News / Economy

Cautious US Consumers a Hard Sell for Traditional Retail

FILE - People shop inside a Target store during Black Friday sales in the Brooklyn borough of New York, Nov. 29, 2013.
FILE - People shop inside a Target store during Black Friday sales in the Brooklyn borough of New York, Nov. 29, 2013.
Reuters
If there was one lesson from this year's holiday shopping season, it is that many traditional retailers are having to work a lot harder to persuade Americans to open their pocketbooks.
 
A lot of stores had to discount heavily to eke out a modest increase in sales, likely squeezing profit margins in the process.
 
Some improvement in the U.S. economy and declines in the jobless rate, plus gains in stock and home prices, are failing to resonate with many Americans whose incomes are struggling to catch up to where they were before the financial crisis.
 
But to many retail experts and economists there are other less cyclical factors at play. Consumers are spending more. Government figures show monthly personal consumption has risen for seven straight months, with November's outlay marking the fastest increase in five months. But they just are not spending in the shopping malls like they used to.
 
And that means that, even if the economy picks up significantly, retailers of many products could still struggle.
 
“We are in a something of an evolutionary process, said Bill Martin, founder of data firm ShopperTrak, which monitors foot traffic in about 60,000 retail stores.  Americans are spending more online and becoming more careful about what they buy, he said.
 
Some of this has been unfolding over a long period, although the changes might be picking up pace.
 
For example, department stores have found themselves on the wrong end of trends for some time. According to data compiled by Reuters, they now capture just $3.37 of every $100 of U.S. retail spending, the lowest since records began in 1992, when the number was nearly $9.
 
Some of that is explained by the rise of Wal-Mart Stores Inc. and other big box discount retailers. But the pace of decline has picked up, with department stores losing about 0.28 percentage points of market share at an annualized rate between 2002 and 2011, compared with 0.22 in the prior 10 years.
 
The problem is two-fold. The middle class consumers to whom the likes of JC Penney Co. Inc. and Kohl's Corp. cater have struggled with stagnant wages and a payroll tax rise, prompting them to reduce spending on apparel, said Scott Tuhy, a retail analyst at Moody's Investors Service in New York.
 
People have also gravitated toward spending on services such as travel - airline ticket prices and hotel room rates are up - as well as movie downloads and other content for their TVs, smart phones and tablets. Prices to attend live sports events, theme parks, movies and rock concerts have also been rising.
 
In addition, increasing healthcare costs have been eating up discretionary income, with many employers seeking higher contributions from their staff.
 
According to the Commerce Department, spending on services hit an annual rate of $7.1 trillion in November, by far the biggest slice of overall consumption
 
“There was a day you bought your TV, refrigerator, furniture, everything in a department store, whereas today, it's really just apparel and maybe jewelry,” said Stuart Hoffman, an economist at PNC Financial Services Group in Pittsburgh. “But as incomes rise over time, people spend more on services - travel, entertainment.”
 
As data from MasterCard showed last week, it took deep discounts and hefty promotions to spur a 2.3 percent rise in holiday sales between Nov. 1 and Dec. 24 compared with a year earlier. The figures include apparel, jewelry, electronics, luxury goods and home furnishings.
 
“Given how promotional the season turned out to be, profits are likely to be flat because retailers had to provide quite a lot of discounts to get those sales,” said Moody's Tuhy.
 
And it's not as if people aren't doing some serious shopping.
 
A sign advertising new homes is posted at a housing development in Dublin, California.A sign advertising new homes is posted at a housing development in Dublin, California.
x
A sign advertising new homes is posted at a housing development in Dublin, California.
A sign advertising new homes is posted at a housing development in Dublin, California.
U.S. sales of big-ticket items such as autos and home-related goods such as washing machines, as well as purchases in home-improvement stores, surged in 2013, boosting overall retail sales. Homes sales also increased pretty steadily from mid-2012, although a summer spike in mortgage rates cooled things off a bit this fall.
 
Some of the gains reflected a long-anticipated release of pent-up demand as the economic recovery has gained momentum, but it might also be partly a reflection of changing attitudes, with the focus on more practical purchases.
 
According to the National Association of Realtors, more than half of home buyers between July 2012 and June 2013 made some sacrifices, such as reducing spending on luxury items, entertainment and clothing.
 
“Pent-up demand has helped on housing and autos, but consumers are still cautious. Things are getting better, yes, but even if you have a job, things are still tight,” said Sam Bullard, an economist at Wells Fargo in Charlotte.
 
In its 2014 retail industry outlook, Moody's said it expects the auto and home improvement sectors to outperform again in 2014, good news for Home Depot Inc and General Motors Co., whose stocks are up 32 percent and 41 percent, respectively, this year.
 
It's been a different story with more ordinary purchases.
 
An Ipsos/Reuters poll released just ahead of the Christmas holiday found consumers plan to spend about a third less this year than last year on items such as jewelry, toys and electronics.
 
Sluggish sales of toys and packaged foods pushed down sales at Wal-Mart's U.S. stores in the third quarter and prompted the company to forecast disappointing holiday sales results, while Target Corp blamed “constrained” consumer spending for a tepid rise in quarterly sales.
 
One factor is that the giant TV is much cheaper than it was, and tablets and many of today's laptop and desktop PCs are cheaper than their predecessors of a few years ago, again not helping store sales. Shoppers are also increasingly likely to buy such items online from the likes of Amazon.com Inc. and Apple Inc.
 
Participants in Deloitte's 2013 holiday shopping survey for the first time named the Internet as their number one shopping venue, with 68 percent of smart phone users and 63 percent of tablet users planning to use their devices to help them.
 
As people check out goods online before heading to the store impulse buying can take a hit, said Martin. ShopperTrak data shows mall shoppers visited an average of three to three-and-a-half stores this year, down from four-and-a-half to five in 2007.
 
The improvement in the economy and gains in asset prices have also clearly not trickled down to large segments of the broader population.
 
Hiring has picked up, helping to push the jobless rate to a five-year low of 7 percent in November, but some 11 million Americans are still unemployed, and many are earning less than before the recession. When adjusted for inflation, average weekly wages have barely budged since late 2008.
 
That has made Americans, particularly those in middle- and lower-income brackets, far more discerning when it comes to their spending.
 
“There's been psychological scarring for people from this recession, much like how some people who lived through the Depression said they were scarred,” said Hoffman. “There are still a lot of people who can't afford to do much, and those who can are holding back.”

You May Like

Republican Majority in Congress Off to Rough Start

Standoff over Homeland Security funding exposes philosophical, tactical problems within party More

Pakistan Blocks Baloch Activist from US Trip

Human Rights Commission of Pakistan slams Islamabad officials for stopping people from leaving country to attend human rights conference More

Video Muslims Long Thrived in North Carolina Before Students Killed

Idyll shattered February 10, when three Muslim university students living in Chapel Hill were gunned down by a neighbor More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Muslims Long Thrived in N Carolina Before Slaying of 3 Studentsi
X
Jerome Socolovsky
March 05, 2015 9:04 PM
The killings of three Muslim students in North Carolina early last month came as Muslims across the United States have felt under siege, partly as a result of terrorist attacks being committed internationally in the name of their faith. But Muslims have long thrived in university cities in this part of the American South. VOA's Jerome Socolovsky reports.
Video

Video Muslims Long Thrived in N Carolina Before Slaying of 3 Students

The killings of three Muslim students in North Carolina early last month came as Muslims across the United States have felt under siege, partly as a result of terrorist attacks being committed internationally in the name of their faith. But Muslims have long thrived in university cities in this part of the American South. VOA's Jerome Socolovsky reports.
Video

Video Fuel Shortages in Nigeria Threaten Election Campaigns

Nigeria is suffering a gas shortage as the falling oil price has affected the country’s ability to import and distribute refined fuels. Coming just weeks before scheduled March 28 elections, the shortage could have a big impact on the campaign, as Henry Ridgwell reports for VOA.
Video

Video Report: Human Rights in Annexed Crimea Deteriorating

A new report by Freedom House and the Atlantic Council of the United States says the human rights situation in Crimea has deteriorated since the peninsula was annexed by Russia in March of last year. The report says the new authorities in Crimea are discriminating against minorities, suppressing freedom of expression, and forcing residents to assume Russian citizenship or leave. Zlatica Hoke has more.
Video

Video 50 Years Later African-Americans See New Voting Rights Battles Ahead

Thousands of people will gather to mark the 50th anniversary of a historic civil rights march on March 7th in Selma, Alabama. In 1965, dozens of people were seriously injured during the event known as “Bloody Sunday,” after police attacked African-American demonstrators demanding voting rights. VOA’s Chris Simkins introduces us to some civil rights pioneers who are still fighting for voting rights in Alabama more than 50 years later.
Video

Video Craft Brewers Taking Hold in US Beer Market

Since the 1950’s, the U.S. beer industry has been dominated by a handful of huge breweries. But in recent years, the rapid rise of small craft breweries has changed the American market and, arguably, the way people drink beer. VOA’s Jeff Custer reports.
Video

Video Video Claims to Show Shia Forces in Iraq Executing Sunni Boy

A graphic mobile phone video is spreading on the Internet, claiming to show Iraqi forces or Shia militia executing a handcuffed Sunni boy. Experts have yet to verify the video, but already Islamic State followers are publicizing it across social media, playing on deep-rooted sectarian fears. VOA’s Jeff Seldin reports.
Video

Video Ukrainian Authorities Struggle to Secure a Divided Mariupol

Since last month's cease-fire went into effect, shelling around the port city of Mariupol has decreased, but it is thought pro-Russian separatists remain poised to attack. For the city’s authorities, a major challenge is gaining the trust of residents, while at the same time rooting out informants who are passing sensitive information to the rebels. Patrick Wells reports for VOA.
Video

Video Volunteer Gauge-Watchers Help Fine-Tune Weather Science

An observation system called CoCoRaHS is working to improve weather science, thanks to thousands of volunteers across the country who measure precipitation in their own backyards, then share their data through the Internet. VOA's Shelley Schlender reports.
Video

Video NASA Spacecraft Approaches a Dwarf Planet

NASA’s Dawn spacecraft will make history on Friday, March 6, when it becomes the first man-made object to orbit a dwarf planet named Ceres. It is located in the asteroid belt between Mars and Jupiter, almost 500 million kilometers from Earth. Among other objectives, Dawn will try to examine two mysterious bright white spots detected on the planet’s surface. VOA’s George Putic has more.
Video

Video Young Muslims Radicalized Online

Young Muslims are being radicalized ‘in their bedrooms’ through direct contact with Islamic State or ISIL fighters via the Internet, according to terror experts. There are growing concerns that authorities and Internet providers are not doing enough to counter online extremism - which analysts say is spread by a prolific network of online supporters around the world. Henry Ridgwell reports from London.
Video

Video Positive Messaging Transforms Ethiopia's Image

Ethiopia was once known for famine and droughts. Now, headlines more often point to its fast-growing economy and its emergence as a regional peacemaker. How has Addis Ababa changed the narrative? VOA's Marthe van der Wolf reports.
Video

Video Answers Elude Families of MH370 Passengers

For the families on board Malaysia Airlines flight MH370, an airline official’s statement nearly one year ago that the plane had lost contact with air traffic control at 2:40 AM is the only thing that remains confirmed. William Ide reports.

All About America

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More

World Currencies

EUR
USD
0.9034
JPY
USD
120.24
GBP
USD
0.6550
CAD
USD
1.2440
INR
USD
62.254

Rates may not be current.