Since the recession began in late 2007, stores have had to offer bigger price cuts
By Anne D’Innocenzio
AP Retail Writer
NEW YORK (AP) — This holiday season, Americans may not spend their green unless they see more red.
Despite signs that the economy is improving, big store chains like Wal-Mart and Kohl’s don’t expect Americans to have much holiday shopping cheer unless they see bold, red signs that offer huge discounts. As a result, shoppers are seeing big sales events earlier and more often than in previous holiday seasons.
Retailers are trying to lure shoppers like Marissa Anwar, who has been doing more bargain hunting compared with last year.
The operations consultant, who lives in Toronto and New York City, said the economy “hasn’t been great” and she’s lost clients. As a result, she cut her shopping budget to $2,800 from last year’s $4,000.
“I was a former ‘spend-aholic,”’said Anwar, 29. “Now, I want to make sure I have the money before I spend it.”
It’s a problem that retailers know all too well. Since the recession began in late 2007, stores have had to offer financially-strapped Americans ever bigger price cuts just to get them into stores. But those discounts eat away at profits.
So far, Wal-Mart, Target and Kohl’s are among more than two dozen major chains that lowered their profit outlooks for either the quarter or the year. A big reason is the expectation that they’ll have to offer huge discounts in order to get shoppers to spend.
There are already signs that retailers are aggressively discounting. Wal-Mart, for instance, on Friday started matching or beating the prices that certain competitors like Best Buy are advertising for some toys and electronics for the day after Thanksgiving — known as Black Friday. Best Buy also plans to match rivals’ prices, even after customers have purchased items. And Target, better known for its whimsical advertising, is touting its prices in holiday TV ads for the first time in at least a decade.
The tempered expectations, earlier discounting and lowered profit outlooks from retailers come even though there are indications that the economy is recovering. The job market is making strides. The housing market is starting to come back. And the stock market keeps hitting new highs. All that would ordinarily lead Americans to spend more.
But so far, those improvements haven’t been enough to shore up consumer confidence. In fact, Americans’ confidence in the economy is at its lowest level since April.
“Stores know that they are well into a fight,” said Ken Perkins, president of the research firm RetailMetrics. “The vast majority of consumers are distressed.”
Not that there aren’t glimmers of hope that Americans will spend again.
Retail sales were up 0.4 percent in October, after being flat the previous month, according to the Commerce Department. Americans spent on big ticket item such as cars and furniture, but that may have left them with less room for more discretionary times like clothing this holiday season.
Overall, The National Retail Federation expects retail sales to be up 3.9 percent to $602.1 billion during the last two months of the year. That’s higher than last year’s 3.5 percent growth, but below the 6 percent pace seen before the recession.
Retailers say economic worries continue to weigh on shoppers heading into the holiday shopping season.
“We continue to see anxiety regarding the economy and the ability to stay within household budgets, particularly among lower and middle-income consumers,” said Kathee Tesija, executive vice president of merchandising for Target, which trimmed its annual profit outlook on Thursday.
In particular, some Americans still are getting used to smaller paychecks because of a 2 percentage point increase in the Social Security payroll tax that started on Jan. 1. That means that take-home pay for a household earning $50,000 a year has been cut by $1,000. That was a concern Wal-Mart noted on Nov. 14 when it lowered its annual profit guidance for the second time in three months.
“It’s going to be as competitive of a market as we’ve ever seen,” said Charles Holley, Wal-Mart’s chief financial officer, adding that among the issues that the discounter faces are “the economic conditions that the customer is under.”
Stores also say customers don’t want to spend because they’re uncertain about their health care costs next year due to the U.S. health care overhaul. Additionally, stagnant wages aren’t keeping up with daily living costs. Not to mention, some people are still out of work.
Leslie Lynch, 52, said she won’t be buying any holiday gifts because she was laid off from her job in marketing at an insurance company in August 2012 and hasn’t been able to find a job since. Lynch, who lives with her wife who works in quality control at a machine shop, said she is behind in mortgage payments and is afraid she will lose her house.
“We will probably have dinner and that’s about it,” said Lynch, who lives in Glastonbury, Conn. “Hopefully, we will have Christmas next summer.”
