For Some Merchants, It’s a Make or Break Christmas : Retailing: If consumers are scared and stingy, weaker firms face trouble. It means price cuts but less selection.
Some of America’s merchants might sing a new Christmas tune this year: “Brother, Can You Spare a Dime?”
Retailers are beginning to stock their shelves with merchandise for the pivotal holiday shopping season at a time when, many analysts say, the industry is at its lowest ebb since the nation pulled out of recession in late 1982.
Consumer confidence is shot, surveys show. Signs of a nationwide economic slump abound. Many stores are burdened with hefty debts and brutal competition.
On top of that, a batch of increased taxes proposed this week to reduce the federal budget deficit is taking aim at American consumers’ pocketbooks.
“There’s every indication that this could be a Christmas that only Scrooge could appreciate,” said Alan L. Gilman, managing partner in charge of retailing for the Arthur Andersen & Co. accounting firm.
Already, the employees of many major retailers are feeling the pinch. In the last two months, West Coast-based merchants as disparate as Thrifty Corp. and Nordstrom delivered bad news. Thrifty said it would close 50 to 100 of its ailing drugstores and sporting goods outlets; Nordstrom dismissed 600 employees.
And other companies will spend the Christmas season trying to work their way out of economic disaster.
Earlier this year, Campeau Corp.’s vast department store empire led a parade of big U.S. retailers in seeking protection from creditors in bankruptcy court. Ames Department Stores, a big Northeast discounter that is in Chapter 11 bankruptcy proceedings, said in June that it would dismiss nearly 18,000 workers in one of the biggest firings in U.S. history.
More retailing collapses--and more layoffs--could be on the way.
“There are venerable names that are going to disappear over the next few years,” following in the footsteps of recently liquidated chains such as B. Altman and Bonwit Teller, said Sarah A. Stack, an analyst with the Bateman Eichler, Hill Richards investment firm.
Underscoring the concerns of investors, the stocks of many major retailers have fallen 30% to 60% since the spring--and they took another pounding Wednesday. Two of the biggest losers were Circuit City Stores, whose stock fell $1.625 to close at $14.875, and The Limited, which dropped $1.25 to finish at $13.
Analysts contend that some retailers are in better shape than a year ago because they have prepared for hard times by holding down their inventories and cutting other costs.
But, shoppers may find that conservative buying by retailers will translate into thinly stocked shelves and a lack of high-fashion apparel.
“You need to go out and shop early, particularly for apparel, because apparel stocks will be at their lowest level in a decade,” said Carl Steidtmann, chief economist for Management Horizons, a retail consulting firm.
The good news for customers is that sharp price markdowns should continue, even if tighter inventories mean that sales might not be as numerous as last year.
Joe Levy, chairman of the Fresno-based Gottschalks chain of 22 department stores, said that, for big-ticket items like furniture, cars and television sets in particular, “if you think you’re going to get regular prices for it (from customers), you’re kidding yourself.”
Analysts note that a peaceful settlement of the Persian Gulf crisis could restore consumers’ faith in the economy and inspire a burst of spending.
The retailing industry often frets about Christmas only to wind up having another big season. Merchants start getting nervous at this time of year largely because many make 50% or more of their annual profits during the holidays.
“There are going to be people shopping and there are going to be people buying. Christmas will always be Christmas,” said Jacqueline Cohen, a spokeswoman for Giorgio Beverly Hills, a fragrance firm that sells to department stores and specialty shops across the country.
Last year, however, experts’ dire predictions proved right. It was sharp price-cutting to counter slow sales, for instance, that helped push debt-ridden Campeau into bankruptcy.
No matter how bleak the economy gets, strong merchants are expected to fare reasonably well, if not as well as they have in the past. Such powerhouses as Toys R Us, Home Depot, Dillard Department Stores and May Department Stores should be able to pull customers away from faltering stores that can no longer afford to advertise heavily, experts say.
And, as struggling stores cancel orders, healthy retailers are buying merchandise at sharp discounts. Gottschalks’ Levy said he currently is buying goods at 30% to 50% off standard prices.
Steidtmann, who describes himself as one of the more optimistic economists tracking Christmas retailing, predicts that cost savings will increase the industry’s fourth-quarter profits 20% from late 1989’s sickly results. Still, he expects profits for all types of retailers other than auto dealers to amount to only 0.7% of sales, a level reminiscent of the recessionary years of the early 1980s. Other experts predict even lower earnings.
Further, Steidtmann and other economists predict that Christmas sales of general merchandise, after taking inflation into account, will rise less than 1.5% above last year’s levels and may even fall.
For debt-heavy retailers and their suppliers--including many Southern California apparel firms--the rough economy could be extremely punishing.
On that score, some analysts cite New York-based R. H. Macy & Co., which owns the Bullocks and I. Magnin chains in California, and Los Angeles-based Carter Hawley Hale, parent of the Broadway-Southern California department stores and four other chains. Weighed down by junk-bond debt taken on in corporate overhauls, both companies are losing money.
A spokeswoman for Macy’s dismissed as “ludicrous” speculation that the company will be forced into reorganization if it falters this Christmas. She said the company has prepared itself to weather a slow economy by keeping its inventory lean and by avoiding price-cutting.
Carter Hawley said it is taking similar steps to hold down expenses and added that it is under no immediate financial pressure to achieve a turnaround. The company says it is cushioned by valuable real estate holdings that it could sell, if necessary, and points out that no major payments are due on its $350 million in junk bond debt until 1996.
San Francisco-based Sharper Image--a smaller but high-profile retailer--also is said by some analysts to be on the endangered list. Officers of the company, which this summer reported a quarterly loss of $1.6 million, would not comment.
