Will Fiscal Drama Steal Retail's Holiday?

As flailing Washington, D.C. insiders raced to reopen the government and avoid default (along with the economic doomsday many predicted might follow), retailers had a more immediate worry: Would consumers spend less on the coming holidays?

The National Retail Federation says it expects consumer concern over congressional antics to translate into conservative gift-giving, with shoppers spending an average of $737.95 per person, or 2% less than last year’s $752.24. (It still predicts overall spending will rise, however, gaining 3.9% to $602.1 billion.) And IBISWorld says the shenanigans have already taken a hunk out of Halloween, with sales for that holiday expected to rise just 3% to $7.63 billion in 2013. (Last year, the market researcher says sales rose nearly 18% from prior-year spending.) 



“Shoppers are very uncertain, and that significantly affects what they are willing to spend before the holidays,” Richard Feinberg, a Purdue University professor of consumer sciences and retailing, tells Marketing Daily just before the settlement. While concerns about the debt ceiling will be “short-lived if the conflict ends pretty soon, if they put it off until just before the holidays, it could have a dramatic impact. However you look at it, it’s not good.”

Feinberg’s forecast is gloomier than the NRF’s: 

He expects holiday sales to be anywhere from flat to 5% lower. “Other forecasts aren’t taking the change in the payroll tax into account, and that’s an average of some $700 to $1,000 less to spend. Salaries didn’t go up to offset that, and amid uncertainty, consumers aren’t willing to go into debt.” 

So while no one is likely to cancel Christmas, he predicts they will cut back, buying fewer and less expensive gifts: “Those marginal decreases hurt retailers’ profits, and we’ll see the effect of that next year, with fewer jobs and less expansion.” And while he does expect Internet sales to be strong, rising about 11%, “that hurts stores, too.”

But as for worrying about whether the shorter shopping season will also cast a dark cloud over spending, Feinberg says those fears just don’t hold water. “It seems logical to say that since there’s a week less to shop, people will spend less. But every year, we correlate actual spending and the number of days in the season, and there is no difference. People spend what they are going to spend, no matter how many shopping days here are.”

"Grim Reaper" photo from Shutterstock.

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