Business Musings: Third Quarter Blues
I’m writing this on Wednesday evening, November 9, 2016, which is the evening after voting closed for the United States presidential election. We now know who the president-elect is. I spent all of yesterday and most of last night watching returns, and talking to friends and loved ones on the phone. My phone’s battery actually died because some of us were texting so much.
I went to bed at 3 a.m., and was up at 8:30 to prep for a telephone interview with a big syndicated Boston radio program at 9. I am not sure if I was coherent: I had just watched Hillary Clinton’s concession speech when the phone rang with the interviewer on the line. The interviewer mentioned that she was sleep-deprived. I confessed to being sleep-deprived as well. And then we proceeded with the business of life, because days march forward, whether we want them to or not.
Follow this with meetings and conversations with staff and more friends. None of us slept well. Most of us were up until the wee hours. As we were leaving a restaurant, Allyson Longueira of WMG Publishing observed that the entire country was sleep-deprived. The restaurant owner overheard her comment and said that yes, she too had not had enough sleep and neither had her staff.
So now (after more conversations on the phone), I am at my desk, writing this blog. Forgive typos or a few incoherencies. I’m still tired and getting ready to face whatever the future throws at us all.
During the last two months of this long, bitter, and astoundingly acrimonious election season, a friend noted that the entire world seemed to hold its breath. She wrote that it felt to her as if the United States was in the Intensive Care Unit, near death, with no word on the patient’s condition. Family (the citizens of the country) could gather outside the ICU and maybe give blood now and then, but could do nothing else. Friends (the rest of the world), who were not allowed near the ICU, could pace and wait, hoping the family would share any crumbs of news.
I thought her analogy a bit dramatic until this morning, when I had a realization. Now that I know who the president-elect is, I can once again plan for the future. News is better than no news. To continue the ICU metaphor: once we know the patient’s prognosis—whether we learn that the patient will live or that the patient will most likely die—we know how to proceed going forward. When we’re waiting on knowledge, we cannot take action. Once we have the knowledge, we can move—even if the result is not one that we want or like.
The waiting can be terrifying. The uncertainty is often crippling. And it’s not uncommon. The inaction caused by this kind of wait happens in many places that hold elections. Sometimes the elections are routine, and sometimes they’re clearly game-changers as they were this time in the United States.
The United Kingdom went through a similar period of waiting last summer as it dealt with the vote on whether or not to stay in the European Union (Brexit). Such waiting periods will hit other countries by the spring of 2017, including, but not limited to, France, Germany, Austria, Greece and the Netherlands.
Why am I discussing political waits on a publishing blog (aside from the fact that the U.S. election just happened and, like much of the world, I’m completely gob smacked)? Because these waits have economic consequences.
In August, I noted a slowdown in all of our businesses, from the retail stores we own to the books we sell online to the willingness of people to sign up for online workshops. A lot of the possible workshoppers promised to return in “a month or two.” Hoteliers around our little resort town complained that tourist traffic was down compared with the same period the year before, and restaurants were noticeably empty.
I was a bit surprised. In July, I had heard several economic reports claiming that the United States was on track for the best holiday season in seven years. Job growth in the second quarter had been good. A lot of economic indicators going through the end of June were excellent and rising, so what was the problem?
I had a theory, but often my theories are wrong. They’re based on me, and not necessarily based on what’s real for the rest of the world. So I did what I always do. I investigated.
The question I asked was pretty simple: Was this presidential election depressing spending? The answer I got was unexpected.
I figured that this 2016 election was so vituperative and consumers were so spooked, they weren’t spending money, and this was unusual. What I discovered was very different.
According to many articles I found, retail spending is always down in an election year—until Halloween. For example, Greg Tunney, the president and CEO of R.G. Barry (a shoe company) said this to an industry blog in March:
I’m always careful in an election year when we do budgets to be very conservative right up until the first week of November….Election years always have a negative effect on retail performance with the consumer because consumers sit on the fence until they figure out which way the ball is moving.
His wasn’t the only such comment I found as I searched for the source of a statistic I had seen when I originally planned this blog for the middle of October. That statistic, lost to the workshop, a bad cold, and today’s exhaustion, was that in any given presidential election year, consumer spending declines about 1.8% over the same period in the previous year.
In the weeks before an election, retail traffic declines noticeably. Some sites list numbers from 2008, but I’ll ignore those, since the recession was already beginning then. Let’s look at U.S. figures for 2012
Retail traffic decreased by 6.1% two weeks ahead of Election Day and dipped 12.9% one week ahead. During election week in 2012, traffic declined by 12.4% compared with the same week in 2011.
However, once the election ends, pent-up demand explodes—probably as consumers are relieved to be free of the election cycle (okay, maybe I’m projecting a little here). Anyway, Halloween spending, which occurs in the week before a U.S. election are often an indicator of the way that the economy will go during the holiday season.
And in 2016, Halloween spending rose to an all-time record $171 million, way over 2015’s $157 million, but astonishingly close to 2012’s $170 million. (2012, to you non-Americans, was also an election year.) Pent-up demand, which puts us back on track for a good holiday season.
I waited to write this blog until after the election because I wanted to see what the markets would do with the news, whatever it might have been. Predictions that a Trump victory would tank worldwide markets did not come true today, but who knows what will happen in the coming weeks.
However, our patient is out of the ICU, and depending on what side of the very narrow fence you’re sitting on, that’s either a death sentence or good news. (My own opinion should be obvious to anyone who pays attention, but I’m not going to discuss that here. This blog remains free of partisanship, and that includes the comments.)
Something similar happened with Brexit. Spending on small items rose unexpectedly after the vote in June. Since Brexit was a one-off, not a quadrennial event (please, no), there were no statistics on what had gone on in the years before. Consumers didn’t spend as much around the time of the vote, waiting to see what would happen, but the fall-off after the vote wasn’t as extreme as initially predicted. (I’m not saying it was good, just not what was predicted.) In the month after the vote, spending on big-ticket items was down, but regular (small) spending remained consistent and was up from the previous few months—that ICU period.
I’m discussing this today and looking forward to 2017 because the real world—the world of politics and votes and rising interest rates and volatile stock markets—has an impact on our individual writing businesses. Book sales decline in August and September anyway. Those sales start to rise at the end of October, peaking in December and early January.
This year, a contentious U.S. election year, brought a greater sales decline to the fall months than expected. That same missing article mentioned that this year’s decline wasn’t 1.8%; it was more like 2.4%.
But that didn’t stop places like RetailNext from predicting back in September that U.S. retail sales would rise 3.2% in November and December over the previous year’s numbers. Digital sales would grow 14.9% over the previous year.
Halloween seems to confirm this optimism. That growth in spending—that pent-up demand—is starting to break loose. Anecdotally, I’m hearing that sales are up in the past few days, as election anxiety eases. Our book sales have increased, as have the sales in our retail stores as well as our online venues.
What I had been worried in August concerning this 2016 election was that it was a black swan event—something that’s impossible to predict, something that has catastrophic ramifications.
What I discovered was that the decrease in sales, coupled with the decrease in demand in the fall for our product type, was a predictable result of a U.S. presidential election year. Now that I know that, my financial planning in 2020 will take into account the period of uncertainty before the major election. I won’t bank on the pent-up demand making up ground, which will give my businesses an added bonus in November and December, should the pent-up demand be there.
I am very sensitive to changes in business caused by real-world events. One of the reasons that Pulphouse Publishing, the first publishing company Dean and I owned, crashed, was because of Operation Desert Storm in early 1991. The entire United States stopped buying books, stopped ordering magazines, stopped shopping entirely and watched news of the war, day in and day out.
Those 42 days of distraction destroyed a budding collectables market, caused a number of brick-and-mortar bookstores to close their doors, and had an impact on many small press publishers. None of the businesses that closed after that period of time —including us—had enough capital on hand to make it through a black swan event.
September 11, 2001 was another such event here in the United States. That day, we weren’t exactly ready—and we didn’t have any businesses besides our writing businesses—but Dean and I knew immediately that an attack on New York City would have a damaging impact on the traditional publishers, which meant that writers around the country would be hurt. Dean left that day to sell off some of our collectables so that we would have enough income to make it through the next few months. We had tens of thousands of dollars due to us in the last quarter of 2001. We didn’t see a dime out of our publishers until March of 2002. That scramble Dean did—learned the hard way from failing to have capital ten years before—made it possible for us to continue our lives as freelance writers, despite the financial losses that we took because of that horrendous day.
I know a lot of you have experienced a downturn recently. I can’t promise that your next few months will be better, although the economic indicators say they will. (Of course the polls in this election said we’d have a different president-elect, so I’m not that confident in data right now.)
What I can tell you is that your decline in sales is probably not permanent, and most likely not your fault. It’s something all of us whose business includes a retail arm (and that includes indie writers/publishers) have experienced this fall.
In the next week or two, I will discuss how you plan your financial year, and what factors you need to take into account. Those factors are things within your control, like when you release a book and the promotion you do for that book, and things outside of your control, like a change election coming at the worst time of year for book sales.
I’ll also give you some tips about how to get through your first few sales declines, and the attitudes that will save your growing business.
Until then, though, realize that with the dawn of this very strange day, the holiday shopping season is now upon us. Consumers will turn their attention to the things they neglected as they watched debates, drowned in negative political advertising, and fought among themselves.
If the economics work the way that previous election years have worked, then we’re looking at a pretty good holiday season. Maybe not as good as it could have been, but certainly better than September and October.
Continue writing, continue publishing, and continue moving forward. And realize that sometimes, setbacks in your business have nothing to do with your business. Sometimes, those setbacks are baked into the economic reality either of a nation or the entire world.
I don’t know about you, but this is the first year in a long time that I’m actually looking forward to the endless holiday shopping commercials on television. At least they will come with glitter. And upbeat music. Both of which I need right now.
You’ll notice that I have finally included a Patreon link below. Yep, you folks have convinced me to join Patreon, which I did over the weekend. It’s still in progress, and I’m still learning how it all works. Another upcoming blog post will explore the choices I made with Patreon, but I’m going to wait a few weeks for that.
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“Business Musings: Third Quarter Blues,” copyright © 2016 by Kristine Kathryn Rusch. Image at the top of the blog copyright © 2016 by Can Stock Photo / Petrafler.