Tuesday, December 21, 2010

Christmas Price

NEW YORK (Profile Facts) -- It may not seem like it when the credit card bill comes due, but many popular Christmas presents are at their cheapest level of all time.

Toys are 55% cheaper today than they were in 1980, according to the Consumer Price Index. And that's a raw number, not adjusted for inflation. If a toy was $100 in 1980, it's $45 now -- never mind the fact that $100 then would be worth $265 today.

Same is true for small appliances like coffee makers and toasters -- they're down almost 30% since 1998, the earliest year numbers are available.

Cheapest Christmas ever,

Electronics are a particular bargain. Televisions are 93% cheaper now than they were in 1980. Radios and speakers are half what they were when Reagan was elected.

"What it means for us, as consumers, is we get to buy more crap," said John Norris, director of wealth management at Oakworth Capital Bank in Birmingham.

The reasons for the plunging prices have to do with advances in technology, manufacturing, retailing, and the global economy.

Technology advances are particularly important in electronics. The newest and best stuff is the most expensive, partly because companies are trying to recoup their R&D costs and partially because demand for the latest model is so high.

But that means models that are a year or two old -- which is often perfectly fine for the average consumer -- see huge price discounts.

And as companies gain experience making the microchips and other components for DVD players or digital cameras, they can make them faster and cheaper.

This is true not just in manufacturing electronics, but goods like toys and clothes as well.

Clothing prices climbed from 1980 to the mid 90s, then nose-dived. While not at an all-time low, they are still 15-20% cheaper than they were 15 years ago.

Manufacturing advances may have played a role in bringing down the price of clothes, but it's also no coincidence that 15 years ago was when globalization entered the world's lexicon. With globalization came an explosion in world trade, and cheap labor from the developing world.

"If you look at the flood of imports, especially from China, there's been tremendous pressure to keep prices down," said Paul Liegey, an economist at the Bureau of Labor Statistics that analyzes clothing prices for the CPI.

Changes in retailing are also giving consumers the cheapest Christmas ever. The scale and model of big box stores like Target (TGT, Fortune 500) or Wal-Mart (WMT, Fortune 500) means they can more efficiently buy, move, store and ultimately sell the same product for a cheaper price than can a mom-and-pop shop downtown.

This isn't to suggest cheaper is better.

As Norris pointed out, often times the service and product knowledge is better at a mom-and pop than a big box.

"If you go in looking for a camera, you better know exactly what you want," he said of the big box.

And just because stuff is cheaper doesn't mean our total bill will be less. We simply buy more of the cheap stuff. Plus, the really high-end stuff hasn't fallen in price, and that's always tops on anyone's wish list.

"Have you seen what Uggs cost," said Norris. "And Steve Jobs is not discounting the iPad."


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