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With his retirement account devastated by the plunging stock market, Henry Vicenteno is feeling poor — poor enough to play the Grinch this holiday season.
Mr. Vicenteno, 31, an aircraft mechanic in Cleveland, said his 9-year-old son had asked for a copy of Skate, a skateboarding video game by Electronic Arts [ERTS
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]. “I told him I’d buy it for him, but really I’m just going to Blockbuster to rent it,” Mr. Vicenteno said. “Before, I would have bought it, no problem. But it’s like $50, and we can’t be spending that kind of money.”
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With consumers increasingly worried about a severe economic recession, Mr. Vicenteno is hardly the only person keeping his wallet shut.
A growing body of statistical and anecdotal evidence suggests that demand for televisions, computers, cameras and other electronics is falling sharply — portending extra discounts for customers in coming months but a very unhappy holiday season for retailers, electronics makers and component suppliers.
MasterCard reported last week that spending on consumer electronics and home appliances dropped 13.8 percent in September compared with a year ago. That number is by far the largest recorded since MasterCard began tracking the category in 2003, and twice the largest previous monthly drop in such spending.
“September was a dramatic pullback in terms of spending on consumer electronics,” said Kamalesh Roa, director of economic research for MasterCard SpendingPulse. In particular, “people are pulling back from buying big-ticket items.”
Wal-Mart Stores [WMT
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], the nation’s largest retailer, was one of the few companies to report positive September sales figures last week, but the company’s sales of discretionary items were soft. At the company’s Sam’s Club division, electronics and videogames were among the weakest categories.
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BJ’s Wholesale Club [BJ
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], which had strong September sales over all, said sales of electronics, TVs and prerecorded videos declined from the previous year, although computer sales were up.
The sudden and steep drop in the economy and consumer confidence has caught retail chains by surprise and left them scrambling to adapt their sales strategies. The holidays are a critical time for sales of electronics and in-home entertainment products. The video game industry traditionally does 50 percent of its business in the holiday quarter.
If the early sales trends continue or get worse, they are likely to push some troubled retailers into bankruptcy. Industry analysts view Circuit City Stores [CC
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], whose stock closed Tuesday at 40 cents a share, as the electronics retailer that is most vulnerable.
Circuit City fired its chief executive last month and said that sales at stores open at least a year, a measure of retail health, fell 13.3 percent for three months ending in August. The company said sales dropped in virtually every category of electronics, from personal computers to GPS navigation units. The only exception was flat-panel TVs.
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Under the terms it has reached with creditors, Circuit City can borrow up to $1.3 billion against existing inventory to buy more inventory, according to Anthony Chukumba, an industry analyst with FTN Midwest Securities. But he said that manufacturers have grown cautious about how much merchandise to ship to Circuit City, fearing the company is financially unstable. As inventory goes down, credit available to Circuit City to buy additional inventory falls, he said.
“It becomes a death spiral,” Mr. Chukumba said. “I call this Christmas ‘Circuit City’s last stand.’ ”
Circuit City did not respond to a request for comment. Its chief rival, Best Buy, declined to comment.
But they have to be worried about customers like Wayne Giacomo, 66, a retired telecommunications supervisor who was shopping Friday at a Best Buy in Arlington Heights, Ill., near Chicago.
Mr. Giacomo recently bought a 52-inch flat-screen TV, and he had been hoping to add a $2,000 surround-sound unit to complete his home theater. But after watching his stocks nose-dive last week, he is curbing unnecessary spending. “The surround sound is going to have to wait, at least until next spring,” he said.
His consolation purchase instead: a $39 DVD boxed set of the 1970s television show “Mission Impossible.”
The slowdown at retailers is already beginning to be felt among their suppliers. Micron Technology [MU
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], a supplier of flash memory for electronics like music players and digital cameras, said Thursday that it was stopping flash production at one factory and laying off nearly 3,000 workers because of weakening demand.
Analysts said that companies in Taiwan and Korea that manufacture electronics and the parts used to build them are being told to prepare for slowing demand.
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