Some Merchants Will Face 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 rests at its lowest ebb since the nation pulled out of recession in late 1982.

Signs of a nationwide economic slump abound. Many stores are burdened with hefty debts and brutal competition. Consumer confidence is shot.

“I’m budgeting a little bit more,” Elizabeth Pope, an Anaheim retiree, said while shopping at the MainPlace/Santa Ana mall earlier this week. “I think Christmas will be a little bit tighter.”

Others are watching the situation in the Middle East, fearing a war will sink the nation into recession. “It’s just kind of scary,” Kristi Toohey of Anaheim Hills said as she looked for a new pair of shoes. “I’m worried about the effect on the economy.”

On top of those concerns, a batch of increased taxes proposed this week to narrow 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 accounting firm Arthur Andersen & Co.

Economists have been forecasting a retail recession for months. The State Board of Equalization reported this week that Orange County’s retail sales in the first quarter--the most recent available--increased a meager 4.3%. When inflation of 4.8% is taken into account, the county’s retail sales declined in real terms.

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., Nordstrom and Sharper Image delivered bad news. Thrifty said it would close 50 to 100 of its ailing drugstores and sporting goods outlets while Nordstrom dismissed 600 employees and Sharper Image fired 110.

And other companies will spend the Christmas season trying to work their way out of financial problems.

Anaheim-based Clothestime Inc., which operates a chain of discount women’s apparel stores, recently reported that earnings will be off this year due to poor sales stemming from “a competitive retail environment and a slowdown in consumer spending.” A week after Iraq invaded Kuwait, the company ordered its stores to hold off on making commitments for Christmas merchandise for several weeks.

Some big retailers are trying to stave off 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 in Chapter 11 bankruptcy proceedings, said in June that it would dismiss nearly 18,000 workers in one of the biggest mass 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 investment firm Bateman Eichler, Hill Richards.

Underscoring the concerns of investors, the stocks of many major retailers have fallen 30% to 60% since the spring. Clothestime stock has tumbled to $1.375 from a high of $6.125 earlier this year. And Quiksilver, the Newport Beach surf wear company, saw its stock plummeted to $10.75 from a high of $29.50 as it faces tough competition and a grim retail environment.

The battering of retail stocks continued 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.

To be sure, some analysts contend that 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. They also say that a peaceful settlement of the Persian Gulf crisis could restore consumers’ faith in the economy and inspire a timely burst of spending.

Moreover, the retailing industry often frets about Christmas only to wind up enjoying another big season. Merchants start getting nervous 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.

Officials at South Coast Plaza in Costa Mesa also are bullish about Christmas and say they have detected no slowdown in sales. “Our retailers seem to be positive here,” said plaza General Manager Jim Henson. “From what we hear from other retailers, the economy is very soft. But we have not felt that here.”

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.

Joe Levy, chairman of the Fresno-based Gottschalks chain of 22 department stores, said he currently is buying goods at 30% to 50% off standard prices.

For customers, the retailing slump is expected to bring good news and bad.

Sharp price markdowns should continue, even if tighter inventories mean that sales might not be as plentiful as last year. Levy said that for big-ticket items such as 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.”

On the other hand, shoppers also 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 the retail consulting firm Management Horizons.

Steidtmann, who describes himself as relatively optimistic about the Christmas retailing outlook, predicts that cost savings will boost 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.

Times staff writer Chris Woodyard in Orange County contributed to this story.