Holiday Credit Crunch

Santa's familiar "Ho, ho, ho" may be replaced this year by "Woe, woe, woe."  With the economy sputtering and credit lines closing, retailers are already expecting a dismal year.  This is bad news for the U.S. economy, which relies heavily on holiday spending.

The credit crunch that's taking place worldwide will have a dramatic effect on the holidays.  Retail spending is expecting a rare decline this year.  With consumers scared to shop and banks hoarding cash, it looks like holiday spending will be curtailed, which will deal a serious blow to an already staggering economy.

Retailers getting aggressive

Understanding the implications of the credit crunch, retailers are gearing up for the holidays weeks before Halloween rolls around.  Many are rolling out drastically reduced merchandise with the hopes of boosting retail spending.  

Finding new ways to appeal to cost-conscious shoppers will be a necessity in the current market, particularly because the credit crunch will inhibit typical retailer offerings.  The standard 0 percent, no payments for a year deal will most likely be scrapped.  Because retailers can't count on easy credit to entice buyers, they'll be forced to reduce the prices of their current inventory.  

Cheap will also be in vogue.  KB Toys is cutting prices on more than 200 toys to less than $10, and Toys"R"Us has also announced major price cuts.  They're hoping that these rapid reductions will improve sales, but skeptics doubt their impact.

Meager growth expected

The National Retail Federation is predicting a 1 to 2 percent growth in retail.  The credit crunch is contributing to the economic unease, as a majority of consumers rely on credit to do their Christmas shopping.  Consumers have always shown a willingness to go into debt if they believe that the future bodes well for them economically.  However, with a shaky financial picture worldwide, and banks tightening the credit ratchet, the pressures may simply be too much to allow for regular spending patterns.

The credit crunch also inhibits retailers who usually borrow money to finance advertising or staffing increases.  Without those added dollars, they'll have even less ability to motivate consumers to spend over the holidays.

No solution in sight

With the worldwide financial crisis an ongoing problem, little attention has been focused on the upcoming plight of retailers.  As a result, most have already written off the upcoming season, and are hunkering down for a long, tough road ahead.

For consumers, the economic times could be the best present you've received in a while.  With retailers desperate to make a sale, shoppers will be able to have their pick of the bargains.  Retailers are going to be desperate to move merchandise, much to the advantage of buyers.  The key is to make sure you won't need credit to make the big purchases.  The credit crunch has tightened the market, so you'll have to draw from your savings or your paycheck to make your holiday purchases.  Santa will not smile upon plastic this Christmas, so make sure you plan accordingly.