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Retailers' pain may be shoppers' gain
by Bill Catlin, Minnesota Public Radio
November 29, 2002

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With the traditional start of the holiday shopping season underway, retailers are girding for a tough year. This list of reasons includes layoffs, little hiring, sluggish economic growth, and the prospect of war in Iraq.

Bloomington, Minn. — Traffic was light at the Mall of America late Monday afternoon.

During a break, Jerry Halvorson of Bloomington -- a white bag at his side holding a gift for his granddaughter -- said he and his wife are going to be holding back this year. His story lies at the heart of retailers' concerns about this holiday season.

"Well, I'm retired. My wife just got laid off. And that's going to cut us down quite a bit in our spending this year, the way layoffs go and finding a job. It's going to be pretty tough," he said.

Kurt Barnard, a leading forecaster for the retail industry and president of Barnard Retail Consulting Group in New Jersey, says Americans are worried about their jobs.

Companies are not hiring. Barnard says retailers also face stiff competition from other industries that got to the consumers' wallet first. Barnard says zero-interest financing has driven Americans to buy cars like crazy.

"But what happens when you buy a car? You plunk down a big down payment, and then you make a monthly auto loan payment. That is that much money out of people's pockets away from discretionary purchases in retail stores," he says.

Second, Barnard says one of the economy's bright spots, the housing sector, also will weaken holiday spending. Many observers say low interest rates and mortgage refinancings have put cash in consumers pockets. But Barnard says low rates are also diverting cash.

"Americans have been buying homes like crazy, and every time that you buy a home, you plunk down a big down payment, and then you have your monthly mortgage payments -- however low the mortgage rate may be. And there still is a lot of money to be paid out, to be shelled out," he says.

Sound familiar?

Homebuying offers some hope at least to companies that sell home furnishings. Barnard says the trends will again favor discounters, like Minneapolis-based Target. Last year, consumers' interest in tending to the home fires helped Eden Prairie-based Best Buy. But Barnard says there's no hot product this year to help the nation's biggest consumer electronics retailer.

Best Buy officials don't dispute that, but they say lower prices may spur more buying of hot products from years past like DVD players, which fuel sales of other digital products.

A recent survey by the Institute for Retailing Excellence at the University of St. Thomas offers little hope the Twin Cities will be on a spending spree. One third of respondents said they'd spend less this year -- 60 percent, the same amount. Only 7 percent said more.

On top of the grim economic backdrop, marketing professor David Brennan says the late Thanksgiving gives retailers a shorter selling season.

"I don't think it's going to be a bloodbath. But I think one of the things that's going to happen is it's going to be a very challenging year. Perhaps could be the most challenging of the last three years, and the last 2 years have been very challenging," according to Brennan.

The survey results suggest a particularly challenging year for the Twin Cities downtown retailers. Fewer than five percent said they'd do most of their shopping in the downtowns of Minneapolis or St. Paul.

But Kurt Barnard says, once again, retailers' pain may be the shoppers' gain.

"If you can afford to make a purchase in December, go and do it, simply because the prices will be terrific; there will be bargains galore and values that are not likely to be repeated anytime soon," Barnard said.

If that's the case, consumers may wind up with more under the tree even if they don't spend more this year.

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