Consumer Spending Up - Despite Worst Income Drop in 20 Years

Story first appeared on The Wall Street Journal -

Consumers keep at it despite tax increase at start of year

Consumers increased spending in January for the third straight month, suggesting that a big drop in income and a tax hike at the start of the year only exerted a mild drag.

Consumer spending advanced a seasonally adjusted 0.2% last month, the Commerce Department said Friday. That matched the estimate of economists polled by MarketWatch.

Americans continued their spending ways despite an increase in their taxes and the biggest plunge in income in 20 years.

A two-year law that reduced payroll taxes by 2% expired in January and the government also raised rates on the very rich. For people earning $1,000 a week, the payroll tax hike takes an extra $20 out of their paychecks.

Incomes, meanwhile, sank 3.6% in January after spiking 2.6% in December. Companies accelerated the payment of rewards for workers and investors in December to avoid higher tax rates in January, accounting for the big swing.

Consumer spending represents as much as 70% of the economy. When Americans buy more goods and services, businesses generate higher sales and profits and can afford to hire extra workers. Less spending results in slower economic growth.

In Friday trades, U.S. stocks zig-zagged from losses to gains amid a raft of economic data.

A survey of consumer confidence rose slightly and a U.S. manufacturing gauge climbed to nearly a two-year high.

Danger signs?
Although spending largely held up in the first month of the tax increase, many analysts think it will exert some downward pressure on the economy in the next few months. Consumers don’t always change their behavior immediately after a tax increase.

In one potentially troubling sign, spending on durable goods such as appliances, furniture, or consumer electronics fell 0.8% in January to mark the first drop in three months. Consumers tend to cut back on big-ticket items if they feel more economic stress.

What’s more, higher gasoline prices and sharp cuts in federal spending could also apply the brakes to the economy in the coming months.

On Friday, the government is supposed to begin the process of slashing federal outlays by as much as $85 billion over the next six months under the rules of a so-called sequester. Top Democrats and Republicans were scheduled to meet at the White House to discuss the matter, but no breakthrough was expected.

Economists say the spending reductions could hamper the ability of the U.S. to grow any faster than the 2.2% rate by which it expanded in 2012. The economy needs to grow much faster to quickly reduce the nation’s 7.9% unemployment rate.

“One thing is perfectly clear — most American will remain cautious in their spending habits,” said Chris Christopher, director of consumer economics at IHS Global Insight.

Student Loan Debts Still High

Story first appeared on USA Today.

Households have whittled down the massive debt they racked up in the mid-2000s credit bubble, but apparently not enough to nudge them into a spending binge that could jump-start the recovery, some economists say.

Household debt is closely watched by economists because consumers burdened by big monthly payments for mortgage, credit card and student loan obligations are less likely to splurge on clothing, furniture and travel. And consumer spending makes up about 70% of the economy.
Many economists expect the government to report Friday that the economy grew at a moderate 2.5% to 3% annual rate in the first quarter, driven largely by exports and business investment. Consumer spending likely rose a more modest 2.1%, according to IHS Global Insight.

One reason consumer purchases have not taken off is high debt. Consumers have worked hard to pay off credit card, mortgage and other debt in recent years. Total mortgage and other consumer liabilities have fallen from a record 123% of disposable income in late 2007 to 105% in the fourth quarter, according to the Federal Reserve and IHS.

Yet the decline masks key areas of concern. Student loan debt increased $117 billion last year to a record $1 trillion, according to the Consumer Financial Protection Bureau. Many Americans are staying in school or returning to bolster their skills amid a bruising job market.
Mounting student loans are burdening young workers who are key to overall spending. Rising debt, as well as poor job prospects, have prompted many to put off marriage and live at home longer, dampening household formation and furniture purchases. More than 80% of 18-to-34-year-olds who took out college loans still have a balance, and more than a third of those owe more than $20,000, says a CouponCabin.com survey released this week.

Mortgage debt, meanwhile, has dropped more than 7% since early 2008. But consumers who owe more than their homes are worth are still burdened by high debt and have cut spending as a result, according to a report last month by the Brookings Institution.
Credit card spending picked up late last year, helping fuel strong holiday sales. But with wage growth still tepid, such purchases declined in January and February.

For more national and worldwide related business news, visit the Peak News Room blog.
For local and Michigan business related news, visit the Michigan Business News blog.
For healthcare and medical related news, visit the Healthcare and Medical blog.
For law related news, visit the Nation of Law blog.
For real estate and home related news, visit the  Commercial and Residential Real Estate blog.
For technology and electronics related news, visit the Electronics America blog.
For organic SEO and web optimization related news, visit the SEO Done Right blog.

Retail Sales in U.S. Probably Climbed as Incentives Propelled Auto Demand

Bloomberg

 

U.S. retail sales probably rose in July for the first time in three months as incentives spurred auto purchases, indicating merchants are relying on discounts to spark demand, economists said before reports this week.

The 0.5 percent increase in sales followed a 0.5 percent June decline, according to the median estimate of 58 economists surveyed by Bloomberg News before Commerce Department figures Aug. 13. Other reports may show consumer prices were restrained and the trade gap was little changed.

Companies added fewer workers than forecast last month, pointing to a pace of recovery in the labor market that will do little to boost consumer spending, which accounts for 70 percent of the economy. Federal Reserve Chairman Ben S. Bernanke and fellow central bankers will take into consideration the mounting signs of slower growth when they meet in two days.

“Consumer spending is going to be touch-and-go all quarter,” said Ryan Sweet, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania. “Vehicle sales got off to a decent start but outside of autos, spending was generally weak in July.”

The Commerce Department’s report will show purchases excluding automobiles rose 0.3 percent last month, according to the survey median. Sales minus vehicles fell 0.1 percent in June and 1.2 percent the previous month.

Retailers reported July sales gains that missed analysts’ estimates as consumers cut spending ahead of the back-to-school season. Sales at 30 chains climbed 3 percent from a year earlier, less than the 3.2 percent average of analyst projections, Retail Metrics Inc. said last week. Department- store chain J.C. Penney Co.’s sales fell 0.6 percent.

Summer Merchandise

July is typically the slowest month of the third quarter for retailers as they clear out summer merchandise for the back- to-school season, the second-largest sales period after the year-end holidays.

Americans had already slowed their spending last quarter. Purchases rose at a 1.6 percent annual rate, less than the 1.9 percent in the first three months of the year, Commerce Department figures showed on July 30. The economy also cooled, growing 2.4 percent after a 3.7 percent pace from January through March.

The Standard & Poor’s Supercomposite Retailing Index of 90 retailers including Target Corp. and Macy’s Inc., is down 16 percent from this year’s peak on April 26. The broader S&P 500 has fallen 7.9 percent from its April 23 high.

“The economic environment remains uneven” and “card members are borrowing less and paying down more of their outstanding debt,” Kenneth I. Chenault, chairman and chief executive officer of American Express Co., the biggest U.S. credit card issuer by purchases, said in a July 22 statement.

Auto Sales

One source of strength for the Commerce Department’s retail figures may be car sales. Vehicle purchases rose to an 11.56 million annual rate in July, the third-highest this year, as model-year closeout deals drew customers back to showrooms. Demand would be up from an 11.08 million pace the prior month, according to industry data.

“We had an outstanding retail month from a consumer standpoint,” George Pipas, chief U.S. sales analyst for Ford Motor Co., said in an interview last week with Bloomberg Television. “Still, it is a fragile situation.”

Economic data pointing to slower growth have intensified debate among economists whether the Fed will take an incremental step at their Aug. 10 policy meeting toward providing more stimulus.

Bernanke on Economy

“The slow recovery in the labor market and the attendant uncertainty about job prospects are weighing on household confidence and spending,” Bernanke said last week in a speech in Charleston, South Carolina. While the U.S. has “a considerable way to go” for a full recovery, “rising demand from households and businesses should help sustain growth.”

Companies added 71,000 jobs in July after a gain of 31,000 the prior month that was smaller than initially estimated, Labor Department figures showed. Total employment fell 131,000, reflecting the dismissal of temporary government workers as the decennial census wound down, the Labor Department reported Aug. 6.

Central bankers are facing little risk of inflation. The Labor Department may report Aug. 13 that consumer prices increased 0.2 percent in July from the prior month, while prices excluding food and energy rose 0.1 percent, according to the median estimate in a Bloomberg survey.

A report from the Commerce Department on Aug. 11 may show the U.S. trade deficit held at $42.3 billion in June, according to the Bloomberg survey. Imports may have increased as companies spent more on capital goods and boosted inventories, while exports probably also picked up.

Americans Splurge on IPads While Broke in New Abnormal Economy

Bloomberg

 

In March, Ralph Ronzio went to a warehouse in a seedy part of Orange County, California, and watched a man auction off his condo for half what he’d paid for it. Ronzio had bought the place for $329,000 in 2005, when he moved to Southern California from Rhode Island to take a job at a data-storage company. It was the first place he’d ever owned.

“It was totally my bachelor pad,” he says. “Not much inside other than the usual leather couch and the big screen TV. My fiancée made me sell the couch.”

That wasn’t the only thing that changed when Ronzio got engaged. His fiancée had two young children, and there wasn’t enough room in the condo for all four of them. So last year, Ronzio bought a house nine miles (14 kilometers) away and they all moved in. He figured he could rent the condo and cover his costs. He figured wrong, Bloomberg Businessweek reports in its Aug. 2 issue.

The more he thought about the money he was losing, the more it stressed him out. Finally, Ronzio enlisted the help of a firm called You Walk Away and did exactly that from the remaining $319,000 on his condo mortgage. When the bank foreclosed, he says he felt a sense of relief. He also had more cash. He and his fiancée took the kids to Disneyland. Ronzio, 31, gave himself a treat as well.

“I bought myself an iPad,” he says.

Latest Apple Gadget

It used to be that someone like Ronzio could be fairly certain of the outcome when spending a few hundred thousand dollars on real estate. Housing prices were headed in only one direction. You could surf the boom and borrow against your home equity to pay for all manner of splurges -- a vacation, a flat- screen television, or the latest Apple Inc. gadget. Considering that housing prices almost doubled from 1999 to 2006, there was always an escape hatch: Sell your house and make enough money to pay it all back.

That was the old normal. Last year, Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., manager of the world’s biggest bond fund, declared a “new normal,” a global realignment in which the U.S. consumer, no longer a hungry monster, became cautious and subdued.

The current circumstances might be better described as the new abnormal, in which no one knows anything. In June, the Conference Board Consumer Confidence Index fell 9 points after an 11 percent drop in the S&P 500 the month before. New housing starts were at an eight-month low. Meanwhile, the unemployment rate still hovers near double digits. That’s 14.6 million Americans out of work. Federal Reserve Chairman Ben Bernanke added to the anxiety with a July 21 declaration that the economic outlook is “unusually uncertain.”

‘Liquidity-Constrained’

So who are all those people at the mall? It’s easy to forget that a 9.5 percent unemployment rate means that about 9 out of 10 Americans in the workforce are still employed.

“Some consumers are probably liquidity-constrained,” says Kenneth Rogoff, Harvard University professor and former chief economist at the International Monetary Fund. These are “the ones who are probably not the ones buying iPads. But 90 percent of Americans do have a job, and maybe 70 percent are confident about them. And maybe half of those have liquidity.”

On a recent afternoon, Lucy Johnston, 37, an accountant from Tulsa, Oklahoma, could be found at the Fashion Show mall on the Strip in Las Vegas. She’s cutting back on shopping and eating out because of the recession.

“It’s really tough right now,” Johnston says. “I don’t do many full-on spa days anymore.”

Yet there she was, shopping and vacationing in Vegas with her husband.

“We’ve pulled out all the stops. We’re staying at the Bellagio,” she says.

Schizophrenic Consumers

The new abnormal has given rise to a nation of schizophrenic consumers. They splurge on high-end discretionary items and cut back on brand-name toothpaste and shampoo. Companies such as Cupertino, California-based Apple, whose net income jumped 94 percent in its last quarter, and Starbucks Corp., which saw a 61 percent increase in operating income over the same time frame, are thriving.

Mercedes-Benz is having a record sales year; deliveries of new vehicles in the U.S. rose 25 percent in the first six months of 2010. Lexus and BMW were also up. Though luxury-goods manufacturers such as Hermes International SCA and Burberry Group Plc are looking primarily to Asia for growth, their recent earnings reports suggest stabilization and even modest improvement in the U.S.

Bifurcated Market

“Last September, retail started to recover on a very narrow basis,” says Michael Niemira, chief economist for the International Council of Shopping Centers. “Most of the industry was really weak. It wasn’t until the end of the year that you saw any momentum. It was all dollar stores and luxury. You have this bifurcated market. This year, it started to move to the middle a little. Now it’s kind of moved back to the edges.”

Some of this is a reminder that the rich have been largely shielded from the recession’s ravages.

“All of my customers think we are out of the recession,” says Marika Baca, an associate in the women’s department at the Barneys New York store. “This time last year, it was bad. But now the women who were reluctantly picking up one piece are easily buying three.”

Aspirational middle-class consumers say they are also yearning to get their hands on the same high-end merchandise, just as they did in better times.

Family Dollar Stores

In such an environment, optimism about the economic future ebbs and flows constantly, with far-reaching consequences for a nation in which consumer spending accounts for 70 percent of the gross national product. It’s an economy that suggests an EKG- shaped recovery -- a sequence of mini booms and busts as consumer fads and pent-up demand drive sales, until the impulses fade. Erratic behavior is everywhere, even at Matthews, North Carolina-based Family Dollar Stores Inc.

“My feeling is that you can see week-to-week differences today that are far more volatile than what we have been seeing,” says R. James Kelly, the company’s president and chief operating officer, reporting a quarter with a 19 percent increase in net income.

Consumer confidence was edging up earlier this year. The stock market had rebounded. It looked like the economy took on aspects of normal behavior -- and then it all fell apart. In June, the stock market gave back 4 percent of its value. Like teenagers suffering mood swings, consumers lost their nerve all over again.

‘Dark Cloud’

On July 27, the Conference Board reported that confidence was at a five-month low, which it blamed on job insecurity.

“Concerns about the labor market are casting a dark cloud over consumers that is not likely to lift until the job market improves,” Lynn Franco, director of the board’s consumer research center, says in a statement.

Not everybody’s consumer diagnosis is the same, though. Shortly before the Conference Board released its finding, Consumer Reports, the 74-year-old magazine, unveiled the results of its monthly telephone survey about economic issues. It found that consumers had ramped up their retail spending by an average of $40. Though major purchases like cars remained unlikely, Americans were planning to spend more on appliances and electronics.

“We just focus on what’s happening this month,” says Ed Farrell, a director of the Consumer Reports National Research Center. “We don’t ask people what they think the business climate is going to be like in a year. If these people could tell us that, we’d all be very well off.”

Consumer Survey

American Express Co. released the results of its consumer survey on July 13, showing more willingness to spend, damped somewhat by guilt and despair on the part of some of these same respondents. The New York-based credit-card company found that 51 percent of consumers had fallen behind on their annual savings plan, in part because they were either making impulse purchases or simply spending beyond their means. There it is: gloom, muted optimism, and wild abandon.

What if these things aren’t exclusive in the new abnormal? Frank Veneroso, an investment strategy adviser in Portsmouth, New Hampshire, follows the nation’s saving rate. It was his opinion that high debt levels and economic fears would force Americans to rein in their spending and increase their savings.

‘Celebratory Spending Spree’

In the early part of the recession, that’s what happened. Then it stopped happening. Veneroso writes in a report that the nation’s wealthier citizens were so relieved when the stock market rallied last year after the financial crisis that they went on a “celebratory spending spree.” The recent market turmoil will put a stop to it and savings will start to inch back up, Veneroso says.

Except market rallies aren’t the only thing that emboldens consumers. Market dips can also loosen up purse strings, says Dan Ariely, a professor of behavioral economics at Duke University and author of “Predictably Irrational: The Hidden Forces that Shape Our Decisions.” When people fret about market gyrations, they see the advantage of shopping over putting money into a mutual fund that might tank, Ariely says.

“If they lose money by spending it on something, at least they have something to show for it,” he says.

For consumers looking for a reason, ups and downs can both provide a justification for spending. Stephanie Redmond, a 25- year-old electronics worker, talked about her financial woes as she shopped at the Dolphin Mall in Miami. She described herself as pessimistic about the economy.

Need New Car

“I don’t see it getting any better,” she said. “I need a new car, but I don’t plan on getting one anytime soon.”

Instead she recently bought a plane ticket to New York and stayed in a Times Square hotel.

“It was my first time, so it was a lot of fun,” she said.

At the Woodfield Shopping Center in Schaumburg, Illinois, Michelle Rodriguez, 39, a part-time cafeteria worker at a local high school, said she cut back considerably after losing her old full-time job two years ago as a receptionist at Kraft Foods Inc.

“I think the economy has a ways to go,” she said. “I don’t make nearly as much as I used to make.”

Yet she said she bought a 46-inch flat-screen Sony TV in the last year. And now she was waiting for help in the Genius Bar line at the Apple Store.

Apple Revenue

One way of understanding Apple’s recent success -- the company announced “all-time record” revenue of $15.7 billion for its quarter ending on June 26 -- is that the iPad is positioned as a compromise product for people who crave the kick of a new Apple gadget and don’t want to spring for a Mac.

“I was talking to someone recently who said to me, ‘I bought the iPad because I can’t afford a new iMac,’” says Carla Serrano, chief strategist for TBWA/Chiat/Day, Apple’s advertising agency. “O.K., fine. But the iPad does hardly anything that an iMac can do.”

The recession is making people think they need to come up with that she describes as “post-rational” justifications for their extravagant purchases, she says.

The performance of Seattle-based Starbucks suggests that everyday luxuries have also not been wiped out. On July 21, the coffee chain announced a “record” quarter with same-store sales growth of 9 percent, the biggest increase since the second quarter of 2006, the peak of the old normal.

CEO Howard Schultz highlighted Starbucks’ new products, like the “customizable Frappuccino campaign,” as well as Via, the new instant coffee, which is pitched as a budget item, though not exactly priced like one when compared with other instant competitors. A 12-packet box of Via goes for $9.95.

‘Every day!’

Starbucks is the lower-end corollary to Apple, a purveyor of expensive treats. Stephanie Redmond, the Miami electronics worker, may not buy the new car she needs, but give up Starbucks? Never. She says she has to have it “every day!”

Mass marketers have a tougher time seducing consumers with psychological value. Burt Flickinger, a retail consultant based in New York, says Procter & Gamble Co. is struggling to keep people from abandoning its Ivory soap and Crest toothpaste for generic brands. According to Flickinger, better-educated shoppers understand how little difference there is in quality on many household items.

They may also be sneaking into discount retailers for these deals.

Cheap Towels

“The dollar store is the new Target,” says Al Moffatt, CEO of Worldwide Partners, a Denver-based advertising company. “You go in there to buy shampoo for a buck so you can go to Starbucks and justify spending $3 for a coffee.”

Moffatt says that he and his wife recently did their own variation on this recessionary theme. On a trip to Oregon, they bought cheap towels at a discount store before hitting a pricey spa.

Ran Kivetz, a professor of marketing at Columbia Business School, has done research on consumer psychology. He says that consumers’ brains lack a line that separates spending from saving. We practice a certain amount of thrift so that we can justify blowing a large sum frivolously, he says.

Kivetz says the recent recession has made consumer thinking even more conflicted. In the short run, we feel good when we save. In the long run, we tend to regret the denial of a spending outlet.

“We feel guilty” about spending, Kivetz says, which can lead to more irrational purchasing.

Need to Spend

That’s is exactly what’s happening now, according to Kivetz. Consumers were quick to reduce spending when the recession arrived. Then the recession lasted longer than expected, and the new abnormal set in. The economy started to improve. Then it appeared to worsen. There is only so long we can suppress our need to spend, Kivetz says.

“It’s just been a slow walk out of the woods,” he says. “And it’s so complicated. The things going on in Europe are frightening. There are problems with China, with our government debt, and bank debt. At the end of the day, people are saying, ‘There is still risk. I gotta cut back.’ But this is not a typical one-year recession. Life has to have some normalcy. I have to have some luxuries.”

There was little evidence of the recession at a recent lunchtime in the Mall of America in Bloomington, Minnesota. The nation’s largest mall was full of shoppers drinking expensive coffee and toting bags of electronics and expensive shoes. Some of them were there on vacation. Why not? The Mall of America doesn’t just have 520-plus shops, it has an enormous amusement park and a 1.2 million gallon aquarium. Sales are up 9 percent so far this year.

Mellissa Williams, a 30-year-old teacher from Laredo, Missouri, was looking for sneakers with her two children at a sporting goods store.

“We’ll be looking at price tags a little more than we normally would,” she said.

And yet she had come a long way to look for deals. What was her biggest splurge in the last six months?

“Probably this trip,” Williams said.

Consumer Spending in U.S. Probably Stepped Up, Carrying Expansion in 2010‏

Bloomberg

Consumer spending probably accelerated in the first quarter, shepherding the U.S. expansion into 2010, economists project a report this week will show.

Gross domestic product grew at a 3.4 percent annual pace after increasing at a 5.6 percent rate in the last three months of 2009, according to the median estimate of 67 economists surveyed by Bloomberg News. Household purchases may have climbed by the most in three years.

“Jobs are the critical component of the entire scenario,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. “The signs do point to impending employment gains.”

Improving demand boosts the odds the recovery will be self- sustaining, benefiting companies such as Starbucks Corp., as rising sales lead to additional hiring, which in turn fosters even more spending. A lack of inflation gives Federal Reserve policy makers the green light to keep interest rates low when they meet this week to ensure the world’s largest economy continues to grow.

Central bankers will keep the target for the benchmark borrowing cost on overnight loans between banks near zero at the conclusion of their two-day meeting on April 28, economists surveyed forecast.

Fed Chairman Ben S. Bernanke told Congress on April 14 that high unemployment and weak construction were among the “significant restraints” on the pace of growth. At their March 16 meeting, central bankers said economic conditions are likely to warrant “exceptionally low levels of the federal funds rate for an extended period.”

GDP Report

The Commerce Department’s advance estimate of first-quarter GDP is due April 30. The world’s largest economy grew at the fastest pace in six years during the last three months of 2009 after expanding at a 2.2 percent rate in the third quarter.

For all of 2009, the economy shrank 2.4 percent in 2009, the worst single-year performance since 1946.

Consumer spending probably increased at a 3.1 percent annual rate last quarter, almost double the 1.6 percent pace of the previous three months, the GDP report is also projected to show.

Households led the expansion last quarter, taking the baton from gains in production that reflected efforts to stabilize stockpiles. A swing to smaller inventory reductions accounted for 3.8 percentage points of growth in the fourth quarter.

Inventory Boost

That contribution, while diminished, probably continued last quarter as companies boosted stockpiles for the first time in two years, according to economists such as economist Aaron Smith of Moody’s Economy.com.

Inventories climbed 0.5 percent in February, the fourth gain in five months, according to Commerce Department data.

Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, is among those saying more jobs are a necessary component of a sustained recovery. Payrolls rose by 162,000 in March, the most in three years, the Labor Department reported April 2. The unemployment rate was 9.7 percent for a third month and has not increased since reaching a 26-year high of 10.1 percent in October.

Stocks gained in the first quarter of the year on mounting signs the economic recovery was taking hold. The Standard & Poor’s 500 Index climbed 4.9 percent from January through March, and has increased 9.2 percent so far this month.

Households may become more optimistic as the labor market improves. A Conference Board report on April 27 may show its measure of consumer confidence rose this month to 53.5 from 52.5, according to the survey median. The gauge averaged 45 in 2009, and 98 during the economic expansion that ended in December 2007.

‘Little Bit Better’

“We’re benefiting from a consumer who’s feeling just a little bit better,” Troy Alstead, chief financial officer of Starbucks, said in a telephone interview after the Seattle-based company announced earnings on April 21.

Starbucks, the world’s largest coffee-shop operator, raised its annual forecast after reporting second-quarter profit that beat analysts’ estimates. The chain’s sales at stores open at least a year advanced 7 percent in the U.S., driven by a 3 percent increase in the number of customer visits and a 5 percent jump in the amount of the average sale.

Confidence measures may give conflicting signals this month. The Reuters/University of Michigan index of consumer sentiment for April probably fell to 71 from 73.6 the prior month, according to the survey median. The figures are due April 30. A preliminary reading earlier this month came in at 69.5.

Signs of stabilization in the housing market may also help shore up confidence. A report from S&P/Case-Shiller, due April 27, may show home prices in 20 U.S. metropolitan areas increased 1.3 percent in February from a year earlier, the first year- over-year rise since December 2006, according to the survey median.

Shoppers Returning To Mall, But With New Spending Habits

The Economist

FOR over a year retailers have been cowering in their high-street redoubts as recession replaced the longest consumer-spending spree in recent times. Good news appeared this week, and a hint that the economy may be in less-dire shape than third-quarter GDP figures suggest. Sales recovered sharply in early October—particularly in food and footwear, but also in clothing and furniture—according to a survey released by the Confederation of British Industry. The outlook for November is even better, though with the looming uncertainties of Christmas and a return to higher VAT in January.

But the pattern is patchy. London shops have defied the recession better than those elsewhere, bolstered by tourism and the weak pound, and by the spending power of local residents. The divide between “have” and “have-not” shoppers across Britain has widened, according to the Retail Think Tank, an expert panel. The “haves” make fewer shopping trips but buy what they want; the “have-nots” are making more trips but buying less. Cash for gold is the new watchword.

At Westfield London (pictured above), a year-old giant mall, there is a throng of people but few are carrying bags. Some say Westfield has taken volume from the West End and nearby Ealing. But business is not brisk at the branch of De Beers, the diamond seller.

Sentiment is upbeat in Leeds, dubbed the Knightsbridge of the North. Leeds has just endured ten days of its annual Shopping Week, with a plethora of retail goings-on. The Victoria Quarter, the heart of smart shopping in the city, says 9,000 people came to its opening event and spent 25% more than in 2008. Land Securities, which deferred for a year the development of Trinity, a shopping and leisure space that is to cover 1m square feet, is now going ahead and hopes to complete it in the autumn of 2012. (Eastgate Quarters, a huge shopping project led by another property company, Hammerson, is on hold.)

Land Securities is bullish on retail rents in general, and has said that it will do no more of the “soft” letting deals that tenants demanded in the recession. But experts looking for shopping patterns are flummoxed, says Tim Denison at Synovate, a research firm. “It depends on the store level and the catchment area,” he says. Retailers with nationwide operations are having to make decisions at a local level.

Prime retail space in lively high streets and shopping centres—especially big inner-city ones, such as St David’s 2, which opened in Cardiff on October 22nd—is in great demand. Because these centres have a single landlord they get a good mix of tenants. High streets with many owners quickly look desolate if there are too many vacant shops, charity stores and mobile-phone outlets. The picture is mixed, though. A quarterly “health” index reflecting the views of Retail Think Tank showed its first forecast uptick, for the last three months of 2009, after ten consecutive falls. Yet visits to shops (other than those in out-of-town retail parks) are still trending lower than last year, according to Experian FootFall, a market-research firm.

Whether or not retailers are climbing out of recession, there seems to be an irreversible decline in small, independent stores in favour of branded chains—and these are migrating to bigger spaces. The shoppers at Westfield are cocooned in a retail paradise, sheltered from the weather, with a score of cafés and restaurants to choose among and—soon—a multi-screen cinema. To lure some of them back to smaller precincts and high streets, local authorities will have to revisit their policies on parking and the mix of commercial and residential properties, says Mr Denison. That is the challenge for the next decade—if they do not want shopping cocoons to go on emptying high streets and suburbs.

Consumers to Pare High-Tech Purchases

As posted by: Wall Street Journal

More than half of U.S. consumers plan to cut back on purchases of high-tech products this year, according to a survey that adds to clouds hanging over two big trade shows this week.

The findings by Forrester Research, scheduled for release Monday, aren't surprising, given the litany of bad economic news since September. But the online survey of more than 5,000 American adults, conducted in November, provides some of the first specifics about spending choices that consumers are likely to make.

The findings are particularly gloomy for newer categories of devices. Some 66% of respondents, for example, said they were less likely to purchase satellite radios this year because of the sour economy, while 62% said they are less likely to buy a portable Global Positioning System navigation device. Even smart phones, a hot category lately, aren't immune: 63% of respondents said they are less likely to buy one.

More established categories of products also fared poorly. Sixty-two percent of those surveyed said they are less likely to buy a new videogame console, Forrester said.

As for personal computers, 45% of respondents said they have delayed plans to purchase new ones, though 40% said they hadn't changed their purchasing plans. Eighteen percent of respondents said they now plan to spend less money on a new system. Television sets fared a bit better, with 44% of respondents saying they haven't changed their plans to buy a new set.

"It's pretty grim," said Paul Jackson, a principal analyst with Forrester.

The findings from the Cambridge, Mass., firm are the latest in a series of ominous portents preceding Macworld and the Consumer Electronics Show. The trade shows -- in San Francisco and Las Vegas, respectively -- are expected to draw hundreds of exhibitors this week despite the tough economic environment.

While the downturn took hold too recently for companies to change plans for introducing products at the shows, many are sending fewer employees while laying plans for new tactics over the course of the year.

Companies such as Forrester and consulting firm Accenture are offering a number of recommendations, including developing fewer, more highly differentiated products and tailoring them to market segments and regions that are relatively recession-resistant.

"There are still some geographies that are performing well," said Marty Cole, chief executive of Accenture's communications and high-tech operating group. "You can't paint it with a broad brush."

Indeed, surveys point to a few signs of strength in the tech sector, particularly in services that consumers feel they can't do without. An Accenture survey found that only 3.7% of U.S. consumers are willing to stop using home Internet access, 8.7% are willing to give up mobile-phone service and just 9.6% are willing to stop using cable or satellite TV services.

Those findings echoed those of the Forrester survey about consumers' commitment to mainstream technology services. But not many people plan to add new services: 58% of respondents said they don't have a digital video recorder service and don't plan to add one, while 69% said they wouldn't add a video rental service akin to that offered by Netflix Inc., Forrester said.

"Indications are when it comes time for renewals, people may reduce their service packages," Mr. Jackson said. "That is a long-term danger that may be more keenly felt later."

Gadget makers and service providers can also take solace in signs that consumers will allocate more of their spending to home entertainment. Forrester said 52% of respondents expect to spend less on entertainment outside the home and 56% said they will spend less on eating out. About 58% said they will spend the same amount on entertainment in the home.

Holiday Shoppers Only Lured by Big Bagainsr

When U.S. retailers report their November sales figures Thursday, they are expected to offer a troubling picture of the industry, where deep discounts and breathless promotions appear to be the only things keeping many consumers spending.

Those lures goosed sales in recent days, though retail experts agree it was only a temporary effect. In data released Wednesday by comScore Inc., online sales for Cyber Monday, the online equivalent of traditional retailers' Black Friday, jumped 15% from a year ago as Internet sites coaxed millions of consumers with offers of free shipping and dramatically reduced prices. Shoppers are finding big bargains on Herbal Tea, Kids Shoes, Green Tea, Sealife Jewelry, Plumeria Jewelry, Estate Jewelry, Childrens Shoes, John Deere Toys, John Deere Clothing, Cheap Cruises, Discount Cruises, Black Tea, Natural Lawn Care, Organic Kids Clothes, Organic Lawn Care, Natural Kids Clothes, Lawn Care and Foot Orthotics.

"I don't think there is any doubt that it is going to cut into margins," said Andrew Lipsman, a senior manager for comScore.

Americans are shopping, but only if the bargains are right. That puts retailers in a no-win situation for the duration of the Christmas season: They must continue aggressive discounts to move as much of their merchandise as possible, sacrificing profits.

"Even if markdowns are more aggressive than usual, it will still be a cheaper markdown now than if you have to take it later in the season," said Brendan Hoffman, chief executive of the Lord & Taylor department store chain.

Retailers' borrowing typically peaks in the months preceding the holidays, so it is critical for companies to generate cash to pay down their debts and, in some cases, to purchase merchandise for the following season.

Still, some retail experts warned that a markdown-at-all-costs mentality seemed to be seeping in. "We are seeing a nervousness that is increasing overall discounts instead of more strategic promotions," said Kimberly Frazier, senior manager of Deloitte LLP's retail and consumer products pricing practice.

Some online retailers said they benefited from Cyber Monday. Internet retailer Buy.com Inc. said sales on Monday increased 40% from a year earlier, thanks to aggressive promotions.

Others said they prospered without sacrificing profits. Shoebuy.com, part of IAC/Interactive Corp., saw sales increase and traffic increase by 30% on Cyber Monday after offering free shipping and sales on several products.

The Christmas season typically accounts for at least a third of retailers' annual sales, and is the time of year when companies fatten up to survive the comparatively meager sales months to come. But this season is already shaping up to be the worst in decades, a symptom of a deep dive in consumer confidence.

That sentiment was underscored Wednesday by a Federal Reserve report that showed the economy was taking a turn for the worse in recent weeks, with accelerating corporate layoffs that are likely to cut into consumer spending in coming months.

An estimate of November sales from MasterCard Spending Pulse, which tracks credit card, check and cash transactions, predicted a sales drop of more than 20% across several categories, including apparel and electronics.

Overall holiday retail sales are tanking, but amid the gloom there was one bright spot as sales over the Internet spiked. (Dec. 5)

The official numbers individual retailers release Thursday are widely expected to follow suit, showcasing a particularly dramatic drop in purchases of big-ticket items.

The dismal November performance follows a bleak October, when department store sales dropped 11.7%, according to Thomson Reuters -- the worst result since it started compiling the data in 2000. For November, analysts are forecasting a 13.8% drop for department stores, and 11.5% declines for apparel retailers.

Across the retail landscape, November same-store sale numbers "will look bad," warned Terry Lundgren, chief executive of Macy's Inc. Mr. Lundgren says the numbers will look even worse because they're being compared to last year, when Thanksgiving fell earlier in the month.

Sales trends during the three-day holiday weekend are particularly worrisome.

While sales ticked up 0.9% compared with a year ago, according to ShopperTrak, foot traffic dropped an estimated 19.3%, a sign that consumers were lured by specific deals. After a 3% jump in sales on Friday from the comparable Friday a year earlier, sales quickly turned sour, falling 0.8% on Saturday and 2.3% on Sunday, suggesting retailers will need to continue discounting heavily to keep consumers shopping.

Sacrificing profit for sales is the right strategy for now, said Madison Riley, a strategist at Kurt Salmon Associates. Although it will squeeze margins, he said that would be better in the eyes of Wall Street than being stuck with high inventories. He added, "Stores are not waiting around. This stuff does not get better with age."

Holiday Shopping Off to Strong Start

Original Article by Wall Street Journal

The holiday shopping season got off to a better-than-expected start, as retailers reeled in cautious shoppers with massive discounts like "buy one get one free" sweaters at Gap Inc. stores, $200 iPod Touch music players from Amazon.com Inc., and 26-inch LCD TVs at Target Corp. sites for $299.

In a survey of 3,370 shoppers, the National Retail Federation estimated shoppers spent an average of $372.57 over the weekend, up 7.2% over last year's $347.55.

Although unprecedented discounts lured shoppers into stores, momentum ebbed Saturday, raising concerns that shoppers were merely exploiting the "door-buster" deals and then walking out of stores. Indeed, as many as 70% of consumers purchased only deeply-discounted merchandise Friday, according to Charleston, S.C.-based America's Research Group, which polled 700 shoppers over the weekend. People are shopping for many things such as; Herbal Tea, Kids Shoes, Green Tea, Childrens Shoes, Cheap Cruises, Discount Cruises, Black Tea, Natural Lawn Care, Organic Kids Clothes, Organic Lawn Care, Natural Kids Clothes, Lawn Care and Foot Orthotics.

In the NRF survey, which was conducted by BIGresearch and includes spending data for Thursday, Friday and Saturday and estimates for Sunday, more than 172 million shoppers visited stores and Web sites over Black Friday weekend, up from 147 million shoppers last year. Black Friday traditionally marks the day when retailers turn a profit for the year.

But in a sign that sales over the next several weeks are likely to slow, shoppers said that by the end of the weekend they had completed a greater portion of their holiday shopping -- 39.3% compared to 36.4% last year, according to the NRF survey.

A different survey, performed by ShopperTrak RCT Corp., found sales on Friday were up 3% over last year, to $10.6 billion. The gains marked a deceleration of growth compared with 2007, which posted 8% sales gains. ShopperTrak will release data for Saturday and Sunday on Monday some related studies report consumers are booking cheap europe cruises well in advance.

Online, sales on Friday were relatively flat, rising 1% to $534 million, according to comScore Inc., a Reston, Va., market-research firm. When Thanksgiving and Black Friday were combined, online sales rose 2% over last year. Online sales from Nov. 1 through Friday totaled $10.41 billion, down 4% from last year.

Following two months of sharply declining sales, many retailers moved to dramatically mark down merchandise, despite facing lower profit margins. At Lord & Taylor, traffic was slower on Saturdays than on Fridays but better than the chain originally predicted.

Best Buy reports that it unlikely that prices would go much lower than they did over the weekend, when the retailer advertised products like a 40-inch Sony HDTV for $899.

At Macy's Inc.'s upscale Bloomingdale's chain, shoppers turned out for the heavy discounts including 40% off contemporary sportswear, 50% off men's shoes and $15 gift cards for every $100 spent. Bloomingdale's management notes that traffic Friday was down slightly from the year earlier, but stronger than expected.

Crowds were visibly thinner in many areas by Saturday. At Gurnee Mills, an outlet mall in Gurnee, Ill., hundreds of parking spaces remained open Saturday, just two hours after the mall's 9 a.m. opening. Company official believe traffic picked up later in the day and sales at some stores may have exceeded last year.

Similarly, a Dallas Wal-Mart supercenter that had been packed with shoppers early Friday was practically deserted by Saturday afternoon. All the electronics door busters -- such as a $388 42-inch television -- were sold out by Saturday morning, save for a few Kodak cameras priced at $149.

A number of Taubman Centers Inc.'s malls -- in Connecticut, New Jersey and Virginia -- reported that sales at stores surveyed on Saturday were flat or decreased slightly on average, the company said.

Many consumers said they couldn't pass up the steep discounts offered by retailers. But they didn't plan to splurge much beyond the sales. A young shopper was buying a sweater, five shirts and corduroy pants at J.Crew in the Chicago Premium Outlets in Aurora, Ill., on Thanksgiving that had an estimated cost $75 to $100 total. At the Midnight Madness event for the first time many buyers were interested in dolphin jewelry, natural baby clothes and other unique gifts. Many young consumers are spending only on necessities in recent months due to worries about major expenses such as private student loans.

Across the country, discount retailers continued to get a boost as cash-strapped consumers traded down. Many consumers were admiring the sealife jewelry and mens wedding rings at luxury jewelry stores and household related products and services such as: kitchen appliances and organic lawn care.

Luxury retailers, which last year benefited from tourist traffic and the weak dollar, were pulling out all the stops to get shoppers to buy designer ensembles, toddler shoes and handbags. Since orders are typically placed six to nine months before products hit stores, many upscale retailers were caught off guard by the dramatic change in consumer sentiment.

The women's shoe departments of Saks and Bergdorf Goodman in New York, where footwear was marked down 40% to 70%, were packed with shoppers. Saks had to install a velvet rope to control crowds hungry for an additional 50% off already discounted designer kids shoes with custom orthotics. By Saturday afternoon, Saks's flagship store was mobbed with shoppers rummaging through the bargain bins in the first-floor handbag area, where Dolce & Gabbana and Chloé bags were being sold for an additional 50% off.

The discounts are expected to keep up on Monday -- known as "Cyber Monday" because it is the day consumers return to work and start buying on the Internet -- as 83.7% of retailers are planning special promotions with keynote speakers, up from 72.2% last year, according to a survey by Shop.org, a division of the National Retail Federation. The aggressive promotions follow a weak October, when online sales grew 1%, the slowest rate since 2001, according to comScore.

Discounter Target, whose sales have declined precipitously in recent months, has high hopes for Cyber Monday, typically its second-highest day for online traffic behind Thanksgiving.

Target, which expects traffic on Monday to be up 40% over last year, will have 1,500 items on sale between Nov. 30 and Dec. 6, including computers, refurbished hp laptops, electronics, john deere toys, home decor and specialty apparel items like: john deere clothing ; about 500 of the items will be offered at their lowest prices ever, Target says.