As it becomes increasingly clear that the U.S. (and perhaps the rest of the world) is slipping into a recession, we decided to take a look at the potential impact on sales of the product categories carried in pop culture stores -- anime, comics, toys, games, and movie/TV merchandise. To gauge that impact, we'll take a look at early indications from a variety of sources, as well as examine what's happened to these categories in tough economic times in the past.
In general, entertainment can do well in bad economic times and in times of war -- people are looking for diversion from their day-to-day lives. For example, the movie business in the U.S. during the Great Depression of the 1930s was very successful, a trend that continued throughout World War II. Other entertainment categories have also done well in poor economic environments. With the many entertainment alternatives that exist today, however, there will undoubtedly be some shifting as consumers seek the best entertainment values. To the extent that there's uncertainty about safety and security in public venues, consumers may also turn to 'cocooning' -- seeking entertainment in their homes--as they did during the Gulf War in the early 90s. It's also unclear how consumers with less money to spend will react to products that are tied to entertainment properties they enjoy but have less entertainment value on their own. Here's how we see it, category by category:
Initial indications from the video business have been positive -- Blockbuster reported greater store traffic in the weeks after the attack, for example. While a significant percentage of that traffic was tied to the rental business, it stands to reason that if consumers are looking for entertainment and may be more interested in seeking it at home than in public, they are likely to continue to buy videos and DVDs, especially at the low end price points.
We've talked to a couple of anime producers and have gotten varying reactions. One major anime producer told us that they're hunkering down for tough times, anticipating that the 'tech wreck' layoffs will reduce incomes for many of their core consumers and make them less likely to buy anime. Another told us, 'I'm seeing no changes in the 'open to buy' amounts from buyers over the past few weeks.' Our expectation is that sales of anime through major chain retailers may be negatively affected as traffic and sales suffer generally in those venues; but we expect normal or better-than-normal sales of anime in pop culture stores in the coming months.
Comics have a 60-year history of doing well in poor economic times. That inverse correlation between comic sales and economic growth has been borne out over the past decade; the long expansion of the U.S. economy during the 90s coincides with a sharp drop-off in the sales of comics during the same period. One reason for this phenomenon is that of all the entertainment available to American consumers, comic periodicals have among the lowest costs of entry -- under $5.00 in most cases, comparable to video rentals. And the value proposition improves with book formats, with higher page counts and prices that are not that much higher. For example, Dark Horse's Lone Wolf and Cub trade paperbacks offer consumers 320 pages -- the equivalent of ten periodical comics--for only $9.95, about the price of three to four comics. For a consumer trying to save money, spending $10 on such a book, which takes a significant period of time to read and can be enjoyed over and over, compares very favorably to going to a movie, which lasts about two hours and can be enjoyed only once for around the same amount of money. We see no reason why the business of comics will not follow past trends and expand in inverse relation to the economy. Since comics are primarily sold in pop culture stores, we anticipate good times for those stores that stock comic products.
This is one of the areas that's most problematic because there are compound effects. To the extent that toys are purchased by or for children, the negative effects of the economy will be ameliorated -- parents stop spending on their kids long after they stop spending on themselves. Sales of toys in pop culture stores are harder to read, since most of the toys sold through that channel are sold to adult collectors. If collectors are buying those toys with an anticipation that they may be worth something in the future, the primary variable on which sales will depend may actually be the inflation rate. In an inflationary environment (we're thinking of the 'stagflation' period of the late seventies and early eighties), collectibles can be attractive because they can hold their value better than other assets. In a deflationary or low inflationary period, however, we would expect collectibles without a high degree of entertainment value to be negatively affected. It's too early to say what inflation is going to be like--there are too many economic forces out there that are unpredictable--so that's a wild card as far as predicting toy sales in pop culture stores goes.
On the positive side, to the extent that toys are one of several categories in pop culture stores, some of which may actually benefit from bad economic times, increased store traffic may help toy sales. Unless inflation is extreme, however, we would expect migration down the price curve, with some softness in high-end statues and more strength in action figures. Because of the value proposition of models in time spent per dollar of consumer expense, we would expect that sub-category to be positively affected.
Like comics, RPGs have enjoyed a negative correlation between economic growth and RPG sales although the track record for RPGs is of much shorter duration. Again, the value proposition is excellent compared to other forms of entertainment -- a $20 RPG can provide many hours of entertainment for a number of consumers, which is far more entertainment than can be purchased for the price of two or three movie tickets. RPGs also fit well into the cocooning phenomenon mentioned above.
CCGs, which are a much larger portion of the game business, are a more difficult read, primarily because there hasn't been a recession since the invention of Magic: The Gathering--the first RPG--in the early 90s! There is also a collectible component of CCG sales which may depend on the extent of inflation, as mentioned above. Over-all, however, we would expect CCGs to do reasonably well regardless of inflation because of the solid entertainment value proposition they represent. It also seems to us that the collectible component of CCG sales has shrunk in recent years, although it's still present. To the extent that there's low inflation, we would expect CCG sales based on collectible value to decline. Bottom line -- CCGs may be more vulnerable than RPGs to bad economic times unless there's high inflation. They will still probably do better than many other forms of entertainment, however.
This is a mixed bag, with some subcategories at substantial risk and others with considerable upside potential. Let's look at the four major sub-categories that make up the bulk of this category -- trading cards, DVDs, books, and apparel (we've covered toys separately, above).
Trading cards may have the most downside of the four, especially in chain venues. One producer of licensed trading cards told us, 'Major retailers were already very nervous about the holiday season, and this has been the final nail in the coffin.' There also isn't a lot of entertainment value per dollar spent in movie and TV cards -- much of the interest is based on collectible value, or simply on wanting to own something associated with a popular entertainment property. Upside help could be provided by a high inflation rate, or by increased traffic in pop culture stores, which will probably weather the storm better than the chains.
Since DVD prices are coming down, especially on catalog titles (see 'DVD Trends -- Lower Catalog Prices'), we would expect sales of movie and TV DVDs to be solid, as we expect for anime, above, due to the good basic value proposition and a potential trend toward cocooning.
T-shirt sales will probably not be as negatively affected as higher-end apparel, due to their lower price points. They may hold their own in pop culture stores due to good traffic tied to stronger categories, their good basic value proposition, and association with entertainment properties that are doing well over-all.
Consumers are probably going to be price-sensitive when it comes to book tie-ins to movies or TV shows, with some weakness at higher price points.
Over-allLooking at the list of impacts above, we are guardedly optimistic about sales in pop culture stores, especially well-diversified ones, during the coming recession. Of course, there will be some stores that will be negatively affected by troop deployments, or by tourists avoiding densely populated urban areas that are perceived as higher-risk terrorist targets. As always, the most important thing that retailers can do will be to carefully watch sales in their own stores in the coming months, increasing emphasis on those categories and subcategories that are doing well and decreasing emphasis on weaker ones.