Stores Take a Hit as Shoppers Cut Corners and Go Discount

Consumers have shifted their spending to discount retailers like Wal-Mart and away from restaurants, grocery stores and department stores as pricey purchases are postponed or abandoned altogether.
Consumers have shifted their spending to discount retailers like Wal-Mart and away from restaurants, grocery stores and department stores as pricey purchases are postponed or abandoned altogether. (By Mel Evans -- Associated Press)
  Enlarge Photo    
By Ylan Q. Mui and Kendra Marr
Washington Post Staff Writers
Friday, March 14, 2008

Miriam Troutman, 26, is facing a predicament confronting many consumers in this gloomy economy: balancing what she likes with what she can afford.

Her tax refund went toward a practical new mattress and bedding. She works at a department store bridal registry, and her customers debate whether to put pricier items on their lists because they worry that guests cannot afford them.

"It's not that I'm buying less things," said Troutman, who lives in the District. "I just don't want to pay as much for them."

Commerce Department data released yesterday indicate that tentativeness at the cash register is spreading more deeply across the country. Consumers sharply curtailed spending on big-ticket items such as cars and electronics in February, sending retail sales down 0.6 percent from the previous month.

Motor vehicle sales had the sharpest drop of any retail sector, 2 percent, as Detroit automakers posted dismal results last month after flagging demand for high-margin trucks and sport-utility vehicles. Excluding auto, retail sales dipped 0.2 percent, and industry experts expect the sluggishness to continue at least through the first half of the year.

"At this point, there's nothing on the horizon from a cyclical point of view that would indicate that we would get a rebound," said Brian Bethune, chief U.S. economist for the forecasting firm Global Insight.

Declines in home values, slower growth in employment and wages, and escalating fuel prices continued to take their toll on consumers. They avoided big expenses such as electronics and appliances, which were down 0.4 percent. Home-related categories were also hard hit, with furniture sales dipping 0.5 percent last month and building material and garden equipment down 0.7 percent.

Still, shoppers cut corners across the board. Sales also declined last month at restaurants, grocery stores and department stores. Instead, consumers traded down to the least-expensive alternatives.

Discount retailers, led by Wal-Mart, posted a 2 percent gain in February sales at stores open at least 12 months compared with February 2007, according to the International Council of Shopping Centers. Warehouse clubs, such as Costco and BJ's, reported same-store sales gains of 6 percent.

"Consumers have become value-oriented and will only shop when presented with sales," said Michael P. Niemira, chief economist and director for research for the ICSC.

That is bad news for luxury retailers. The sector had done well because of demands for items such as Louis Vuitton wallets and sterling silver Tiffany necklaces. Now, high-end shoppers appear to be thinking twice.

According to the ICSC, February same-store sales at luxury retailers were down 4 percent from February 2007, the steepest decline of any category. Specialty apparel chains and department stores followed closely behind.

In a survey this month by consumer research firm BIGresearch, 44 percent of shoppers said they have become more practical in purchasing, up from 39 percent a year ago. More than half of consumers said they are focused on needs over wants.

"Any very discretionary purchases are going to be on hold," said Rosalind Wells, chief economist for the National Retail Federation, an industry trade group.

Easter's early arrival is expected to help retail sales this month. Many consumers may be waiting until their tax rebates are in hand before making big purchases. BIGresearch reported that 11 percent of shoppers planned to buy a new TV in the next six months, its highest response rate ever. And the federal economic stimulus plan should start helping retail sales this summer, analysts said.

But economists said that those bright spots will be just blips on an overall bleak picture and that the downward pressures facing consumers are not expected to let up soon.

"There are still problems and stresses in the economy," Wells said. "I think it's going to take a little while to unravel."

© 2008 The Washington Post Company