It’s become the season’s ditty. Companies announce big profits after they jack up prices. But even the inexplicable American consumer, the toughest creature out there, begins to struggle with these prices as misery spreads deeper into the middle class. Now add HoneyBaked to the list of price sinners, just in time to get into the holiday spirit.
HoneyBaked sells a range of gift baskets that include a spiral-cut bone-in ham and various holiday-themed items, such as chocolates and teas. For years, a successful business man—let’s call him John—had been buying several baskets from the online store to be sent to some of his friends and associates. But this year, something struck him when he reviewed his order; the price didn’t seem right. So he dug through his electronic records from last year. And sure enough, the price of a HoneyBaked Ham & Grand Holiday Basket had skyrocketed by 50%—from $99.95 last December to a whopping $149.95 now.
When John called the company to find out what was going on with this new fancy-schmancy pricing, the friendly girl with a southern accent on the other end didn’t know. After some prodding, she put him on hold and asked her supervisor. Then she relayed the message: “We added a few more items to the gift basket.” Like $50 worth of chocolate crunch cookies.
Year-over-year price increases of holiday items are at once harder to track and more shocking if you track them than price increases of day-to-day items that tend to accumulate in insidiously regular increments of 5% to 10%. For these once-a-year items, you can’t rely on your memory but have to dig up old invoices or emails to get a valid comparison.
And John was shocked. For the first time in years, he didn’t complete his order. He’ll buy somewhere else.
This, in its microcosm, explains why consumer spending has increased by 2.4% during the third quarter: the inexplicable American consumer has been buying anyway, but perhaps not at the same place. And unlike John, they charged it. So consumer debt is once again on the rise—the pile reached $11.2 trillion in September, a level not seen since before the recession, according to Equifax. Consumer debt includes auto loans, credit cards, consumer finance loans, home equity lines of credit, and student loans (which are ballooning out of control ….
No wonder that the inexplicable American consumer is more morose than in years. The weekly Bloomberg Consumer Confidence Index, released today, dropped to -53.2, the lowest level since the depth of the recession, and the second lowest level since the index began in 1985. For the second week, a near-record 95% of the people surveyed had a negative opinion about the economy. Rising prices, declining real wages, lacking jobs, and a housing quagmire are all responsible.
And the Misery Index, a combination of inflation and unemployment, hit its highest level since May 1983.
But there is hope. After a good ol’ consumer revolt, Bank of America buckled. It decided to rescind its new $5 monthly fee on debit cards. J.P. Morgan Chase and Wells Fargo already announced last Friday that they’d backtrack on monthly debit card fees. Customers will be reimbursed, they added sheepishly.
A victory of sorts, though a lot of smart people in banking are now trying to find new ways to extract money from their customers.
So if the inexplicable American consumer refused to buy over-priced HoneyBaked gift baskets, the company might have to drop its prices to get rid of its inventory. It would also try to strong-arm its suppliers. The pressure would propagate up the supply chain. And just maybe it would help slow down inflation. Same-store sales that a number of retailers announced today were a mixed bag, with lots of disappointments. Perhaps the inexplicable American consumer has started checking prices a bit more carefully.