Shoppers 'Sidelined' In Long Retail Slump

A bankruptcy judge in Richmond will determine the fate of electronics retailer Circuit City. He will decide whether the company will be sold as a whole or be liquidated. (By Jeremy Bales -- Bloomberg News)

The fallout on retailers has been pervasive.

Neiman Marcus, which reported a 31.2 percent sales decline in December, has announced it is laying off 375 employees. Gottschalks, a Fresno, Calif.-based department store, has filed for bankruptcy protection.

Tomorrow, a bankruptcy judge in Richmond will determine the fate of electronics retailer Circuit City. He will decide whether the company will be sold as a whole and remain a going concern or be liquidated.

Analysts ticked off a list of other retailers grappling with plummeting stock prices and/or declining sales: Dillard's, Eddie Bauer, Chico's, Borders, Bon-Ton and Pier 1. To survive, retailers are cutting jobs, closing stores, reducing inventory or delaying renovations and expansions.

"We've reduced our capital spending budget for '09," said Jim Sluzewski, spokesman for Macy's, which reported a 7.5 percent decline in same-store sales for November and December. "We initially planned to spend $1 billion, but we're going to reduce it by $550-$600 million or even a little more."

The December sales plunge, despite some of the most aggressive price-cutting in memory, suggested a long-term shift in consumer behavior. Consumers, analysts say, are accustomed to deep discounts and may no longer tolerate full prices. "People concerned about their jobs move into survival mode and slash all their spending by 20 and 30 percent," said C. Britt Beemer, chairman and founder of America's Research Group, a Charleston, S.C firm that tracks consumer behavior.

"We're going into January with extremely low consumer excitement," he said. "If 70 percent off doesn't excite them, I don't know what else will."

In a survey released yesterday by the firm, 33.2 percent of 1,000 consumers interviewed over the weekend said they felt pressured by credit card bills and debt, compared with 23.6 percent a year ago. Nearly 29 percent said they were buying only essential items and merchandise on sale, compared with about 18 percent a year ago. Only 4.8 percent said they were purchasing full-price items, compared with 10.8 percent a year ago.

The survey illustrates a decline in high-end retailers and growth of discounters. For instance, nearly 100 percent of the consumers surveyed over the weekend bought items at a discount store, compared with 90 percent a year ago. And only 1.2 percent bought jewelry, compared with 15.4 percent in 2008.

The slowdown is "conditioning consumers to look for deep discounts of 30 to 50 percent vs. the 15 to 20 percent" range of the past, said Tom Chin, managing director of Telsey Advisory Group in New York.

As a result, mall developers are beginning to think more about asking discount retailers such as Costco to anchor shopping centers, rather than relying only on traditional department stores, Chin said.

"Everyone is trying to evaluate who will be the winners in the next three to five years," he said.

Even online sales, which had been growing 19 to 28 percent over the past few years, were off. More people were buying online, but they were spending less.

Sales declined 3 percent in November and December, said Andrew Lipsman, director of industry analysis at ComScore, a digital marketing firm in Reston. "E commerce fell off the cliff this year," said Lipsman, attributing the decline to consumers cutting back on discretionary spending.