Consumer Spending: Not Much Debate About It Being Down - Holiday Central

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It's a make-it or break it time for retailers. The holiday selling season is always a critical time for retailers, but this year this may be even more true. With several retailers already falling victim to a drop in consumer spending, and filing for bankruptcy, retailers will be navigating through some tricky waters. Consumers are strapped for cash due to high energy and food prices, and unemployment is rising. The recent credit crunch has made it more challenging for retailers and consumers to borrow.

This blog will look at the winners and losers in the retail space. Who has the right strategy to capture consumer dollars? It also will look for trends in consumer spending and how that will impact the economy.

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Jan.10

11:59 AM ET

Thursday, 10 Jan 2008

Consumer Spending: Not Much Debate About It Being Down

Posted By:Margaret Brennan

Topics:Recession | Consumers | Retail Sales

Sectors:Personal and Household Goods | Retail

CNBC.com
The American consumer is cutting back--even at the most important (and typically extravagant) spending times of the year. That's the one clear headline from all the recent retail numbers. Markdowns ate profits, that's also clear. But figuring out just what's going on with the consumer involves a few shades of gray as stores have missed already low expectations.

So what's the outlook for consumers? Macy's[M Loading... () ] says low, American Eagle [AEO Loading... () ] says low, Target [TGT Loading... () ] also low--but Wal-Mart's [WMT Loading... () ] win of a 2.4 percent comp is a win for the non-recessionary crowd. Wal-Mart is the biggest retailer in the world and that company did reaffirm that its fourth quarter earnings will come in between 99-1.03 a share.

That said, Wal-Mart also did throw in the caveat that those earnings will be pressured by higher interest expense than last year. You could also look at Wal-Mart's sales gains, which were driven by food and seasonal items sales (including electronics), as a sign that consumers are only spending on basics. Either way you slice Wal-Mart's results, the outlook points to a weaker consumer in 2008.

You could look at Target's negative five percent comp and see it as a sign that the middle income consumer is starting to change his/her behavior. (The average shopper makes between $60-70,000 a year.) You could also look at Target and say that Wal-Mart (which won with a 2.4 percent sales gain) gained marketshare from the trade downs.

And things were bad at department stores. Even though high end store Saks [SKS Loading... () ] eked out a .8 percent gain, Nordstrom's [JWN Loading... () ]sales fell 4 percent. Macy's fell and lowered their Q4 expectation.

Is this a clear sign that the consumer is in a recession? Not quite. Are we tipping toward one? Many analysts and investors are increasingly telling me the answer is probably yes. Have retail stocks priced in a recession? That too is a yes.

And what's the bottom line from holiday 2007? Whether you calculate this to be the worst Christmas in 3 years (Thomson) or 5 years ( Retail Metrixs), the takeaway is that the American consumer is cutting back.

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