Sharpening the Sword is a regular column by retailer John Riley of Grasshopper's Comics, a 1,300 square foot comic and games store in Williston Park, New York.  This week, Riley talks about the possible impacts of the economy on sales. 

Things are moving so fast at the moment that they’re almost impossible to write about.  Over the past few years I’ve been criticized a few times for this column continually citing a bad economy.  Thousands of pages will be written on where we are at the moment and how we got here, but let’s just simplify it by saying that Wall Street used the massive volume of mortgages (good and bad) written over the past few years as fuel for ever more exotic and shaky investment instruments.  They built a house of cards that everyone worldwide was knowingly or unknowingly invested in and now it’s tumbling down.

So what happens next?  And how is it going to affect our stores?  Both are good questions, and without the benefit of a crystal ball the best we can do is take an educated guess.  This week I’ll try to cover what’s going on and how I think it’s going to affect us.  Next week we’ll look at how mass market retailers are responding.

The way I see it we’re in phase two of this downturn, the phase where the “paper losses” become “physical losses.”  We’re already seeing layoffs, or planning for layoffs, from some of the biggest companies in the world.  And when you consider that the market value for General Motors (whose sales are down 42%) is actually less than the market value for Mattel’s Hot Wheels, well... it’s easy to understand why we’re losing those jobs.  Circuit City is shutting down 114 stores.  Linens and Things is shutting down as well.  Tweeter Audio is closing their entire 94 store chain.  With the lack of a short term credit market, businesses that were already shaky no longer have the opportunities to keep them going.

Very few people cared when it was only “those greedy Wall St. guys” losing their jobs, but people certainly care now as they see store after store closing and know the people who are losing their jobs.  And that’s where it’s going to hurt us as well.  Because as consumer fears increase we can assume that their purchases will naturally decrease.  Many companies are expecting this to be the worst holiday sales season in 25 years, if not ever.  And surveys are already showing that most consumers are taking an “only buying for the kids” approach for the holidays this year.  None of which bodes well.

But on the positive side, we are definitely a “habit” for many consumers, their chosen hobby that they will want to seek solace in as they cut out other expenditures.  Historically our industry has always done well in recessionary times and I believe that this is one of the main reasons.  But it’s the next phase of this fallout that may affect us despite the hobby aspect, and that is the consumer credit shortage.  Our economy has been fueled by deficit spending on the part of many consumers, and that’s going to end.  Besides the upcoming wave of defaults on consumer credit cards, we will begin to see an end to something called the “delayed onset of pain”, which is a fancy phrase for the idea that it’s easier to make a big purchase if you’re not paying for it right away.  But we’re seeing more and more consumers turning to debit cards and cash in an attempt to control their spending.  This alone is expected to have a huge impact on retail sales in every category.  If you need evidence that consumers are changing their daily spending habits, look no farther than Starbucks reporting a 97% drop in profits last quarter.

So is there a bright side?  I think there is still reason to be hopeful for our ability to compete in this market.  As I said previously, in this type of environment people naturally tend to immerse themselves a bit more in their hobbies.  This is especially true on the gaming end of our business, where hobbyists can get a lot of repeat/replay value from games they already own.  Over the summer we had the “staycation” phenomenon, but there’s no need to believe that this trend is over.  The winter equivalent is staying home to play a board game with the kids rather than heading out to dinner or the movies.  After all, buying a $30 board game provides a tremendous amount of entertainment compared to the $75 it costs to take a family of five out to the movies!

Consumers are obviously going to be looking for value, but that value does not necessarily mean the lowest price, it can also be the quality of the entertainment.  For example, I know that my son will be looking for a bunch of Wii games this Christmas.  Sure we’ll get him one or two, but since he already has more Wii games than he needs, we would rather get him something unique, something different, something that will be a pleasant surprise.  After all, aren’t those the best gifts?  I think most parents will find themselves in this situation, and luckily for us retailers we happen to sell just those items!  Whether it be a volume of Walking Dead, Fables, or Bone, or a Warhammer or Warmachine starter set, we know that the kinds of entertainment we sell have a simply incredible amount of entertainment built in.

I know that I spent most of this article on the negative, looking at the ways in which the market could hurt us.  But we have to start somewhere.  We know we have some opportunities even in a down market.  Next week we’ll look at how the mass market retailers are reacting to this environment and see what we can learn to help us navigate through this.

The opinions expressed in this Talk Back column are solely those of the writer, and do not necessarily reflect the views of the editorial staff of ICv2.com.