Dec. 1, 2008 – Retailers hit hard in October

By Steve Bauer
Managing Editor
U.S. retail sales took a record dive in October due to what the U.S. Commerce Department says are increasing fears from consumers about job security, and a recent report from ADP Lightspeed for Powersports Business shows powersports dealers were hit particularly hard.
Retail sales tumbled 2.8 percent in October, which was the fourth drop in as many months. Sales in September decreased 1.3 percent.
The effects of that shrinking consumer confidence on the powersports industry were reflected in ADP’s October 2008 same-store sales report, which examined the sales of more than 200 metric and V-twin dealers from across the nation. Their sales of major units were down
36 percent, while total store sales also experienced a significant drop, falling 25.8 percent.
The retreat from consumers is especially disturbing for dealers who were hoping to gain momentum heading into the holiday shopping season.
Scott Andruws, owner of Bay Powersports near Madison, Wis., says sales of both units and accessories have been abysmal for him since late August.
“I’d say my overall store sales are off more than 50 percent compared to this time last year,” he said. “And during a time when I usually see a large uptick in business because of hunting seasons and the holidays, the store has been empty more often than not.”
Andruws says he’s laid off two full-time staff members due to the sharp decline in sales, and admits it’s the first time he’s had to cut staff due to slowing business.
“The customers I’m seeing in the store are typically those who don’t have the greatest credit, and the customers who can afford to buy a vehicle and get financed are holding back on purchases,” he said. “I’m hopeful that by the end of the month we’ll see a turnaround, but I believe this might be something that drags into next selling season.”
Christian Pierce, a professor of economics at the University of Iowa, says although the recent crisis on Wall Street and the financial sector might have seemed too disconnected to Main Street to have an effect on spending, the steady increase in unemployment across the country has more individuals spending conservatively.
“Research I’ve conducted has shown that people are less willing to purchase anything beyond their basic budgetory needs right now, especially if they have to finance it,” he said. “They are being prudent with their money in case they might need it for an emergency, such as a job loss or pay cut.”
Not all dealers are feeling the pinch as much as the numbers show, especially in the scooter and sport bike segment.
“We carry two different lines of scooters along with several metric sport bikes, and we’re having a hard time keeping these vehicles on our showroom floor,” said Dan Mills, owner of Mills Cycle in Sarasota, Fla. “Sales aren’t where they used to be, even going back to this summer, but our scooters sales continue to be strong, and our sport bike sales are flat, with lower displacement bikes being our strongest sale.”
Mills says he’s actually seen an increase in accessory sales, which he believes is due to customers wanting to spend money on their vehicles, but opting to customize or add accessories instead of buying a new vehicle.
“Our helmet sales have been solid, and I’ve seen a lot of customers in here purchasing apparel for Christmas gifts,” he said. “The smaller purchases add up quickly, and have given us a nice boost through the fall.”
Pierce, the professor of economics, says he expects spending to pick up somewhat in the next few weeks as consumers head out for what is the peak holiday shopping season, but he cautions all retailers to prepare for a decrease in foot traffic.
“I believe things will improve, but I’m not forecasting any major shifts in consumer spending until possibly early 2010,” he said. “What we’re seeing is a market correction, and unfortunately it’s going to have an impact on consumer spending in the short term.”