Recently, my wife heard a kitchen installer bemoan his economic fate on a local talk radio show. A job that netted him $10,000 a year ago, now goes for $4,000. This shows that the economy is not discounting goods and services. It's correcting prices.The installer will never get $10,000 for that job ever again. How could he since he's willing to accept less than half the original price? The same thing holds true for the automakers. Every consumer with good or decent credit will now insist on zero-percent financing. How will the automakers -- especially the embattled Big 3 -- be able to afford these incentives? Is it any wonder that one in 30 new car dealerships are expected to fail this year with another 1,000 expected to shut their doors in 2009.
Retailers are offering huge bargains early in the holiday season to entice cash-strapped consumers. The problem, though, goes beyond this expected dismal season. Consumers are getting used to paying less and getting more and will not be satisfied if they do not get what they want.
This change in consumer attitude poses a significant problem for companies such as Apple Inc. (NASDAQ: AAPL) with premium-priced products. Apple is offering free shipping on some products such as the MacBook. The price for these machines -- which I know are of high quality -- is not cheap. The company is offering no interest financing for up to six months and a rebate on a printer. Even with these incentives, the machine (the regular version of which starts at $999) is not an easy sell to this consumer considering that similar models by Dell Inc (NASDAQ: DELL) and Hewlett Packard Co. (NASDAQ: HPQ) are much cheaper. But If Apple's fourth quarter is as lousy as some expect and Macs go on sale, I might pick one up.
Deals abound on everything.
Raymour and Flanigan, a furniture chain in the Northeast, is offering zero percent financing until 2013. One leather sofa that originally retailed for $999.95 is now selling for $888. Want clothes? A New York tailor is offering a custom cashmere overcoat or eight custom-made shirts for people who buy three custom made men's suits. Quite a bargain for the high-end fashionista I suppose.
Shoppers are now demanding steep discounts on everything. They bet that if they play their cards right they can get even better deals. Since the holiday season is expected to be the worst since 1991, they may be right. But these deals are going to linger on well after the holidays.
The discounted prices that everyone is seeing will eventually become everyday prices. That's great news for consumers, but probably has investors and economists scared to death.
Serious Money: Three stocks that beat the market
Closing Bell: The wishy-washy return to Q3 (AA, DDUP, EMC, DNDN, CVX, FSLR, GS)
Oil, the stock market and economic inconsistency
Reader Comments (Page 1 of 1)
11-20-2008 @ 4:41PM
bogus said...
Car loans went up from 0% the last time they were at 0%.
Also, if you *actually* compare as-close-to-equivalent machines from Dell & HP, Apple computers aren't more expensive.
11-20-2008 @ 6:08PM
Henry Postigo said...
Same idea goes for those auto dealerships and mechanics. They have already recouped their investment in the machines by now. Why do they still charge so high. My friend went to change a bulb and needed it to be aligned. The guy in the dealer told her that it would cost $150 to fix it. Just open the hood and correct the alignment of the bulb. Of course I fixed it with out any tools. It was child's play. We know that women don't know jack about cars, but that's besides the point. :P The point is that sooner or later those outrageous prices at car shops will correct themselves too.