Despite signs that the economy is improving, big store chains like
Wal-Mart and Kohl's don't expect Americans to have much holiday
shopping cheer unless they see bold, red signs that offer huge
discounts. As a result, shoppers are seeing big sales events earlier
and more often than in previous holiday seasons.
Retailers are trying to lure shoppers like Marissa Anwar, who has
been doing more bargain hunting compared with last year.
The operations consultant, who lives in Toronto and New York City,
said the economy "hasn't been great" and she's lost clients. As a
result, she cut her shopping budget to $2,800 from last year's
$4,000.
"I was a former 'spend-aholic,'''said Anwar, 29. "Now, I want to
make sure I have the money before I spend it."
It's a problem that retailers know all too well. Since the recession
began in late 2007, stores have had to offer financially-strapped
Americans ever bigger price cuts just to get them into stores. But
those discounts eat away at profits.
So far, Wal-Mart, Target and Kohl's are among more than two dozen
major chains that lowered their profit outlooks for either the
quarter or the year. A big reason is the expectation that they'll
have to offer huge discounts in order to get shoppers to spend.
There are already signs that retailers are aggressively discounting.
Wal-Mart, for instance, on Friday started matching or beating the
prices that certain competitors like Best Buy are advertising for
some toys and electronics for the day after Thanksgiving — known as
Black Friday. Best Buy also plans to match rivals' prices, even
after customers have purchased items. And Target, better known for
its whimsical advertising, is touting its prices in holiday TV ads
for the first time in at least a decade.
The tempered expectations, earlier discounting and lowered profit
outlooks from retailers come even though there are indications that
the economy is recovering. The job market is making strides. The
housing market is starting to come back. And the stock market keeps
hitting new highs. All that would ordinarily lead Americans to spend
more.
But so far, those improvements haven't been enough to shore up
consumer confidence. In fact, Americans' confidence in the economy
is at its lowest level since April.
"Stores know that they are well into a fight," said Ken Perkins,
president of the research firm RetailMetrics. "The vast majority of
consumers are distressed."
Not that there aren't glimmers of hope that Americans will spend
again.
Retail sales were up 0.4 percent in October, after being flat the
previous month, according to the Commerce Department. Americans
spent on big ticket item such as cars and furniture, but that may
have left them with less room for more discretionary times like
clothing this holiday season.
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Overall, The National Retail Federation expects retail sales to be
up 3.9 percent to $602.1 billion during the last two months of the
year. That's higher than last year's 3.5 percent growth, but below
the 6 percent pace seen before the recession.
Retailers say economic worries continue to weigh on shoppers heading
into the holiday shopping season.
"We continue to see anxiety regarding the economy and the ability to
stay within household budgets, particularly among lower and
middle-income consumers," said Kathee Tesija, executive vice
president of merchandising for Target, which trimmed its annual
profit outlook on Thursday.
In particular, some Americans still are getting used to smaller
paychecks because of a 2 percentage point increase in the Social
Security payroll tax that started on Jan. 1. That means that
take-home pay for a household earning $50,000 a year has been cut by
$1,000. That was a concern Wal-Mart noted on Nov. 14 when it lowered
its annual profit guidance for the second time in three months.
"It's going to be as competitive of a market as we've ever seen,"
said Charles Holley, Wal-Mart's chief financial officer, adding that
among the issues that the discounter faces are "the economic
conditions that the customer is under."
Stores also say customers don't want to spend because they're
uncertain about their health care costs next year due to the U.S.
health care overhaul. Additionally, stagnant wages aren't keeping up
with daily living costs. Not to mention, some people are still out
of work.
Leslie Lynch, 52, said she won't be buying any holiday gifts because
she was laid off from her job in marketing at an insurance company
in August 2012 and hasn't been able to find a job since. Lynch, who
lives with her wife, who works in quality control at a machine shop,
said she is behind in mortgage payments and is afraid she will lose
her house.
"We will probably have dinner and that's about it," said Lynch, who
lives in Glastonbury, Conn. "Hopefully, we will have Christmas next
summer."
[Associated
Press ANNE D'INNOCENZIO, AP Retail Writer]
AP Economics Writer
Chris Rugaber in Washington contributed to this report.
Follow Anne D'Innocenzio
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