Grinchless in Seattle

Washington’s retailers, like those around the country, are dreaming of a green Christmas this year. They hope a 2009 year-end shopping spree will erase memories of last year’s disastrous and snowy holiday season.

Their wish is that tightfisted consumers will open their wallets more freely, allowing retailers to rescue what has been a rocky year.

It’s a tall order given that we’re in the worst economic crisis in decades, one that’s littered with record-setting numbers of foreclosures, bankruptcies and layoffs. For most of 2009, many consumers have lived in uncertainty, afraid of losing their jobs and not being able to pay their bills. They’ve cut their spending drastically, ratcheted back their use of credit and, where possible, increased their savings.

Retailers take comfort in rising consumer confidence and broadening conviction that this season will be better than last year. (Could it possibly be worse?) They point to a 14.3 percent jump in Seattle area home sales in September (the fourth consecutive month of year-over-year gains, according to the Northwest Multiple Listing Service) and the declaration by many economists that we’ve pulled out of “the Great Recession” as a good reason to believe in a little holiday magic. In Bellevue, more shoppers are expected to flood the streets as people throughout the region come to see the new luxury retailers, especially Neiman Marcus, which opened in September at The Bravern.

“We see an uptick in holiday revenues in the retail sector that recaptures half of last year’s loss,” says retail consultant Dick Outcalt of Outcalt & Johnson Retail Strategists LLC in Seattle. He also believes “frugal fatigue” will beset consumers and drive them back to the holiday gift-giving mode.

“People will still do Christmas,” says Outcalt’s partner, Patricia Johnson. “The caveat is that one way or another, banks and vendors supplying product have to allow retailers to buy” merchandise so retailers can stock their shelves. Some stores report that credit is so tight, they can’t raise the money to build up inventory for the holiday season.

Traditionally, retailers make their profits during November and December. A year ago, retailers scraped by, by offering deep discounts to consumers hit with layoffs, company cutbacks, housing woes and tight credit. Compounding 2008’s doldrums in Seattle were wet weather and snowstorms that shut down streets and surrounding cities, eliminating several prime shopping days in an already dismal season.

This year will be different, analysts say. Consumers have dramatically changed their buying and spending habits. Smart retailers have seen the shift and are reacting accordingly. They’ve reduced their inventories and edited their product mix. They are looking for ways to add value and services, and they plan to foster the good feelings of the joyful season in hopes that the psychological high will inspire consumers to shop.

“The Christmas story is-whether or not you believe the Wall Street debacle-that most people feel like the worst is over,” says J’Amy Owens, a Seattle retail analyst with the J’Amy Owens Group. “People have an inkling that we’re coming out of the recession-even though our major problems have not really been solved.”

Spending Slowdown

Retailers will see less spending overall, but consumers will
be looking for that special something, something meaningful or lasting, she
says. Outcalt and Johnson also predict high tech will continue to do well, and
gift card sales could hit record numbers.

Companies that should do well include Target, Costco and
Apple while department stores, Abercrombie and Fitch, and Neiman Marcus are on
the watch list, Owens says. As many as 10,000 stores are expected to close by
the end of this year, according to a retail report released by Grant Thornton
LLP’s Corporate Advisory and Restructuring Services division.

“The department store numbers have been abysmal and they are
desperate,” Owens says.

And at the high end, luxury retailers are feeling the pinch.
Take Neiman Marcus, for example. The company lost a whopping $668 million for
its fiscal year 2009, which ended Aug. 1, thanks to a 21 percent decline in
revenues. That loss compares unfavorably with a profit of $142.2 million a year
earlier.

Neiman Marcus’ chief executive officer Burt Tansky told
analysts in late August that the ultra-luxury retailer has cut inventory levels
by 23 percent as part of an effort to match anticipated lower demand. Too, the
company is broadening its line of mid-price merchandise to appeal to those who
won’t buy luxury items.

No doubt Neiman Marcus executives will be closely watching
their results at The Bravern in Bellevue. Company officials have been waiting
for years for the right time to enter this tony market, and in 2006-at what
could have been the economic peak-decided to take the plunge. Fast forward to
today, when they’re opening one of the nation’s most exclusive brands during
the worst recession in decades. Neiman Marcus officials declined to discuss
holiday plans at The Bravern at press time.

By many accounts, luxury spending isn’t going to be great
this holiday season. Spending lavishly on $7,500 Prada boots or a $2,500 Louis
Vuitton handbag raises the question whether such spending is responsible during
these trying times (if ever). That’s not to say, however, that the 1 percent of
consumers that can truly afford to spend such amounts aren’t going to. On the
contrary, the wealthy are spending-just more discreetly and less lavishly.

“Luxury shoppers are still out there and willing to spend,
but they are being much more discriminating,” says Marcia Mogelonsky, senior
analyst for consumer research firm Mintel International Group in Chicago. “They
are looking for a fair price; they won’t accept a $3,700 coat from a top
designer. They want to be shown something more affordable or want a
justification or proof that they aren’t spending too much.”

The holiday is going to be a challenge for everyone,
Mogelonsky adds. She predicts the holiday season will be known as the year of
the accessory, especially if apparel store shoppers seek lower-price items to
augment existing wardrobes.

Outcalt and Johnson warn that consumers, who are already
shifting their purchasing habits and buying closer to their needs, may want to
alter that behavior if they seek particular items during the holiday season.
Why? Retailers might not have the item in stock and they won’t likely be able
to order any more. Typically, retailers need large lines of credit to bring in
holiday merchandise, and they have been hit hard by the credit crunch.

“The banks and vendors are holding back, so retailers can’t
get enough inventory,” Johnson says. “So when hungry consumers come in, they
might not find what they want.”

Whether those shoppers will buy an alternative item or
become discouraged remains to be seen.