TIME: Almanac of the 20th Century

home *** CD-ROM | disk | FTP | other *** search

/ TIME: Almanac of the 20th Century / TIME, Almanac of the 20th Century.ISO / 1990 / 90 / oct_dec / 1203200.000 < prev next >

Wrap

Text File | 1994-02-27 | 9KB | 189 lines

<text> <title> (Dec. 03, 1990) Scrooge Goes To The Mall </title> <history> TIME--The Weekly Newsmagazine--1990 Highlights The American Economy </history> <history> TIME--The Weekly Newsmagazine--1990 Dec. 03, 1990 The Lady Bows Out </history> <link 04395> <link 00890> <link 00331> <article> <source>Time Magazine</source> <hdr> BUSINESS, Page 80 Scrooge Goes To the Mall </hdr><body> As consumers balk, anxious retailers confront a potentially disastrous Christmas sales season By JANICE CASTRO -- Reported by Mary Cronin/New York and William McWhirter/Chicago Santa Claus kicked off the Christmas shopping season in grand style last week in St. Louis, where he was escorted by 3,000 children to his castle at the sprawling 200-store Northwest Plaza. In New York City, Macy's staged its lavish Thanksgiving Day parade, towing Bart Simpson and 12 other giant balloons to Herald Square, where a 36-ft.-tall Paddington Bear now hovers invitingly above the entrance of the flagship store. In San Francisco holiday shoppers were making a beeline for the free merry-go-round and other rides on the roof of the Emporium. Across America, retailers are trying all sorts of stunts to get folks inside their stores between now and the holidays. But once there, will they buy? Fearing the answer, shopkeepers are bracing for what may be the toughest Christmas selling season in a decade. Says Bernard Brennan, chief executive of Montgomery Ward: "There are more negative dynamics working than at any other time I've seen in my entire marketing career." After a year in which retail sales barely kept up with a 4.8% inflation rate, merchants have watched even that shopping pace flag just before the onset of the most important selling season of the year, one that typically accounts for as much as 60% of annual retail profits. Overall, sales (excluding gasoline) fell 0.1% in October. Anxious consumers may be strolling the aisles, but they are holding on to their wallets more and more tightly. Fears about possible war in the Persian Gulf are piling upon recession worries and news of spreading corporate cutbacks. One consumer sounding after another is recording the development of a batten-down-the-hatches mentality. Since Iraq invaded Kuwait, consumer confidence has fallen to its lowest level in 44 years. In a national survey of 500 consumers conducted last week by the Leo Burnett advertising agency, 82% said the economy was in worse shape now than it was a year ago, while 40% said they were feeling the pinch themselves. A chill in consumer spending this Christmas would come at the worst possible time for a retailing industry that is desperately overbuilt and heavily indebted. While the U.S. population grew only 10% during the 1980s, a building boom expanded retail square footage 75%. As a result, nearly half of all retail space is superfluous, according to Management Horizons, the market-research division of Price Waterhouse. Making matters worse, a frenzy of mergers and acquisitions during the past few years has saddled the 30 largest retail companies with a staggering debt burden of $60 billion. Struggling to meet interest and debt payments, those companies must capture customers in order to survive. Says Gap chairman Donald Fisher: "It's going to be brutal." Christmas sales started especially early this year, as nervous retailers tried to get a head start on the competition. Labor Day had barely passed when some retailers started decking their shelves with tinsel and flashing lights, startling more than a few suntanned customers. By Halloween, major stores were slashing prices on everything from furs and evening clothes to CD players and toys. Early indications are that consumers this season are shopping carefully for value. Says Kenneth Macke, chairman of Dayton Hudson (1989 sales: $13.6 billion): "The customers are going to make sure they get their money's worth. We think that things like purses, gloves, shaker sweaters, turtlenecks and espresso machines are going to be very good. I don't think this is the year when we want to be in space-age TV sets that float on the ceiling." To help stir warm Christmas sentiments and loosen those purse strings, stores are emphasizing family ties this year. Montgomery Ward has donated $2 million worth of VCRs and videocams to the U.S.O. for American troops stationed in the Persian Gulf. Families of servicemen and -women are invited to go into the chain's stores and videotape holiday messages for them. The J.C. Penney's in East Brunswick, N.J., is kindling the holiday spirit with a giveaway. Customers can get a $10 discount on new coats by turning in any old coat; the used garments are then donated to the needy. Retailers are also bolstering service, in the hope that they can hold on to the customers they've already got. At Saks on Michigan Avenue in Chicago, says store manager Joan Tillman, "we treat each and every sale as if it is a true gift to us." At the same time, though, merchants are protecting their perilously thin profit margins by cutting expenses, especially inventory costs. Macy's, which was swept up in the price-cutting panic among big stores last Christmas when it found itself more than 10% overstocked, is carrying about $640 million less inventory this year. Orders of U.S.-made apparel are down 8% industry-wide this season, while in Hong Kong clothing manufacturers report a flurry of canceled and curtailed orders from big U.S. stores. Usually, the onset of the holidays spurs an increase in retail hiring to handle the surge in business. But during the past three months, for the first time since the 1981 recession, the number of workers employed in the industry has been shrinking as the crucial shopping period approaches. In many stores customers who can find what they want may have trouble locating someone to ring it up. Even so, because of troubles elsewhere in the economy, stores have been able to attract some very impressive temps. In Manhattan, for example, where nearly 50,000 Wall Street traders and other workers have lost their jobs during the past three years, financial wizards are working some of the counters at Bloomingdale's this season, selling menswear, furniture and electronics. No matter how troubling the signs, no one expects consumers to skip Christmas and Hanukkah this year. But while they may buy nearly as many presents as last year, they may shop for them in different places. More than a fourth of the people surveyed by Leo Burnett last week said they plan to do much of their Christmas shopping this year in discount stores. Among the well-managed retailers surging ahead of the pack as a result: the Gap, Wal-Mart, Mervyn's, T.J. Maxx, Costco and Crate & Barrel in Chicago, which specializes in moderately priced housewares. Quality retailers expected to excel by offering affordable luxury range from Dillard department store to Crabtree & Evelyn (bath and toiletries), Williams-Sonoma (kitchenware) and one of the industry's strongest performers, Victoria's Secret (lingerie). If consumers sink into an especially stingy mood, though, some big retailers simply may not make it. Three of the most vulnerable: Federated, Carter Hawley Hale and Macy's. Already in Chapter 11, the Federated company, which owns Bloomingdale's, A&S and Rich's, owes more than $9 billion and is due to submit its reorganization plan to a federal bankruptcy judge in February. While the company is expected to sell off large chunks of itself to satisfy its creditors, moderately strong holiday sales could help preserve a core company more capable of emerging from bankruptcy protection. Carter Hawley Hale, which includes Weinstock's and the Emporium, lost $26 million in the year that ended in July. The company was forced to spin off its best properties -- Neiman Marcus and Bergdorf Goodman -- after it ran its debt up to $1.6 billion fending off takeover attempts by the Limited in 1984 and 1987. For Macy's, which still carries $4.5 billion in debt, the next six weeks may be the most critical in its 132-year history. Having lost $215 million in the year that ended in July, Macy's must move enough merchandise to come up with $690 million in debt and interest payments due next July. A Macy's spokesman insists that "this Christmas will not be any more important than others." But Thomas Rauh, regional director of retail services for the accounting firm Ernst & Young, notes that, despite Macy's sound management, "bankruptcy is an option that the company is almost certainly going to have to consider in 1991." While consumers adjust to simpler things again, the stores that are deeply mired in debt cannot shift so smoothly. Says Brennan of Montgomery Ward: "I hate to be a Dr. Doom, but we're going to end up at the beginning of 1991 with fewer retailers than we had at the start of 1990." If consumers really throttle down this holiday season, some famous stores may be taking down those Christmas decorations only to hang up GOING OUT OF BUSINESS signs. </body></article> </text>