Hard bargain: Retailers brace for decline in spending

McClatchy NewspapersNovember 26, 2008 

WASHINGTON — A self-confessed "shopaholic," Cherie Martin typically spends about $3,000 on gifts each Christmas. Not this year, however. "I'll probably spend about $500," said Martin, a Washington-area attorney. "I mean I love Saks and Neiman Marcus, but I'm too frightened about the economy. I told everyone, with the exception of my daughter, that I'm not Christmas shopping this year."

Instead, Martin will use her grandmother's recipes to bake something for everyone. "I'm getting into the real spirit of Christmas and away from the conspicuous consumption."

That very sentiment has the nation's retailers bracing for an anemic holiday shopping season as consumers, battered by a year of steep job losses, tight credit and falling home values, look for financial cover instead of bargains as they gird for more tough times ahead.

"Consumers are anxious about the coming year," said Michael J. Silverstein, a senior partner at the Boston Consulting Group, a business advisory firm. "It's not so much that they personally have experienced the pain of the current economy. It's that they anticipate pain. The news they hear every day hammers home the message, 'Worry. Conserve cash. Plan for a rainy day.'"

After a trying year that saw most of her private client work dry up, Martin restructured her law practice to handle mostly government-related business because "that's the only work I'm getting."

Last week, her daughter, an attorney at a Wall Street law firm, called Martin in tears after her firm gutted its real-estate division, leaving many colleagues unemployed for the holidays. Martin's daughter was spared, but she won't be getting the bonus she received last year.

"She's just happy to still be working," Martin said.

In Los Angeles, California, Tanya Raimey, said she and her husband typically "break the bank" on Christmas gifts for her 18-year-old son, whose birthday is Christmas Eve. Last year, he got the latest iPod, skateboard, camera, X-Box, clothing and money, Raimey said.

"We're not going to do that this year. We just can't afford it. Things are different. Money's tight. This year he'll be lucky if we spend maybe $200 or $300," Raimey said.

An unemployed environmental scientist, Raimey, 45, said she's been getting a familiar response to her recent job queries.

"They call me back and they say, 'You really are what we want, but I wish you had called six or eight months ago when we had an opening. But the way the economy is now, we don't have anything.'"

Nearly 63 percent of consumers — 10 percentage points higher than in 2007 — said they were planning on spending less this holiday season than they did last year, according to a survey of 15,000 adults by Discover Financial Services. Eighty-two percent said the same thing in a survey by MyPoints Inc., an online marketing firm.

Less than 10 percent of consumers will spend more this season than last year, a Boston Consulting Group survey found.

"We may see an actual decline in holiday spending for the first time in many years," said Bill Hampel, chief economist at the Credit Union National Association.

Some 128 million people are likely to shop over Thanksgiving weekend, down from 135 million last year, according to a survey commissioned by the National Retail Federation.

"This is shaping up to be one of the most challenging holiday seasons in years and it's going to take more than the usual discounts and incentives from retailers to get consumers to spend more freely," said Lynn Franco, director of the consumer research center at The Conference Board, a business group.

The expected spending slowdown will begin with the Thanksgiving Day meal itself. The nation's 155 million households will spend $28.5 billion on Thanksgiving this year, mainly for food. That's down 3.4 percent from 2007, according to IBISWorld, a business research firm.

After growing steadily from 36 percent in 1980 to 43 percent in 2006, the share of Thanksgiving food budget spent on restaurant meals began to decline last Thanksgiving — when the current economic downturn first took hold.

That trend appears to be holding steady this year as preoccupation with Thanksgiving kept shoppers away from the nation's malls, where chain store sales dropped nearly 1 percent last week, according to the International Council of Shopping Centers.

"This past week consumers were more interested in getting ready for Thanksgiving rather than shopping for non-discretionary items," said Michael P. Niemira, chief economist at the council. "Ahead of Black Friday shopping, consumers are seemingly holding back waiting for those big discounts in the days following Thanksgiving, which means that a lot is riding on Black Friday shopping."

However, a survey of 100 chief marketing officers some of the nation's largest retailers estimates that sales on Black Friday, the day after Thanksgiving, will increase by only 1.2 percent this year, down from 8.3 percent last year, according to BDO Seidman, an accounting and consulting firm.

Things don't look much better for Cyber Monday — the first Monday after Thanksgiving when people return to work and often begin their online holiday shopping. Despite a flurry of steep price reductions, Cyber Monday sales are expected to increase by only 2.4 percent this year, after jumping 21 percent last year.

"While it is good to see growth, unfortunately this is down significantly from last year," said Ted Vaughan, a partner in the retail and consumer product practice at BDO Seidman.

With the average price of self-serve, unleaded gasoline at $1.91 a gallon, however store and mall officials are hoping some shoppers may be inclined to splurge due to pent-up demand.

"Shoppers who held off buying a DVD player or winter coat over the last few months will find that prices may literally be too good to pass up," said Tracy Mullin, president of the National Retail Federation.

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McClatchy Newspapers 2008

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