Katie Smith plans to spend $200 less on holiday gifts this year because of concerns that weak U.S. job growth will hurt her husband’s home-remodeling business.
“We’ve scaled back,” said the 51-year-old project manager for Wake Forest University’s medical school as she perused cowboy boots for her 12-year-old daughter at a Salvation Army thrift store in Greensboro, North Carolina. Her family plans to spend about $1,000 on gifts, down from $1,200 last year.
With U.S. economic growth trailing the Federal Reserve’s projections, shoppers have plenty of reasons to hoard their dollars this holiday season. This week the government said employers added 45,000 fewer jobs in September than August. The news came with consumers already absorbing the implications of stagnant wages, a cooling housing market and the government shutdown and debt ceiling debate.
Retailers from Macy’s Inc. (M:US) and Nordstrom Inc. (JWN:US) to Wal-Mart Stores Inc. (WMT:US) missed second-quarter sales estimates and cut their forecasts. To lure shoppers who have been shifting their dollars away from apparel and other general merchandise to cars and home-related products, chains are planning to introduce discounts early in the season.
In the past three months, job growth has averaged 143,000 per month, compared with 195,000 in the first half of the year. While consumer spending in November and December may rise 3.9 percent this year to $602.1 billion, according to the National Retail Federation, that’s only 0.4 percent more than last year and lower than 2011, when spending rose 5.1 percent.
Shoppers don’t necessarily “come into Target thinking about the debt ceiling,” Kathee Tesija, executive vice president of merchandising and supply chain for Target Corp., said yesterday in an interview. “They’re thinking, ‘Is my job secure? Is my partner’s or my spouse’s job secure?’”
Seasonal discounts threaten to dent retailers’ profitability, which already has taken a hit this year. The average gross margin for the 32 companies in the Standard & Poor’s 500 Retailing Index narrowed to 32.9 percent in the third quarter, from about 33.1 percent a year earlier, according to data compiled by Bloomberg.
Macy’s, Nordstrom and Target all were among the 10 worst-performing stocks in the 32-company Standard & Poor’s 500 Retailing Index this year through yesterday. Also in the bottom 10 were Gap Inc., Family Dollar Stores Inc., J.C. Penney Co., Urban Outfitters Inc. and Abercrombie & Fitch Co.
Shoppers at all income levels this season will focus on value, whether in the form of discounts, quality or service, NRF President Matthew Shay said earlier this month.
Some of the hottest items this year are predicted to be high-priced goods such as video-game consoles and electronics, said Target’s Tesija and Jeff Jones, chief marketing officer of the Minneapolis-based chain. Target, recognizing that its shoppers are spending more on one or two big-ticket items rather than on a greater number of less-expensive gifts, plans to air an ad showing creative ways to wrap those fewer, smaller purchases, such as mobile phones, to create a splash.
The top categories consumers plan to spend more money on this season are gift cards, technology products, toys and apparel, according to New York-based market researcher Nielsen Holdings NV. About 12 percent of households with annual incomes of $50,000 or less plan to spend more money on food as gifts than last year, the firm said.
Retailers also are continuing their trend of opening ever earlier to get shoppers’ first wave of spending. That’s especially important in a Thanksgiving-to-Christmas holiday season that’s only 25 days, six days shorter than in 2012. J.C. Penney (JCP:US), Macy’s and Kohl’s Corp. all are opening their stores at 8 p.m. on Thanksgiving this year. Kohl’s and Macy’s let shoppers in at midnight on Black Friday last year while J.C. Penney opened at 8 a.m.
One bright spot in the economy has been the rising stock market, which may boost spending among the wealthy consumers who constantly are aware of the value of their portfolios. The Standard & Poor’s 500 Index advanced 22 percent this year through yesterday. That’s already a larger gain than the index has posted in a full year since 2009. About $4 trillion has been added to U.S. equity values this year.
“When you look at the strong gains in the equity market as well as the housing rebound, those are strong tailwinds for affluent consumers,” James Russo, senior vice president of global consumer insights at Nielsen, said in a phone interview. “We know the economy is improving, but it’s not a rising tide that affects all ships.”
Marianne Verbuit, who runs her own French and math tutoring company in New York, is among those uneasy about being too profligate during the holiday season. The 51-year-old says confusion about whether she should sign up for health insurance under the Affordable Care Act and general economic concerns have made her plan to spend less than last year, while declining to provide a specific amount.
“The rent is going up, and the salary is not going up at all,” Verbuit said, “so of course we are buying less.”
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