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Merchants worry that credit crunch and slump in real estate won't put shoppers in mood to spend

By Monée Fields-White

Published July 30, 2007

Clouds are gathering over the holiday selling season.

Retailers worry that a parade of negatives — from a deteriorating housing market to the widening credit crunch — will dampen Chicagoans' spending during the final months of the year, when merchants make most of their money.

Chicago-area store sales will rise between 2% and 4% during the fourth quarter — about half the pace seen last year, predicts Daniel Skoda, president of Chicago-based retail consultancy D&R Consulting.

"There's a great deal of concern about the credit crunch and how people are being affected," says Mr. Skoda, former president of Marshall Field & Co.

Consumers have been buying back-to-school gear. The International Council of Shopping Centers in New York foresees an uptick of about 5% in consumer spending nationally during August and September compared with a year earlier, as parents stock up on clothes and supplies for school-age children.

But the momentum likely won't carry over into the holidays.

Retailers from Wal-Mart Stores Inc. to Target Corp. to Macy's Inc. are projecting a weak fourth quarter, as the recent jump in home foreclosures, tighter lending standards on mortgages and credit cards, declining home values and high gas prices squeeze shoppers — and create anxiety.

"People hearing about what's going on, whether it affects them or not, just creates more and more worry," says Gerald Hirschberg, an analyst at New York-based credit rating agency Standard & Poor's.

Sears Holdings Corp. of Hoffman Estates is expected to report a decline in second-quarter profit amid falling sales. Macy's, which acquired the former Marshall Field's chain, expects sales to range between a 1% drop and a 1% gain in the third quarter. In the fourth quarter, the Cincinnati-based retailer projects sales to be flat at worst, up 2% at best.

"We do have some concerns about the economy in the back half of the year," says a Macy's spokesman.

Many Chicagoans are keeping their budgets in check. Emma Therieau, 34 and a mother of two elementary school students, says she is planning to make some of her Christmas gifts this year. She also saved money by shopping for her 8-year-old daughter's school uniforms in local thrift shops and holding off buying a new backpack, pencils and other supplies for the school year.

"I'm like many who are afraid of the second depression that's likely around the corner," says Ms. Therieau, who with her husband owns a framing shop in Lake View.

HIGH-END HEALTHY

Such sentiment has retailers adjusting inventories to avoid having to make costly markdowns. Minnesota-based Target, with 71 Chicago-area stores, said last week that it will be more conservative when planning and stocking merchandise for the rest of the year.

"It's going to be tricky this year," says Marshall Cohen, chief industry analyst at Port Washington, N.Y.-based retail consultancy NPD Group Inc.

While discounters like Target and mid-tier department stores like Macy's are being cautious, some higher-end retailers expect a healthy second half.

Chicagoans are going after the high-priced designer handbags, shoes and other accessories at the shops and boutiques in the Westfield North Bridge mall on Michigan Avenue, according to Amy Benson, the mall's marketing director. Same-store sales at Nordstrom, North Bridge's Seattle-based anchor, rose 5.9% in the second quarter, helped by its annual sale in July, the retailer says.

Many of the stores at the 900 Shops farther up Michigan Avenue are reporting double-digit sales growth, says Barbara Corrigan, the mall's senior marketing manager. The merchants there "are very optimistic about (the fall) and the holiday season," she says.

Crate & Barrel's sales are good in cities like Chicago, where home sales and values haven't dropped as dramatically as they have on the coasts, says Gordon Segal, CEO of the Northbrook-based housewares and furniture retailer.

But in markets where the real estate downturn has been more severe — California, Arizona and Florida — Mr. Segal says the company's sales have suffered.

"Among those markets, obviously there's more pain," he says.

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	Retailers bracing for bleak 4th quarter Merchants worry that credit crunch and slump in real estate won't put shoppers in mood to spend By Monée Fields-White ©2007 by Crain Communications Inc. Published July 30, 2007 Clouds are gathering over the holiday selling season. Retailers worry that a parade of negatives — from a deteriorating housing market to the widening credit crunch — will dampen Chicagoans' spending during the final months of the year, when merchants make most of their money. Chicago-area store sales will rise between 2% and 4% during the fourth quarter — about half the pace seen last year, predicts Daniel Skoda, president of Chicago-based retail consultancy D&R Consulting. "There's a great deal of concern about the credit crunch and how people are being affected," says Mr. Skoda, former president of Marshall Field & Co. Consumers have been buying back-to-school gear. The International Council of Shopping Centers in New York foresees an uptick of about 5% in consumer spending nationally during August and September compared with a year earlier, as parents stock up on clothes and supplies for school-age children. But the momentum likely won't carry over into the holidays. Retailers from Wal-Mart Stores Inc. to Target Corp. to Macy's Inc. are projecting a weak fourth quarter, as the recent jump in home foreclosures, tighter lending standards on mortgages and credit cards, declining home values and high gas prices squeeze shoppers — and create anxiety. "People hearing about what's going on, whether it affects them or not, just creates more and more worry," says Gerald Hirschberg, an analyst at New York-based credit rating agency Standard & Poor's. Sears Holdings Corp. of Hoffman Estates is expected to report a decline in second-quarter profit amid falling sales. Macy's, which acquired the former Marshall Field's chain, expects sales to range between a 1% drop and a 1% gain in the third quarter. In the fourth quarter, the Cincinnati-based retailer projects sales to be flat at worst, up 2% at best. "We do have some concerns about the economy in the back half of the year," says a Macy's spokesman. Many Chicagoans are keeping their budgets in check. Emma Therieau, 34 and a mother of two elementary school students, says she is planning to make some of her Christmas gifts this year. She also saved money by shopping for her 8-year-old daughter's school uniforms in local thrift shops and holding off buying a new backpack, pencils and other supplies for the school year. "I'm like many who are afraid of the second depression that's likely around the corner," says Ms. Therieau, who with her husband owns a framing shop in Lake View. HIGH-END HEALTHY Such sentiment has retailers adjusting inventories to avoid having to make costly markdowns. Minnesota-based Target, with 71 Chicago-area stores, said last week that it will be more conservative when planning and stocking merchandise for the rest of the year. "It's going to be tricky this year," says Marshall Cohen, chief industry analyst at Port Washington, N.Y.-based retail consultancy NPD Group Inc. While discounters like Target and mid-tier department stores like Macy's are being cautious, some higher-end retailers expect a healthy second half. Chicagoans are going after the high-priced designer handbags, shoes and other accessories at the shops and boutiques in the Westfield North Bridge mall on Michigan Avenue, according to Amy Benson, the mall's marketing director. Same-store sales at Nordstrom, North Bridge's Seattle-based anchor, rose 5.9% in the second quarter, helped by its annual sale in July, the retailer says. Many of the stores at the 900 Shops farther up Michigan Avenue are reporting double-digit sales growth, says Barbara Corrigan, the mall's senior marketing manager. The merchants there "are very optimistic about (the fall) and the holiday season," she says. Crate & Barrel's sales are good in cities like Chicago, where home sales and values haven't dropped as dramatically as they have on the coasts, says Gordon Segal, CEO of the Northbrook-based housewares and furniture retailer. But in markets where the real estate downturn has been more severe — California, Arizona and Florida — Mr. Segal says the company's sales have suffered. "Among those markets, obviously there's more pain," he says. BACK TO NEWS
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