Debt Grinch Won’t Steal Christmas, Retailers Say
Here’s the kind of a tale that will have retailers bellowing cheerful ho-ho-ho’s this Christmas season:
Kimberley Wells and Louis Chunovic will close the purchase of a West Hollywood condo today, just nine days after their wedding and two months after Wells took the bait on a 2.9% auto loan. They also plan to start buying furniture and appliances soon.
Even so, the couple may spend as much as $1,000 on Christmas gifts this year.
“My new bride counts the days before Christmas starting on the day after Christmas,” Chunovic said. “A few score thousand dollars of debt will not dissuade us from celebrating Christmas in as grand a fashion as we can.”
Early Sales Strong
Chunovic, who is TV editor at the Hollywood Reporter, and Wells, a publicist and writer, represent just what the nation’s retailers will be counting on this holiday season. Cheered over sales gains in recent weeks, merchants are expressing optimism that such spending on the part of debt-laden people will bring sparkle to a potentially lackluster Christmas season.
Shoppers can expect to see a fair number of bargains this year, but certainly not to the extent of two years ago, when out-of-whack inventories led to a price-cutting bloodbath. They’ll find that gift items have arrived earlier than in the past at some stores and, since the season so far hasn’t produced a single “must-have-it” item, they’re less likely to encounter shortages.
Looming as drawbacks to a truly robust shopping season are record-high consumer debt levels and depleted savings, as well as the recessions in the agricultural and oil states. But even though statistics might indicate that consumers have run out of spending power, retailers are saying that this won’t be the year the debt Grinch steals Christmas.
“The last four weeks have been surprisingly strong for us,” Richard J. Dore, senior vice president and director in the hard-hit Houston region for Joske’s department store, said last week. “I am pleasantly surprised at how the trend of business has reversed. I’ve become very optimistic.”
Wal-Mart, a fast-growing discount store chain that is heavily concentrated in small towns in agricultural and oil-producing areas, is seeing “a very enthusiastic customer,” said Charles Self, vice president for finance. “The customer is saying we’re going to have a good Christmas season.”
Signs of a Good Season
Dayton Hudson, which runs the Target and Mervyn’s chains as well as Midwest department stores, reports lower credit delinquencies this year than last and improved business in the oil states. “It’s one of the reasons why we think Christmas business will show a slight improvement over the rest of the year,” Chairman Kenneth A. Macke said.
From Southern California to the Northeast, retailers are predicting a moderate Christmas, with fourth-quarter sales gains that average about 6% higher than those of the same period last year. Merchants emphasize that most of that will represent real growth, since there is so little inflation. With inventories and inflation under control this year, many retailers are poised for solid, full-year profit gains, assuming a respectable fourth quarter.
“I got very good vibes on Veterans Day sales,” said Monroe Greenstein, a retail analyst with Bear, Stearns & Co. in New York. “If there’s a surprise in Christmas sales, it’s more likely to be on the up side.” Greenstein expects retailers in the Northeast and California to see the biggest gains, and predicts “pockets of relative strength” in the Midwest.
‘Pretty Strong’ Sales
Many economists concur. Jim Cochrane, chief economist at Texas Commerce Bancshares in Houston, predicted “a pretty strong Christmas buying season in the United States as a whole, and in those parts of Texas that are more immune to oil-related troubles.”
He acknowledged, however, a number of crosscurrents in the economy that make crystal-ball-gazing trickier than usual. Interest rates are at a 10-year low, and that might stimulate further spending on durables. Disposable income has been flat or declining, however, and the rate of savings has been driven to a postwar low.
On the other hand, in anticipation of tax cuts next year and continued relative stability of oil prices, much of middle America might feel a little freer to spend now.
“Next year, households will get a tax cut of $11.5 billion,” said Allen Sinai, chief economist at the Shearson Lehman Bros. investment house in New York. “Granted, it will be in dribs and drabs, but that can offer some security when it comes to thinking of spending at Christmastime.”
Here’s another wild card: The same tax code revision that will put extra dollars into consumers’ pockets will also end their ability to write off interest on credit-card debt and sales taxes on expensive items. Will this prompt a buying binge on fur coats, refrigerators and Ferraris this December, as people scurry to take advantage of these deductions for the last time?
“Not for most ordinary people,” said Fabian Linden, economist with the New York-based Conference Board, a research organization sponsored by corporations. “It might be a good idea to buy your yacht now, but whether an electric toaster is worth scrambling for is another question.”
‘No Impact’
Sears, Roebuck & Co., the largest U.S. retailer, also discounts any effect of the new tax law on appliance purchases. “It’s having no impact on our industry,” said chief economist Tom Swanstrom. He said that auto manufacturers are the biggest beneficiaries of the change.
Weather--which tends to get a disproportionate share of blame or credit, depending on merchants’ moods--has already affected sales at Dayton Hudson’s Midwest department stores. Below-zero temperatures arrived much earlier than usual, providing a hot market for winter apparel.
Allen I. Questrom, chairman of Bullock’s in Southern California, despairs of a return of the unseasonably warm weather that dampened sales of sweaters and other traditional gift items last Christmas season. He hopes cooler winds will prevail. “We could conceivably have a spectacular season, based on Mother Nature treating us well,” he said.
One harbinger of less-freewheeling spending patterns, however, is that a recent Conference Board survey showed a decline in consumer confidence. “Consumers have been on a great spending splurge . . . and are not in too strong a position,” Linden said. “In terms of consumers’ spirit, they’re not singing hosannas.”
A. Gary Shilling, a New York economic consultant, sees apparel sales, in particular, suffering because of the recent heavy spending on automobiles, which was driven by incentive financing rates.
“When people are buying cars, they don’t buy a new suit or dress,” he said. “When they can’t afford a car, they buy a consolation prize--glad rags.”
Whether big monthly payments will stop them from spending on a big Christmas “is the $64-billion question,” Shilling said. “Consumers for the last several years have been borrowing to maintain a life style they can’t really afford.” Overall, he said, he feels that holiday sales will be disappointing.
‘Last Gasp’ Spending
Sarah A. Stack, an analyst with the Los Angeles-based brokerage of Bateman Eichler, Hill Richards, foresees only modest sales gains for many retailers this Christmas because, she said, “people are tapped out.” Retailers are likely to use the lure of early price cuts. “If this is the last gasp of consumer spending,” she said, “they’ve got to get people into the stores.”
In an effort to do that, some merchants are going to special lengths to accommodate shoppers. Wal-Mart, for one, offered more holiday season items in October than in years past.
At the Houston Galleria, that city’s hot shopping spot, the stores beefed up decorations this Christmas, returning to traditional reds, greens and Santa Clauses after experimenting with a turquoise theme last year.
Oshman’s Sporting Goods, a Houston-based retailer with a strong presence in oil-producing states and California, is running heavy promotions, especially on big-ticket merchandise. In California, for example, customers can defer payments on expensive ski apparel and equipment until February. For the second year, the company’s Texas stores are offering their own charge accounts. “We’re hopeful,” said President Marvin Aronowitz. “This isn’t the first time that people have been overspent.”
Quality Is In
Minneapolis-based Dayton Hudson is finding a lot of interest in better-quality merchandise this year. Generally speaking, Macke said, the dressy look is in, from rhinestones to silks.
One commodity that isn’t quite so “in” this year is Santa Claus. Western Temporary Services, a Walnut Creek, Calif., company, reports a 15% to 20% decline in demand for the big-bellied fellow.
To compensate, the agency has been pushing Santas for unusual locations--such as 19 Lucky food stores in the Bay Area. “To my knowledge, this is a first,” said Jenny Zink, vice president of marketing. “This is going to be a three-day, sit-down session where children can sit on his lap in a throne-type atmosphere.”
Some of the slack in Santa jobs is being taken up by other temporary positions. The agency is getting 50% more requests for product demonstrators. Said Zink: “They’re demo-ing everything from vacuum cleaners to videotapes.”
This is all part of retailers’ efforts to make stores more exciting at Christmastime. But Greenstein, the Bear, Stearns retail analyst, doubts that Americans need much extra incentive to spend money.
“We’re a nation of spenders,” he said. “If we have a choice between spending and saving, we’ll always spend.”
