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Thursday, February 21, 2008 1:57 AM

A Sharper Focus On Consumer Spending

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Image conscious consumers have tossed in the towel. I’m talking of course about the Demise Of Sharper Image.

Troubled retailers Sharper Image Corp. and Lillian Vernon Corp. have filed for bankruptcy, pointing to the effects of a weak holiday season and a struggling economy. Both Sharper Image, known for its high-tech novelty gadgets, and Lillian Vernon, which sells low-cost gifts and gadgets through its catalog and Web site, have long been plagued with falling sales.

San Francisco-based Sharper Image plans to close 90 of its 184 stores as soon as possible after it sells their inventories. It plans to continue to conduct business as usual while it develops a reorganization plan.

Soleil Securities Group Inc. analyst Scott Tilghman said in a note to investors on Wednesday that Sharper Image's filing was not a surprise. Tilghman, who had rated Sharper Image "Hold," said he was discontinuing coverage of Sharper Image.

"We find no reason for investors to be involved with Sharper Image in the near term," he wrote.
A Sign Of The Times

Professor Depew is writing The Wrong Company for the Wrong Times.
There are perhaps few companies more directly associated with positive social mood and the long-running bull market than Sharper Image (SHRP). Yesterday the company filed for bankruptcy protection, citing declining sales and profitability.

With more than 180 retail stores, half of which the company will close, it would be easy to dismiss the company's descent into bankruptcy as simply another case of a company failing to adapt to a shifting retail environment fueled by changing consumer shopping behavior and online sales functionality; a sign of the times. Indeed, it may yet be a "sign of the times," but what sign, and of which times?

Sharper Image was born in San Francisco in 1977 as a catalog company selling jogging watches. Within 10 years the company emerged as a publicly traded pioneer in catalog shopping.

Now there is a good chance the company will forever rest beneath a granite-engraved epitaph portraying it as an iconic retailer of nothing but bull market frivolity; automatic massage chairs, vacuuming robots, turbo-charged nosehair trimmers, digital breath alcohol analyzers, whatever you don't need, whenever you don't need it, at prices you couldn't care less about because, hey, if you need to ask how much an electric peppermill that you don't need or want costs, you probably can't afford it anyway.

Sharper Image stores and products have always been busy, frenetic, mirroring a busy and frenetic social experience and the happy optimism of a bright social mood. Of course we need turbo-charged nosehair trimmers; or more precisely, of course we want turbo-charged nosehair trimmers. They're nosehair trimmers. And they're turbo.

Unfortunately, those days of consumer gadget frivolity are quickly fading, a victim of darkening social mood; confusion, lack of control and insecurity force changes in our perceptions that manifest externally as spacial reductions, limitations, the stripping away of clutter and excess that feels heavy, like a weight, like debt.

The new Sharper Image, the right company for the right time, would likely be a company devoted to a single product sold with a minimalist aesthetic via an old-fashioned medium, like, perhaps a company that sells jogging watches through magazine ads. Sounds familiar.
JumpSnap Ropeless Jump Rope

As I stare in amazement at products like the JumpSnap Ropeless Jump Rope I am wondering, How the heck did I ever get along without that? But somehow, as social moods have changed, it's no longer cool to be sharp.

Professor Depew had this take on sharper images and social mood:
One of the oft-discussed themes here in the ‘Ville is the change in social moods the unwinding of our debt-based economy is likely to cause. Indeed, consumers’ refusal to purchase ropeless jump ropes and other superfluous, overpriced gadgets shows this shift is already occurring.
Consumer Spending Trends

Following are some interesting charts from the ChangeWave Alliance. Their latest ChangeWave Consumer Survey Points to a Recession in Consumer Spending.

click on chart for sharper image

The decline in spending growth is occurring across all income levels – even among respondents who earn more than $150,000 per year.

Most importantly, while this is our fourth consecutive survey since June showing a consumer pullback, this is first time consumer spending growth has actually gone into the red.

Where is Spending Slowing? Nearly every consumer category we looked at in the survey scored lower than a year ago in terms of spending going forward – led by restaurant spending which has deteriorated a whopping 12-pts compared to year ago levels (see Jan 2008 vs. Jan 2007 in chart below).

click on chart for sharper image
Corporate IT Spending Trends

Clearly, consumers are spending less and planning to spend still less in the future. But it's not just consumers who are spending less. The February ChangeWave Report shows Corporate IT Spending Goes Negative.
New Survey Confirms US Business Spending Has Entered a Recession

Overview: ChangeWave’s latest corporate IT spending survey points to a negative growth rate for 2nd Quarter 2008 – and confirms U.S. business spending has already entered into a recession. A total of 2,013 respondents involved with IT spending in their organization participated in the survey, conducted February 11-15, 2008.

2Q 2008 IT Spending: Nearly one-in-four respondents (23%) say their company’s IT spending will decrease (or there will be no spending at all) in the 2nd Quarter – 3-pts worse than the previous ChangeWave survey in November 2007. Only 15% say spending will increase – an unprecedented 9-pt drop from previously.

A Picture of Negative Growth: As seen below, the percentage projecting decreased IT spending for 2nd Quarter 2008 is far greater than the percentage projecting an increase.

click on chart for sharper image

Importantly, the projected spending decrease is across companies of all sizes.

click on chart for sharper image

You have to go all the way back to August 2001 to find the last time a ChangeWave corporate IT spending survey projected negative spending growth.

Other Indicators: We also asked respondents to rate the current willingness of their company to spend money on IT products and services. Only 43% say their company is now giving a "Green Light" to IT spending (i.e., spending is normal) – a 9-pt drop from the previous quarter to the lowest level seen in more than four years.
Those are but a few of the excellent charts from ChangeWave. Inquiring minds will want to click on the above links and read the entire reports.

Social mood and business mood have both soured.

Those are deflationary trends, no ifs ands or buts about it. Past reflation efforts by the fed were successful because consumers and businesses were willing to play along. Indeed, in the recession of 2001, consumers did not stop spending at all. It was even considered patriotic to spend in the wake of 911. Those days are gone.

A point of inflection has been reached. Consumers and businesses are unable or unwilling to spend and banks are unable or unwilling to lend. That's a brick wall known as sentiment. And in the real world, sentiment trumps academia.

Bernanke now needs a Crash Course On The Economy because Things That "Can't" Happen are happening right now. Welcome to the real world Ben Bernanke.

Mike "Mish" Shedlock
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