Early Discounting Has Retailers Jittery About Christmas Season

Cursed by a sour stock market and a sinking dollar, retailers are preparing for a not-so-merry Christmas. Already, sale signs are popping up as fast as pine boughs, foreshadowing what could be a stellar season for bargain hunters.

Merchants and economists are particularly anxious about this holiday season because they figure shoppers’ spending will set the tone for the nation’s economy in 1988. Consumer spending has been weakening for several months, and retailers’ hopes for a robust Christmas have evaporated.

Bombarded by news of a shaky economy, consumers, too, are wary. As a result, this holiday shopping season--which officially kicks off Friday--promises a high-stakes game of chicken and a cliffhanger ending.

“Retailers are very nervous,” said Carl Steidtmann, vice president and chief economist at Management Horizons, a retail consulting firm near Columbus, Ohio.

Even before the stock market tumbled on Oct. 19, there was much concern about the strength of consumer spending at Christmas, noted Sandra Shaber, an economist with the Futures Group in Washington. Consumers were already buying fewer big-ticket items such as cars and major appliances, and specialty apparel stores were singing the blues about bloated inventories.

“Most retailers (felt) this would be a fair to middle Christmas but not one of the best,” Shaber said. “Obviously, Black Monday increased this uncertainty.”

At the Broadway department store chain, reality set in months ago as consumers’ spending seemed to run out of steam. “We have never projected this season to be that flamboyant,” said William D. McDonald Jr., senior vice president of marketing and sales promotion for the 43-store chain, which has more than $1 billion in annual sales.

“Are we nervous? Absolutely. . . . I don’t think anybody with our kind of volume could deny that we’re going to watch the message of the consumer. So far, the signal is maybe a little more caution.”

Although Shaber believes that the economy won’t necessarily plunge into recession, she fears that further market turbulence could prompt concerns about jobs and individual debt loads. “Some may try to save more and pay off debt,” she said, “and then we could have a downward spiral.”

For retailers, always a bunch of nervous Nellies at Christmastime, “this year it’s a more tense situation,” said Joseph H. Ellis, a retail analyst at Goldman, Sachs & Co. in New York. Although spending slowdowns have occurred at all types of retail outlets, stores selling women’s fashions have been particularly hard hit, he said.

“That may relate more to confusion over skirt lengths and, to some extent, boredom with styles around for some time,” Ellis said.

Allen I. Questrom, chairman of the Bullock’s department store chain, agrees that apparel merchants have gone “once too often to the well” on some moderate ready-to-wear styles. And, he noted, most female customers aren’t yet comfortable with the new, shorter hemlines.

However, he said, Bullock’s is doing “terrific” business in designer and intimate apparel, children’s departments, home decorations and menswear, with $60 ties going fast. Other brisk, high-priced sellers are cashmere garments and very expensive glass pieces by Baccarat, Lalique and Lladro.

Ultimately, economists say, merchants’ success during the Christmas selling season will depend on how confident consumers feel. Only about a fifth of Americans own stock, so most were not directly affected by the Oct. 19 crash. But continuing publicity about the nation’s economic woes could put a chill on holiday spending.

If consumers hold out for bargains, they could be in the driver’s seat, said Richard T. Curtin, who directs consumer surveys at the University of Michigan. “The consumer is looking for a better buy. . . . To hold their competitive positions, (retailers) will have to offer large and frequent discounts,” he said, adding that the industry’s profits are likely to suffer.

Finding More on Sale

Attracted by early sales last weekend at Century City Shopping Center, Jessie Johnson of West Los Angeles ventured out ahead of her usual last-minute holiday shopping schedule. “This year I’m finding more on sale,” she said. “That’s why I’m shopping earlier.” In another break with tradition, Johnson said her brothers and sisters decided not to exchange gifts this year. The stock market probably colored their thinking, she noted.

But for every unsettled Jessie Johnson, there’s another American asking, “What’s the big deal?” Bob Cahill, a 26-year-old employee in MGM-TV’s payroll department, plans to spend as much as $600 on presents this year, about the same as last. Of the economy, he said, “I think it’ll straighten out.”

Such mixed signals abound, making the imprecise art of forecasting Christmas economics even more of an iffy affair this year. “At this point, the picture is inconclusive and spotty,” said Robert T. Parry, president of the Federal Reserve Bank in San Francisco.

The Conference Board, a New York-based research group, found in its latest consumer survey that confidence dropped sharply in November from a 15-year high in early October. But the survey also showed that Americans don’t plan to cut back on Christmas buying. U.S. households plan to spend an average of $380 on gifts, near last year’s level.

“There is nothing in the present situation that has any of the (signs) of a terribly painful Christmas,” said Fabian Linden, executive director of the New York-based research group’s consumer research center.

Indeed, some merchants see opportunity in the uncertainty. Despite a generally lackluster toy market, Toys R Us is “very optimistic about Christmas,” said Michael Goldstein, chief financial officer. “There’s no bashfulness on our part. We have built up our inventory and are looking forward to obtaining the volume that other people are giving up.”

Dolls Selling Well

At Toys R Us, dolls are selling well, even the high-tech, talking variety costing $100, a spokeswoman said. But last week’s hot seller was much more modest: the tiny, $2.96 Princess of Power dolls by Mattel. Customers bought 20,000 of them.

Although some retailers continue to put on a fairly merry face for the holidays, others acknowledge that caution is their watchword.

“Christmas is likely to come later and later,” said Robert J. Ulrich, chairman of Target, an upscale discount chain with 317 stores nationwide, including nearly 100 stores in California.

Specialty apparel retailers, in particular, find themselves in the pickle of having excess merchandise. Leslie H. Wexner, chairman of the Limited, has made it no secret that his company expects a “very dicey” Christmas, with heavy promotions. The Gap also has gone on record with plans for big markdowns.

Even Nordstrom, a highly regarded specialty store that excels in customer service, is offering steep markdowns to clear its decks for Christmas, according to William N. Smith, an analyst with the Smith Barney, Harris Upham investment firm in New York. Nonetheless, company President Jim Nordstrom foresees sales gains over last year’s season of 15% to 20%--”not great, not terrible, just kind of OK.”

High-end stores have not been immune to the downturn since the market crash. On Rodeo Drive, the street of big spenders, fewer shoppers have been in evidence.

“A bit of reserve has shown through in customers’ patterns since Black Monday,” said Barbara Boettigheimer, president and chief executive of Torie Steele Boutiques, a complex of eight designer stores including Fendi, Krizia, Maud Frizon and Valentino. “We’re hoping that the holiday season will break through (the) general malaise.”

Pinning Hopes to Economy

Even if customers hibernate until the 11th hour, however, some merchants might still salvage a reasonably good Christmas, with modest sales gains and limited markdowns. Target, for example, has scaled back its sights and product purchases over the last several months as sales have softened. “As most retailers have been, we’ve been managing our inventories very closely,” Ulrich said.

Some retailers are actively pinning hopes for their own success and that of the economy at large on Washington. Jack Shewmaker, vice chairman of Wal-Mart Stores, a discount chain catering to heartland America, recently visited with members of Congress to press concerns over the federal deficit. The Bentonville, Ark., retailer also encouraged its 186,000 employees to write letters to their representatives, and “several thousand” did so, according to spokesman Jim Von Gremp.

Federated Department Stores, the Cincinnati-based parent of Bullock’s and I. Magnin, also is hoping for solid progress in Washington to allay consumer fears.

“Clearly, business has turned down,” said Questrom, Bullock’s chairman. “But it could turn the other way if the government starts to take some actions (to stabilize) financial markets and debt.”