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Market turmoil to cut consumer spending

The US financial meltdown comes just as the retail industry prepares for the crucial holiday shopping season. The US financial meltdown comes just as the retail industry prepares for the crucial holiday shopping season. (Richard Drew/Associated Press)
Associated Press / September 19, 2008
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NEW YORK - The turmoil in financial markets is further rattling jittery shoppers just as the retail industry prepares for a critical holiday season that was already expected to show the weakest growth in almost two decades.

Major chains Macy's Inc. and Target Corp. say the upheaval on Wall Street - from the Chapter 11 bankruptcy filing of Lehman Brothers Holdings Inc. to the government bailout of insurer American International Group - hasn't changed their merchandising plans, since they have already been slashing inventories and cutting expenses.

But many may be reexamining their pricing, discounting plans, and inventory for the holiday season. And experts say merchants will need to soften their marketing messages to better appeal to increasingly fragile consumers, who are grappling not only with their shrinking 401(k)s and home values but also losing more faith in the financial system.

"This is like watching a car crash, but the two vehicles haven't hit yet," said Marian Salzman, chief marketing officer for public relations agency Porter Novelli. "Is this the worst week, or are we waiting for the other shoe to drop?"

The turbulence is forcing shoppers such as Philomena Ford, who was already cautious about spending, to retrench even more.

"We are cutting to rock bottom," said Ford, 70, a retired nurse, who along with her 84-year-old husband, a retired fish broker, lives on a pension and investment income in Bradley Beach., N.J. "I just hope I am not going to live longer than my money is going to last."

Ford noted she and her husband will be thinking twice about spending $75 per week on early bird meals, even after cutting that back from $150 a week in recent months. As for Christmas giving, she says she will get presents only for their 2-year-old grandchild. In previous years, the couple also gave money to their two sons.

The market turmoil, which is expected to lead to even more layoffs, is occurring as Americans' confidence in the economy is already near historic lows. Two consulting companies predicted this week that the holiday shopping season is expected to show the weakest growth in 17 years.

"Consumers are going to be paralyzed through Christmas," Salzman says, even if this week is the worst of it.

Wendy Liebmann, president of the WSL Strategic Retail consulting group, said she could see the impact of the financial upheaval reflected on the faces of people on the streets of Manhattan on Tuesday, a day after Lehman filed for Chapter 11 bankruptcy protection.

"They seemed shell-shocked," she noted. And while the New York City area is feeling the most impact, she says there is a lot of worry among consumers around the country whose financial security is tied to Wall Street. In particular, she added that the latest woes could further derail sales of luxury goods, which have slowed in the last few months as well-heeled customers have pulled back.

Michael Dart, a principal at consulting firm Kurt Salmon Associates, said he expects dollar stores and discounters will have greater opportunity to increase market share this holiday season.

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