Consumer crisis or not,we're three months and counting until Christmas. Americans will still shop for the holidays but the question is just where they'll buy and how much they'll pay for this year's presents. Will we have a merry or mediocre Christmas?
The answer is probably somewhere in between. And retailers are even more wary today in light of yesterday's drastic September sales forecast cut by Target. The discounter now says sales will rise 2.5% at most, down from its prior 4% to 6% outlook. Considering that the average income of Target shoppers is around $60,000 a year, this is a sign that the lower-mid income buyer may be cutting back on his/her level of buying. This September information is key because back to school buying is a harbinger for the holidays.
Overall sales are expected to be softer this season and the NRF expects to see the weakest growth in 5 years (up just 4%.) So are executives moderating their expectations? According to accounting firm BDO Seidman, 71% of the 140 retail company financial chief officers surveyed say that sales revenue will increase this year over last. Only 11% expect a decrease.
Why the lowered expectations? Well, we know that lower housing values are making consumers feel less wealth and the credit crunch is making home-equity borrowing a bit tougher. Add to that a slowing job market and high gas prices and combined that's weighing on pocketbooks. Another problem for retailers this year are product safety concerns about contaminated toys from China. That may convince shoppers to change their shopping patterns and pick up dvds and gaming systems instead of toys.
According to the BDO survey, half of the retail finance chiefs say that high fuel costs have the greatest impact on consumer confidence in the first half of the year. For the second half, they expect weakness to be due to loan foreclosures and that's a bigger problem. Twenty-nine percent predict that fuel costs will have the biggest effect on consumer confidence in the second half and 25% cite the declining housing market. Another 19 percent blame interest rates and 15 percent say that its subprime.
What will be interesting to see is whether shoppers change their behavior in where they do their buying. On one hand, mid and low end retailers may get whacked hardest by housing and credit woes. But if consumers become more price conscious, those companies may get a boost from customers trading down and searching for bargains at those stores.
While the high end may be holding on for the moment, we've got to wonder whether that will stay the case. The fact that Target cited the Northeast as an area of sales weakness is worrisome. That's 20% of the market and not an obvious problem area on par with California and Florida when it comes to the housing slowdown. It makes us wonder just what is dragging down traffic in the Northeast. Is this the credit crisis?
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