The 'frugal future' has arrived
Posted
Nov 14 2008, 01:34 PM
by
Anthony Mirhaydari
Rating:
Merrill Lynch economist David Rosenberg coined the term "frugal future" to refer to the reduction of consumer debt through all necessary means. Although painful, this cathartic event would undo years of excess where savings rates collapsed to zero and people lived well beyond their means.
Well folks, the days of painfully deep spending cuts, forced garage sales, bankruptcies, and foreclosures are here.
David Leonhardt of the New York Times notes that consumer spending will likely fall $400 billion over the next year, which would represent the first cutback since 1980 and would be of a magnitude not seen since World War II. Although we've known this consumer retrenchment was inevitable, its arrival in the middle of the holiday season is particularly tragic.
Americans are snapping their wallets shut with amazing speed and ferocity: Consumer sentiment remains near all-time lows, retail traffic is down 12.4%, and retail sales fell nearly 3% in October -- the worst fall since records began in 1992 and the fourth straight monthly drop. While tumbling gas prices were primarily responsible, many were hoping consumers would spend the difference elsewhere. It appears the money went to creditors and savings accounts instead.
Battered retailers can look forward to a vicious, price-slashing fight for holiday dollars. Most have already begun cutting forecasts for the holiday quarter. Kohl's expects same-store sales to fall between 8% and 12% over the coming months. Nordstrom is looking for a 13% to 16% fall. J.C. Penny forecasted a 9% to 11% drop. Macy's estimates its sales to be down 1% to 6%.
All are refocusing merchandising and advertising efforts given the new marketplace reality. Shoppers are foregoing fully priced items, and are instead focusing on discounted practical items like coats and scarves. Combined with a need to clear excess inventory out of the traditional retail channel, these development will play right into the hands of off-price outlets like Ross Stores and T.J. Maxx.
Disclosure: I don’t own or control shares in any of the companies mentioned. I can be contacted at anthony.mirhaydari@live.com
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Why holiday may be 'Wal-Mart Christmas'
