Retailers Bracing for a Very Unmerry Christmas

The recession has moved from the headlines to the check-out lines.  Following a major drop in consumer confidence, retail sales have dropped precipitously.  Forecasts indicate that the Christmas season won't change the trend.

A recession is like a hurricane-you do what you can to brace for the worst, but there's really nothing you can do to stop from being blown away.

Because of the worldwide financial crisis, the retail sector has been expecting a major hurricane, and it appears the storm has just made landfall.  The Commerce Department reported that consumer spending dropped 3.1 percent in the third quarter, which is on a par with the recession of 1980.  Consumer confidence is also in free-fall, with surveys indicating we're at levels of pessimism not experienced in more than 40 years.

Recession to hit retailers hard

In the retail business, Christmas is the make-or-break time of the year.  Stores hire additional help, stock up on inventory, and get ready for consumers to open the spending floodgates. 

This year will be a change of pace.  Consumers will be shopping, but they won't be spending as much.  The National Retail Federation predicts that holiday spending will increase by a paltry 1.9 percent, and they won't be spending money on high-priced items.  Specialty stores, such as Abercrombie and Fitch, are noting sharp declines in sales, while discount leader Wal-Mart has enjoyed positive results.

More than ever before, consumers are tightening the purse-strings and sniffing for exceptional deals.  It's a buyers market, provided that you've got the money to buy.

Credit crunch putting breaks on big sales

Without a doubt, many of the record-breaking Christmas seasons enjoyed in the recent past have been fueled by easy credit.  If consumers wanted something, they would use credit to buy it from a retailer.  As a result, credit card balances reached new heights.  No one seemed to mind, as long as home values continued to rise, and those enormous balances could be conveniently swept under the rug with a debt consolidation loan.

When home values plummeted, however, easy credit went with it.  Banks are now extremely reluctant to give credit to people who are potential risks, effectively squashing a large percentage of Christmas sales.  What's worse, the consumers who remain-those with clean credit and money to spend-have been scared by the economy's storm clouds overhead.  Cash is king at the moment, and those who have it are in no hurry to run out and spend it.

It's been proven that when American consumers believe good things await them in the future, they're willing to rack up debt.  Unfortunately, the news has been so dire from Wall Street and Capitol Hill that no one knows what the future will hold.  The country's sound economic fundamentals have gone by the wayside, and Americans are scared about what's ahead.  Santa's sleigh will still make the rounds, but it will carry one of its lightest loads ever.