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Merchants are bracing for bleak Christmas shopping season, profits
By Sandra M. Jones
Chicago Tribune
Published on Sunday, Jul 27, 2008
There's no cheerful way to say it: Get ready for a sober Christmas season.
Yes, it's only July, but retailers already are deep in planning mode for the holiday season, and what they are sensing adds up to potential trouble, with some experts saying this could be the toughest environment in almost 30 years.
''What word should I use? Terrible? Horrible? Miserable?'' said Homi Patel, chairman and chief executive of Hartmarx Corp., a Chicago-based clothing manufacturer of suits and sportswear, when asked to describe the 2008 holiday. ''There is a time when the consumer isn't going to shop. It doesn't matter if it's 70 percent off or 80 percent off, the mind-set is, 'I just don't want to shop.' And that's something we haven't seen in quite some time.''
With credit harder to come by, homes no longer a source of quick cash and stock portfolios shrinking, retailers are bracing to fight for every dollar this holiday. Merchants are keeping inventories lean to avoid the risk of costly markdowns. And they are making a keen effort to keep prices down.
In a sign of what is ahead, Costco Wholesale Corp., the warehouse club chain that has steadily weathered the economic slowdown, warned Wednesday that profit for the current quarter would be ''well below'' Wall Street estimates as the company grapples with higher energy costs and holds back on price increases to keep customers.
The Platt Retail Institute, one of the first think tanks to venture a holiday forecast, predicts sales will increase about 2.8 percent, less than last year's 3 percent, which was the worst in five years. The Hinsdale, Ill.-based firm also sees a longer-term shift in consumer spending that will start to show up this holiday season.
The magnitude of the housing crisis, combined with soaring food and gas prices, leads the research group to believe that consumer spending, a main driver of the economy, will shrink as a percentage of the gross domestic product in the years ahead. Consumer spending accounts for about 71 percent of GDP, up from 65 percent in 1980. Platt predicts that percentage will revert to about 66 percent as consumers seek to strengthen their household balance sheets over the next decade.
''What was not understood by many lenders during the recent housing cycle, for which consumers are now bearing the result of this reckless lending, is the realization that the value of assets, like houses, can go down,'' said Steven Platt, author of the report. ''People are going to be spending less and, hopefully, saving more, so the retail base will have to shrink.''
At the moment, retailers are keeping a close eye on back-to-school sales for signs of how shoppers will behave come November. The International Council of Shopping Centers forecasts sales for the period of mid-July through mid-September will rise 1 percent, the smallest increase since 2001. The back-to-school sales season often is held up as a bellwether for holiday sales, but this year is complicated by the federal tax rebate checks, which likely will give an artificial lift to July and August sales.
''There really are a lot more unknowns this year, which is why it's difficult for retailers to plan,'' said Ellen Davis, senior director for strategic communications for the retail trade group.
Gas prices, for example, cut directly into discretionary spending, but no one knows where pump prices will be in November. Retailers also could get help in the form of another government stimulus package, currently being talked about in Congress. And the outcome of the presidential election could have an impact.
There's no cheerful way to say it: Get ready for a sober Christmas season.
Get the full article here.
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