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Break Out the Ruby Slippers...

10 Dec, 2002 By: Holly J. Wagner

While reports and speculation about retail performance are staples of every holiday season, this year's reports have been more of a mixed bag than in previous years. In fact, they look a bit too much like the Scarecrow in The Wizard of Oz giving directions by pointing in opposite directions at the same time.

Every week brings a new report about how consumer confidence is up, no it's down but we're expecting improvements in the job market; but whoops! employers trimmed their payrolls again and the “recovery” is even more jobless this week than last.

In the midst of all that retail has been this year's barometer. It's become almost a mantra that home refinancings have put money into consumers' hands and spending the profits has kept the economy afloat, a cycle economists have warned can only hold up for so long.

In last week's installment, analysts were crowing over big Black Friday sales, but warned that people were further into their annual shopping at the Black Friday starting gate than in years past.

This week's update from UBS Warburg and Bank of Tokyo-Mitsubishi notes chain store sales were down 2.3 percent in the week ended Dec. 7, which seems to bear out last week's conclusions. The report offered this bitter assessment: “It's beginning to look a lot like Christmas, as the saying goes, but unfortunately, right now it is looking a lot like Christmas 2000 – which was a dismal retail season.” The analysts predict the best of this holiday season is already fading in retail's rearview mirror.

While cheap DVD players are chumming the software feeding frenzy this year – and video retailers are right to get it while they can – they are also foolish to think that can go on forever. Consider writer Igor Greenwald's commentary for Smartmoney.com:

“A year ago, 25 percent of U.S. households owned a DVD player, according to one survey. That figure could well double by January as the DVD tries to almost single-handedly save Christmas. But what about next year? God forbid some bank should order up a million cheap freebies to lure credit card borrowers: Some DVD players are already as cheap as toasters.”

By itself, that may seem like a warning that would benefit software retailers at the expense of hardware vendors, but it's only part of the picture.

Software retailers can count themselves lucky this year, but even with a big, happy bump in DVD-enabled households, combined DVD and VHS rental spending for November was down 22.2 percent from the same month last year (and more than 11 percent year-to-date). The rental bug is hurtling toward an end that's starting to look a whole lot like sellthrough's windshield.

Increasing DVD penetration is a boon for our industry, but like all good things and like the dot-com bubble of the 90s, this too shall pass. Anyone who thinks their business can survive on rental alone might as well click his heels together three times and chant, “There's no place like rental…”

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