, and less of that budget is going to in-store purchases,” Lundsten said. A final factor is found in October’s national retail sales figures. “They indicate that while overall retail sales are down, they are going up at Walmart. The trend in October showed that shoppers are spending their money at Walmart as opposed to stores in the more upscale malls.”

Most-popular malls

Which of the regional malls are going to get the largest share of that $663 holiday budget? The researchers approached that question from two perspectives: first, which mall in the region were metro-area consumers planning to visit for holiday shopping and second, which mall have they shopped at most often in the last three months.

The questions are similar but the results are not the same. However, the Mall of America and Rosedale came out one-two in both cases.

When asked which malls they planned to visit for their holiday shopping this year, survey respondents listed, from most-popular to least-popular: Mall of America, Rosedale, Southdale, Ridgedale, Maplewood and Eden Prairie (tie for fifth), Burnsville, downtown Minneapolis, Northtown, downtown St. Paul and Brookdale.

Plan to shop this mall graph. Click on chart for enlarged version.

However, when asked which malls they have shopped at most in recent months, respondents listed their top five as Mall of America, Rosedale, Ridgedale, Maplewood and Southdale. Next in line are North Town, Eden Prairie, Burnsville, downtown Minneapolis, Brookdale and downtown St. Paul.

By comparing the malls of choice and where the respondents live, the survey results show that shoppers favor malls closest to home.

What the findings tell us

Based on this year’s survey, as well as other financial data, the St. Thomas retail researchers conclude that:

  • The drop in gas prices isn’t enough to offset concerns that shoppers have over the economy. Nervous holiday spenders are not big holiday spenders.
  • Smaller shopping budgets; the popularity of gifts like cash, books and gift certificates; bargain hunting at discount stores, especially at discount stores; and a shift to more on-line shopping present dramatic challenges to retailers. The combination of factors could lead to store closings and bankruptcies in the coming year.
  • Growth in on-line shopping corresponds to fewer people in the stores. A rule of thumb in retail marketing is that the more people in the store, and the longer they stay in the store, the better the sales.
  • This is shaping up to be a challenging holiday season for stores at the more upscale regional shopping malls.
  • Continuous years of pre-holiday sales have taught shoppers to expect price cuts. This year the sales came earlier and the price cuts were deeper. Customers can cherry-pick and look for the deals. They do this both on the Internet and in the stores.
  • The bargains no doubt will help stretch a family’s smaller holiday shopping budget. With a little luck and some careful shopping, there could be the same number of presents under the tree after all.

The researchers

Lundsten and Brennan are both longtime members of the Opus College of Business faculty. Sailors joined the faculty in 2005.

Lundsten is a professor of marketing and chairs the university’s Marketing Department. He holds a doctorate from the University of Michigan.

Brennan, who holds his Ph.D. from Kent State University, is a professor of marketing and co-director of the university’s Institute for Retailing Excellence.

Sailors is a specialist in consumer behavior, marketing research, and brand equity and loyalty; his doctorate is from Northwestern University.

The Institute for Retailing Excellence, part of the St. Thomas College of Business, conducts research and offers educational programs for those who work in retailing.