BUFFALO’S BUSINESS
Recession will hit retailers first
This is not a cheery time to be a retailer.
Consumers are in a tizzy, with the stock market’s plunge leaving them feeling that their 401(k) accounts are worth around $4.01. The expectation that the financial crisis will plunge the country into a recession — if one hasn’t already started — is giving consumers good reason to batten down the hatches.
Buying on credit — the lifeblood of the consumer spending boom for much of this decade — is on the outs, as credit card issuers reduce credit lines and get tougher on approving new accounts.
No wonder they were feeling more pessimistic last month than they have at any time in the last 41 years, according to a consumer confidence survey released last week by the Conference Board. Another consumer confidence survey released Friday by the University of Michigan suffered its biggest monthly drop on record during October.
Arun Jain, a University at Buffalo marketing professor, thinks local retailers will be among the first local businesses to feel the full impact of a recession that the region, until now, has largely been able to dodge. “People are just scared,” he says. “They won’t be spending as much money.”
And now the Canadian dollar, which has been a powerful magnet luring shoppers from north of the border, is down in the dumps again. A little more than three months ago, the loonie was at par with the U. S. dollar. It’s worth just 83 cents today, making the region’s stores less of a bargain for Canadian shoppers.
The National Retail Federation predicts that the average family’s holiday spending will rise just 1.9 percent this year, the slowest increase in six years. “No one is canceling Christmas because money is tight, but consumers will be sticking to their budgets and looking for good deals,” says Tracy Mullin, the group’s president and chief executive officer.
Other surveys are equally modest. The International Council of Shopping Centers is forecasting a 1.7 percent rise in holiday sales at stores open at least a year. The NPD Group expects flat — and possibly declining sales — this holiday season. TNS/Retail Forward expects a paltry 1.5 percent increase, the smallest jump since 1991.
Even more alarming, the NPD and TNS forecasts were based on surveys that were conducted before the financial crisis erupted, giving consumers even more reasons to cut back this holiday season.
Retailers could see it coming, too, as consumers already were paring back their spending before the financial crisis erupted as they grappled with soaring energy costs and rising food prices. The Commerce Department reported last week that consumers ratcheted back their spending at a 3.1 percent pace in the third quarter, the biggest decline since the 1980 recession.
In response, retailers, from Wal-Mart to Toys R Us, started cutting prices early. “Everybody’s scared that if they don’t catch the customers early, they won’t catch them at all,” Jain says.
That also explains why Wal-Mart joined other retailers last week in scaling back its expansion plans, saying it would open 13 percent fewer stores during the fiscal year that ends in January, and trimming its openings during the following year by 17 percent to 25 percent.
Circuit City Stores, which has an extensive local presence and is struggling mightily to avoid bankruptcy, reportedly is considering a plan that would close at least 150 stores.
And the going-out-of-business sales already are under way at the three local Linens ’N Things stores after the bankrupt household products chain couldn’t find a buyer to take over its sputtering operations last month.
“This is going to be a big downer,” Jain says. “We’re finally going to see the impact of the recession in this region.”
