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RETAIL IMPACT

Make-or-Break Holiday Season Looms Large

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The ongoing economic turmoil has many Americans tightening their belts. We talk to some local residents about how they are -- or aren't -- adjusting their spending habits.Video by Gaby Bruna/washingtonpost.com

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By Ylan Q. Mui and Kendra Marr
Washington Post Staff Writers
Thursday, October 9, 2008

Each day of financial tumult is bringing more pressure to bear on the nation's retailers -- and time is growing short.

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Yesterday, as the clock ticked ominously down to the critical holiday season, department stores and clothing retailers reported a sharp drop in sales while Target said its shoppers are delinquent in their store credit card payments. Port traffic, meanwhile, has been plummeting as retailers cut back on inventory.

"I don't think anyone predicted a crisis of this magnitude that couldn't be fixed quickly," said Bob Carbonell, chief credit officer for Bernard Sands, a retail rating and credit services agency. "If the American housewife puts the money under the mattress, we're in deep trouble."

In a year that seems to be defying all economic expectations, retailers are struggling to plot a course through the make-or-break holiday season, which accounts for nearly 20 percent of their sales each year. Will they have access to credit? How much merchandise should they order? Will anyone buy it? The moves they make now could determine where they stand in January.

The past three months were expected to bring the deepest cuts in consumer spending since the 1991 recession. September's dire economic news -- from the collapse of Lehman Brothers to the freefall in the financial markets to the government's $700 billion rescue plan -- have spooked shoppers and eroded confidence. On the day that the House of Representatives rejected the rescue plan, mall traffic plunged 12 percent, according to research firm ShopperTrak.

Scott and Elaine Bourdeau feel the ripples. The couple, who live in Herndon, had planned to travel to Italy for their 10th anniversary but opted instead to save money with a short trip to the San Francisco Bay area. They're postponing remodeling their bathroom and focusing on necessities -- clothes for their two daughters.

As they shopped in Georgetown yesterday, Elaine Bourdeau said her husband had decided they need to cut back on Christmas. "I agreed," she said. "One gift per kid."

Early retail sales reports yesterday reflected similar decisions by shoppers across the country. The best performers were discount retailers, but even they ranked below Wall Street estimates. Wal-Mart reported same-store sales at its domestic stores and warehouse club division, Sam's Club, grew 2.8 percent in September compared with the same month last year. Costco grew 9 percent.

Department stores from Kohl's to Nordstrom saw a drop in sales at stores open at least a year, a key measure of a retailer's health known as same-store sales. Dillard's, JCPenney and Saks plummeted by double digits.

Those grim reports are dimming retailers' hopes for a recovery before sleigh bells jingle. Target reported a 3 percent drop in sales, partly because of the large number of defaults on its store credit card, and warned that its profit this quarter might be lower than expectations. Several other retailers lowered their performance outlooks. About two dozen more retailers are expected to release their figures today.

"Right now, the fear is high and the uncertainty is higher," said Gene Tyndall, executive vice president at Tompkins Associates, a supply chain consulting firm.

Domonique Blaine, 23, of the District said he has been spending more conservatively, checking out sales racks and forgoing designer labels. But he has been eyeing a $250 Banana Republic plaid trench coat. He put the jacket on hold.


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