'Tis the season to spend freely.
That's the tune the Reagan administration, retailers and economists are hoping consumers will be singing at stores this fall-Christmas shopping season. The administration is counting on a spurt of spending from consumers in the months ahead to lead the economy out of the recession and into a prosperous New Year.
But conversations with merchants, retailing analysts, mall managers and economists indicate that the yuletide atmosphere among consumers this year is likely to be fraught with uncertainty, resulting in continued sluggishness in retail sales.
Even the 10 percent cut in federal income taxes, which is putting an additional $11 a week into the pockets of the average householder, appears unlikely to ignite a rapid recovery.
Ed Mangiafico, chairman of The Hecht Co., a division of St. Louis-based May Department Stores, scoffs at the tax cut, saying, "I don't relate anything that's happening to the tax cut; consumers have probably already discounted it."
"We're still very cautious relative to the fall season and Christmas season," says Woodward & Lothrop Vice Chairman Robert Mulligan. "We're planning on a very cautious basis and we're playing inventories at a very cautious level."
Washington area retailers and major department stores estimate that their fall and Christmas sales will barely exceed last year's after adjusting for inflation.
"Steady" has replaced "growth" as the watchword of local merchants.
This cautious attitude in the usually optimistic retailing industry has led to scaled-back ordering for the back-to-school and Christmas shopping seasons. Memories of last year's dismal Christmas season, when leftover merchandise had to be sold at substantial markdowns, are still fresh in the minds of area shopkeepers.
Even though most retailers say for the record that they predict a "good" Christmas season, most are ordering inventory conservatively in a "better safe than sorry" mentality that shuns plans to attract shoppers with new, untested lines of merchandise.
At the Casual Corner at Springfield Mall, store manager Lois Gravat explains that the chain is narrowing its offerings to, as she puts it, "meet customers' needs more directly." That means "a lot less experimenting" with new lines of clothing and a more selective approach to ordering.
"I think we're going to play it real close on the buying," says Jane Ammon, manager of Baraka Galleries at Landover Mall. "There is not as much money around as before. I'll be happy if it's as good as last year."
Estimates as to how much fourth-quarter sales will be up over last year vary among analysts watching the retailing industry.
Among the more pessimistic are Michael K. Evans of the Washington-based Evans Economics and Edward F. Johnson, director of Johnson Redbook Service in New York.
Evans predicts a flat second half for the nation's retail sales with an annual increase over last year of no more than 6 percent, barely enough to cover an estimated inflation rate in general merchandise of 4 percent.
Johnson says he has just revised his figures for expected third- and fourth-quarter sales gains over the similar periods last year. Previously, he had estimated an 8 percent gain for the third quarter and a 9 percent gain for the fourth quarter, now scaled back to 6 and 7 percent, respectively.
"Our estimates could still be on the high side," Johnson says, attributing his gloomy forecast to continued poor "consumer psychology."
"With the consumer attitude in June and July, we think that they will be saving more and spending less," he adds. Continued high unemployment and the concern "whether they will be next" will keep potential shoppers unsure about their economic future, leading to restrained buying over the next several months, Johnson predicts.
The chief culprit remains "uncertainty," a commodity he says "we've got in spades."
More optimistic are Fred Wintzer, a vice president at Lehman Brothers, Kuhn Loeb, and Bruce Grier, a research vice president for Drexel Burnham Lambert.
Although sales may not be fantastic this Christmas, Wintzer says that does not necessarily mean an unhappy year for retailers. Lean on inventories, merchants won't be under so much pressure to cut prices to move merchandise. As long as sales hold up at adequate levels, gross margins and profits should improve.
That would be a welcome scenario for the nation's retailing industry, whose profits are off by more than 40 percent over last year. But it may not be enough to call President Reagan's consumer-led economic recovery a success.
"As long as retailers are pessimistic, you can rest assured that they won't be overinventoried unless the economy goes down the tank," Wintzer explains.
In a bit of friendly advice to shoppers, he suggests buying early this year as merchants may run out of popular merchandise near Christmas-time because inventories are projected to be so thin.
Grier's optimism is based on the notion that consumers are in a better financial position to spend "big" than they have been for several years. He reasons that since everyone has put off buying for so long, "pent-up" demand will drive shoppers to spend substantially more this year than last.
Officials at major department stores in the Washington area and retailers at the suburban malls are now tallying up the results for the summer of 1982 and, by all accounts, business has been slow.
"We really expected a big summer and we stocked up for it, but we've been left with quite a bit," Sue Burkhalter, manager of No Name at Landover Mall, reports.
Burkhalter's experience in the women's clothing business this summer has been shared by retailers ranging from toys to jewelry.
Tom Keevan, manager of Bailey Banks & Biddle, also at Landover, says candidly, "We had a tough summer."
And while the toy business has been faring better than most segments of the retail industry, Tony Scivolette, the Baltimore-Washington merchandising supervisor for Kay-Bee Toy & Hobby, assesses the last few months' sales as "fair," adding, "The summer has been soft."
Sales of "E.T." dolls, which customers are already asking for but won't be on the shelves until next month, are expected to lead toy sales this Christmas, along with video and electronic games.
Sales figures are not released by Woodward & Lothrop, Hecht's or Sears for their stores in Washington. But officials at all three report a rising trend in sales beginning late last month, giving rise to hopes that stronger fall sales can make up for some of the summer's losses.
The trend they point to also has been spotted by researchers at the Conference Board in New York. The Board's index of consumer confidence, based on a monthly survey of 5,000 households, rose 7 percent from June to July.
A subset of the consumer confidence index that measures consumers' expectations about the future rose 8 percent between June and July.
Fabian Linden, the Board's executive director of consumer research, says the index has a three-month forecasting capability and a very good track record at foreshadowing future consumer behavior.
Linden stresses, however, that the survey's results stand alone as a positive indicator and that trying to predict Christmas in August places too much confidence in this type of survey.
"I wouldn't get carried away," he says of the encouraging rise in his indicators. "It would seem to suggest that we are on the way out of the recession, but with how much enthusiasm is still very hard to tell."
The Reagan administration is hoping that its 10 percent cut in individual federal income taxes will put some zing into what might otherwise be a lackluster recovery.
Although it certainly can't hurt, most analysts and retailers surveyed say they doubt that the tax cut will wind up adding much of a boost to the fall-Christmas shopping season.
"I think it's a non-event," declares Edward Johnson. "Most of it will go into savings."
"The tax cut? Ah, that doesn't mean a thing," says a skeptical Thornell McLaughlin, the assistant manager at Cavalier Men's Shop in Landover Mall.
Adrian Brown, assistant manager at the K&K Toy stores, also at Landover, says he doesn't think the tax cut will bring any more dollars into his store and that Christmas sales may actually decline over last year, predicting "a slight cutback in spending."
Not all of the Wall Street retailing analysts expect the tax cut to bring little benefit to the nation's shopkeepers. While the additional money doesn't amount to much week to week, the cumulative effect of the added disposable income is considered likely to be a factor in sales later this year.
A study published recently by the Columbus, Ohio-based consulting firm Management Horizons estimates that consumers, on average, consider that they have $95 per month of "discretionary" income left over after meeting all of their usual obligations.
The tax cut, the study reports, should place an extra $25 per month into that discretionary pool. And while $25 by itself isn't much, it represents a hefty increase in the amount of extra cash shoppers have to spend.
If Management Horizons' estimates are correct, and the bulk of that $25 goes into new purchases, the tax cut could wind up having a sizable impact on retail sales in the months ahead.
The important question is whether consumers will feel confident enough about the economy to spend the extra money or whether lingering uncertainty will induce them to stash it away.
Linden at the Conference Board says his poll-takers made an effort a couple of months ago to ask consumers what they planned to do with the money they would get from the July 1 cut in federal income taxes.
Most respondents, he says, said they would either save it or use it to pay back debt. But whether people actually do what they said they will do is quite another matter, Linden adds. "They give you a nice platitudinous response, but they may go out and spend it."
With six weeks of the tax cut behind them, the still-flat retail sales figures for the summer are at least confirming that it will take some time for it to encourage reluctant consumers to do more buying.
July retail sales were up an average of about 1 percent among the nation's six largest department stores. When adjusted for inflation, the major retailer's sales actually declined in real terms from last year.
K mart, the nation's second-largest retailer, outperformed most of its rivals with a 3.5 percent sales gain for July. But K mart representative Susan McKelvey says the July gain was not attributable to the Reagan tax cut.
"We think at this stage that it may be a while before we see any effects from the tax cut," McKelvey says. "The mood of the consumer is still on the low side but we think that in the fourth quarter we're going to see a modest upturn in the economy."
Echoing the sentiment of most other major retailers, she says, "We just don't have a sense of how much the tax cut has contributed right at this moment."
Most local retailers appear to be more concerned about the uncertainty in the minds of the consumer than the potential effects of the tax cut.
Tony Caggiano, manager of the Springfield Mall, says retailers live in fear of uncertainty in government. Last Christmas this uncertainty was at an all time high, he says, and it led to disastrous results at the cash register.
In the Washington area, threatened layoffs in government jobs, so-called RIFs for Reduction in Force, were perhaps the major factor in leading many area consumers to curtail their Christmas shopping last year.
"The uncertainty of it was just absolutely mind boggling," Caggiano says. Merchants in his mall estimate that one-third of their business comes from government employes. Retailers in Prince George's County report similar estimates.
Although RIFs still remain in the back of peoples' minds, most merchants believe that the scare is over and they expect to see U.S. government workers returning to their stores this season.
"It would be devastating if the uncertainty of last year was repeated," Caggiano says.
Most merchants appear willing to trade in the iffy benefits of the tax cut for a dose of clear direction from the Reagan administration as to exactly where the U.S. economy is headed. Most agree that if consumers gain confidence in the economy's direction they will return to stores in solid numbers this fall and Christmas.
While retailers mull over the economy's direction and the potential effects of the tax cut, concern also is growing over two important trends in the retailing industry which have combined to make Christmas less profitable in recent years.
The first trend is for Christmas shopping to be done later and later every year. The second is the rising pressure on retailers to mark down more merchandise than ever before.
Scivolette of Kay-Bee Toy & Hobby says the day after Thanksgiving used to be the biggest shopping day of the year. As an indication of how far consumers push back their Christmas shopping, he says Christmas Eve is now far and away the biggest shopping day.
"People are just real last-minute about their shopping now," explains Mary Jo Quirk, the assistant manager at the Landover Mall Chess King store.
Part of the reason Christmas shopping seems to be done later and later every year is a belief among consumers that retailers will mark down merchandise just before Christmas to sell it before it's too late.
As consumers postpone purchases in anticipation of markdowns, merchants get edgy about inventory piling up before Christmas. It almost becomes a game of chicken, with shoppers and merchants trying to hold out until the last minute before giving in.
Last year, retailers, who by and large ordered too much merchandise for the available consumer demand, lost the game and cut prices substantially, with corresponding results for profits.
Many merchants fear that the game will be repeated this year, as consumers have now come to expect sales and markdowns as an everyday way of life in the shopping center.
Edward Johnson of Johnson Redbook says retail markdowns have led to some of the tightest margins he's seen in years. He says one can get an idea of the degree of the squeeze on retailers by comparing the rate of increase in prices retailers charge their customers with the rate of increase of the prices producers charge retailers for their merchandise.
During the last month, for example, the consumer price index for apparel rose 2.3 percent while the producer price index went up about 7 percent, Johnson reports. "You can see how there's a little squeezing going on in there," he says.
Most merchants surveyed in the Washington area report that they sell between 25 and 50 percent of their merchandise at a marked down price.
While the pessimists clearly outnumber the optimists among merchants and industry observers, small flickers of hope, like the Conference Board's estimates on consumer confidence, provide some indication that results will not be catastrophic this fall.
Considering the relationship between Reagan and the long-awaited consumer-led recovery brings to mind the image of a backyard chef anxiously waiting for his barbecue to light, perhaps a little unsure whether he's used enough lighter fluid or bought the right coals.
The livelihood of merchants in Washington, and across the country, hangs in the balance