Retailers face make-or-break days

US military success bolsters consumer confidence, but rise in retail sales will be the weakest since 1991.

By , Staff writer of The Christian Science Monitor

Finally, the elusive consumer has been spotted.

Buyers started hitting the malls - even if in a restrained fashion - just before Christmas. Now, in the aftermath, retailers are expecting an even more vivid display of MasterCards and Visas as some of the biggest sales in years spread to everything from apparel to appliances.

The post-Christmas buying will be crucial in determining whether the American consumer can salvage something from a lackluster holiday season - and perhaps help resurrect the economy. Late-season shopping could account for as much as 11 percent of total holiday retail sales.

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Already, the late buying has ended a mood of pessimism that has beset consumers since September. The shift is vital, because some forecasters had expected consumer disenchantment to increase as Americans watch the unemployment rolls grow in the months ahead.

Since consumer spending accounts for two-thirds of US gross domestic product, any improvement will help the US climb out of recession. Last week, the University of Michigan consumer survey posted a significant rise in December.

"Consumers are sensing the worst is over," says Richard Curtin, who runs the survey. Now, he says, "they are looking more to make purchases."

One reason for the turnaround is the military success in Afghanistan, which has put Americans in a more confident mood.

Even so, hardly anyone sees a return to the Valhalla days when 25-year-old Wall Street tycoons and dotcom millionaires kept cash registers ringing. Instead, expectations are modest. "The unemployment rate will temper spending," Mr. Curtin says.

Those expectations mean only modest sales gains for retailers - anywhere from 1 to 3 percent. It will be the weakest holiday period since 1991, another recession year, when sales rose 1.8 percent.

Profits, too, will be reduced, since many retailers have had to heavily discount goods to attract buyers. Neiman Marcus in Dallas actually called customers to alert them to 20 percent savings. Many shoppers, however, are waiting for the post-Christmas sales, when another 30 percent will be chopped off.

In the next few weeks, there will be plenty of bargains on clothing in particular. Since Thanksgiving, warm weather in the Northeast has kept many people from buying fleece and woolens.

This past Saturday, at Bebe, a trendy store on Madison Avenue in Manhattan, a manager complained about how quiet the holiday period has been in general. "I think people have cut back," she said. "They just aren't spending. I know I'm not."

$5,000 gem purchases

Many retailers, in fact, have found consumers to be unusually moody. At a family-owned jewelry store in Annapolis, Md., the season was shaping up badly. Then, this past Saturday, a crush of buyers came through the door. "It may have saved Christmas," says a clerk describing how people were making $5,000 purchases. But the next day was quiet.

"If they are not in the mood, they won't buy," says Sarah Scheuer, a spokeswoman for the National Retail Federation. "If it's not cool or fashionable, they also won't buy. The flip side is that we'll see great deals on apparel after Christmas."

Although consumers may not have been buying new parkas, they have been flocking to specialty retailers such as Home Depot, Circuit City, and Toys 'R' Us. Instead of buying items that can be used out of the home, many are shopping for DVDs so they can spend more time "cocooned" by the hearth.

"If we have it, we're spending it," says David Wyss, an economist at Standard & Poor's in New York. "But we've shifted what we're spending it on."

Shopping for cars, houses

In fact, one reason Americans may be spending less this holiday period is because they are busy buying new autos and homes. Detroit has attracted buyers with offers of low- to no-interest financing. The fourth quarter could be a record for the Big Three.

Yet the sales could be at the expense of the first quarter of 2002. The University of Michigan's Curtin predicts a weak January for carmakers as specials end.

The housing industry may set a record for December and January because buyers, spurred on by relatively low mortgage rates, are flocking to new housing developments.

"Consumer spending is not as weak as the retail numbers suggest," says Mark Zandi of Economy.com, a website.

Many retailers are already looking ahead. J.C. Penney has stocked its store with spring goods - a move that seems to be paying off. It expects a modest increase in holiday sales as buyers pick through pastel-colored cotton sweaters.

The retail picture, of course, could have been much worse. For example, if the war in Afghanistan had gone badly, Americans may not have been in the mood to buy much of anything.

"It did firm up confidence before the buying season," says Mr. Zandi. "Otherwise, the season would have been a disaster."

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