Consumers Are 'Living Off Their Fat'

When 2008 began, retailers were bracing for a tough year, but what they didn’t know then was how frozen the credit markets would become and what impact this chill would have on the consumer.


Shortly after Lehman Brother’s bankruptcy filing on Sept. 15, consumer spending, which fuels more than 75 percent of the economy, came to an abrupt halt. As retailers began to prep for the all-important holiday season, the stores were quiet.

As the holidays drew closer, unemployment began to rise, and consumers shopped tentatively, buying only what they needed. Some were too maxed-out in credit card debt to spend as freely as they had in the past. Some worried about whether they’d lose their job. Some already had. Others had money, but didn’t want to be ostentatious and flaunt their wealth while others were struggling. A new spirit of thrift emerged.

The result: Retailers saw their weakest holiday sales in nearly four decades.

At CNBC, we tracked those events and chronicled some of the strategies retailers were using to drum up business in our "Holiday Central" blog. And it was clear to us that the impact of this weak consumer spending would be felt long after the holiday decorations were packed away, and experts agree.

"Certainly, throughout 2009, we are not seeing people resume what we would have considered to be normal shopping behavior," said Deb Purcell, director of Client Services for Pitney Bowes Business Insight’s retail, restaurant, and real estate practice.

Consumers right now are "living off their fat," she said. "Eventually, they will have to make purchases. Eventually, the clothing will wear out. The car will break down. The extreme behavior of not spending will ease. The question is timing."

But the time has run out for some. Circuit City, KB Toys, Goody’s and Gottschalk’s are among the merchants that have filed for bankruptcy already. With debtor-in-possession financing limited, several are simply liquidating, leaving stores in strip malls and shopping centers across the country dark.

Other retailers are fighting hard to make it through these tough times. They're closing underperforming stores, slashing jobs and cutting costs. And there are savvy marketers who are figuring out new ways to delight the consumer. They understand what consumers want and how to sell it to them.

As we begin this year, the forecasts are bleak:

The National Retail Federation sees retail sales down 0.5 percent from last year.

The International Council of Shopping Centers predicts that 73,000 stores could close in the first half of this year alone.

Analysts expect more bankruptcies, more store closings, and more lost jobs. More ripples from the retail sector to other parts of the economy.

But what’s even worse than the predictions are the growing number of companies that say the outlook is simply too uncertain to predict. These include companies in a wide-range of industries: from Microsoft and eBay , to Fortune Brands and Coach .

"Consumer Nation" wants to help you chart a path through the uncertainty. We’ll take the pulse of the consumer. We’ll talk about the companies and strategies that are successfully wooing consumer dollars. And we’ll try to anticipate where all of this is taking the economy next.

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