The crucial holiday selling season, already expected to be weak before the Sept. 11 terrorist attack, is now likely to be the worst in a decade, retail forecasters say.
Market-research firm Retail Forward Inc. lowered its fourth-quarter retail sales growth forecast, excluding car and gasoline sales, to 1.5 percent from its earlier estimate of 2.5 percent. Even the ever-optimistic National Retail Federation, the industry’s largest trade group, expects sales in the last three months to increase 2.2 percent compared with the previous estimate of 4 percent. Last year fourth-quarter sales rose a tepid 4.5 percent.
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“This will likely be the weakest Christmas holiday since the recession of 1991,” when fourth-quarter retail sales rose 1.8 percent from the same period the year before, said Frank Badillo, senior retail economist at Columbus, Ohio-based Retail Forward, formerly part of national accounting firm Pricewater-houseCoopers.
It’s hardly a surprise that forecasts were revised down after the terrorist assaults on the World Trade Center and the Pentagon. Economists fear consumer spending, which had already softened before Sept. 11 in response to rising unemployment and declining stock prices, will drop sharply because of additional layoffs and eroding confidence in the economy in the wake of the attacks.
There is also the added unknown of the attacks’ psychological toll on consumers. Many people are having trouble focusing on work. Putting together a Christmas shopping list may be the last thing on their minds.
Sales trends in the immediate aftermath underscore these fears. Wal-Mart Stores Inc., the world’s biggest retailer, reported that sales and customer counts “dropped substantially” on Sept. 11 and in the days after as Americans watched the news. Bloomingdales’ parent Federated Department Stores Inc. said Monday that sales have run 20 percent below its September target since the attacks.
Economists worry that consumers will continue to stay away from the malls. And if the nation goes to war, even their revised forecasts may turn out to be too optimistic. Because of the uncertainty, retailers are saying it’s too early to predict how consumers will spend this holiday season.
“It is going to be a difficult retail environment and obviously the [terrorist attacks] have not in any way changed that outlook for the better,” said Jan Drummond, spokeswoman for Sears, Roebuck and Co.
Retailers were already bracing for a tough season. The economy before the attacks was teetering on the edge of recession. The unemployment rate jumped to 4.9 percent in August, from 4.5 percent in June. Deteriorating labor markets combined with falling stock prices have hurt consumers’ faith in the economy. The September consumer confidence index sustained its biggest drop in more than a decade.
Given the precarious condition of the economy, retailers feared getting stuck with too much merchandise even before the attacks. Eddie Bauer, the casual-apparel division of Downers Grove-based Spiegel Inc., trimmed holiday inventories by 10 percent from the year before, despite introducing new apparel that should appeal more to its Baby Boomer customers, said spokeswoman Debbie Koopman.
Retailers that have already placed their Christmas orders are taking other pre-emptive measures to cut inventories. Nordstrom Inc., which normally holds three major sales a year, has added a fourth that begins Friday and runs through Oct. 8, a company spokeswoman said. The company plans to discount fall merchandise by 33 percent to 60 percent.
The markdowns may not be enough to rouse shell-shocked consumers, analysts said.
“It looks like consumers are focusing on reducing their debt levels as a result of fears about employment,”said Derek Leckow, an analyst with Barrington Research Associates.
Indeed, the airlines have already announced more than 100,000 layoffs, and job cutbacks are expected in other sectors, such as financial services.
There is a silver lining for consumers. Retail prices have been falling at about a 1 percent annual rate in recent months, said Badillo of Retail Forward. But that’s bad news for retailers who face a squeeze on profit margins.
Consumers may also seek a distraction from the chilling events of recent weeks and find solace in shopping, one retail expert contends.
“Beginning in the fourth quarter, people will say to themselves, `I need a break from all those horrors’,” said Kurt Barnard, president of Barnard’s Retail Trend Report in Upper Montclair, N.J.
“They will say to themselves that life goes on, and they will throng the stores.”