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

Photogallery Early Nigeria Results Show Buhari Leading; Tampering Concerns Mount

One local group monitoring polls is concerned politicians might use security agencies to 'fiddle with the election collation process' at state level More

UN: 7,300 Civilians Killed in Boko Haram Insurgency

A senior UN humanitarian official tells the United Nations Security Council 1,000 people have been killed this year More

Turkish President Warns Iran About Trying to Dominate Middle East

Warning comes amid growing concerns inside Turkey that it will be sucked into a sectarian conflict with its 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.
Film Tells Story of Musicians in Mali Threatened by Jihadistsi
X
Greg Flakus
March 30, 2015 6:48 PM
At this year's annual South by Southwest film and music festival in Austin, Texas, some musicians from Mali were on hand to promote a film about how their lives were upturned by jihadists who destroyed ancient treasures in the city of Timbuktu and prohibited anyone from playing music under threat of death. As VOA’s Greg Flakus reports from Austin, some are afraid to return to their hometowns even though the jihadists are no longer in control there.
Video

Video Film Tells Story of Musicians in Mali Threatened by Jihadists

At this year's annual South by Southwest film and music festival in Austin, Texas, some musicians from Mali were on hand to promote a film about how their lives were upturned by jihadists who destroyed ancient treasures in the city of Timbuktu and prohibited anyone from playing music under threat of death. As VOA’s Greg Flakus reports from Austin, some are afraid to return to their hometowns even though the jihadists are no longer in control there.
Video

Video With Coalition Airstrikes, Iraq Entering 'Last Page' of IS Battle

American warplanes joined Iraq's battle against the so-called 'Islamic State' in northern Iraq late Wednesday, as Iraqi ground troops launched a massive assault on Tikrit. Analysts say the offensive could take the coalition a step further towards Mosul, the largest city held by Islamic State forces. Others say it could also deepen already-dangerous sectarian tensions in the region. VOA's Heather Murdock has more from Cairo.
Video

Video Philippines Wants Tourists Spending Money at New Casinos

Tourism is a multi-billion dollar industry in the Philippines. Close to five million foreign visitors traveled there last year, perhaps lured by the country’s tropical beaches. But Jason Strother reports from Manila that the country hopes to entice more travelers to stay indoors and spend money inside new casinos.
Video

Video Civilian Casualties Push Men to Join Rebels in Ukraine

The continued fighting in eastern Ukraine and the shelling of civilian neighborhoods seem to be pushing more men to join the separatist fighters. Many of the new recruits are residents of Ukraine made bitter by new grievances, as well as old. VOA's Patrick Wells reports.
Video

Video Islamic State Prisoners Talk of Curiosity, God, Regret

Islamic State fighter, a prisoner of Kurdish YPG forces, asked his family asking for forgiveness: "I destroyed myself and I destroyed them along with me." The Syrian youth was one of two detainees who spoke to VOA’s Kurdish Service about the path they chose; their names have been changed and identifying details obscured. VOA's Zana Omer reports.
Video

Video Germanwings Findings Raise Issue of Psychological Testing for Pilots

More is being discovered about the co-pilot in the crash of Germanwings Flight 9525 in the French Alps. Investigators say he was hiding a medical condition, raising questions about the mental qualifications of pilots. VOA's Carolyn Presutti reports.
Video

Video Hi-tech Motorbike Helmet's Goal: Improve Road Safety

In cities with heavily congested traffic, people can get around much faster on a motorcycle than in a car. But a rider who is not sure of his route may have to stop to look at the map or consult a GPS. A Russian start-up company is working to make navigation easier for motorcyclists. Designers at Moscow-based LiveMap are developing a smart helmet with a built-in navigation system, head-mounted display and voice recognition. Zlatica Hoke has more.
Video

Video DOJ: Illinois National Guard Soldier Tried to Join ISIS

U.S. federal law enforcement agents arrested two suburban Chicago men accused of trying to join ISIS overseas, while also plotting attacks in the United States. As VOA’s Kane Farabaugh reports from the Midwest state of Illinois, one of those arrested is a soldier of the Illinois National Guard.
Video

Video New Wheelchair Is Easier to Use, Increases Mobility

Traditional push-rim wheelchairs create a lot of stress for arm, shoulder and neck muscles and joints. A redesigned chair, based on readily available bicycle technology, radically increases mobility while reducing the physical effort. VOA’s George Putic reports.
Video

Video Liberia's Almost Last Ebola Patient Grateful but Still Grieving

Beatrice Yardolo was to make history as Liberia’s last Ebola patient. Liberians recently started counting down 42 days, the period that has to go by without a single new infection until the World Health Organization can declare a country Ebola-free. That countdown stopped on March 20 when there was another new case of Ebola, making Yardolo’s story a reminder that Ebola is far from over. Benno Muchler reports from Monrovia.
Video

Video Cambodian Land Grabs Threaten Traditional Communities

Indigenous communities in Cambodia's Ratanakiri province say the government’s economic land concession policy is taking away their land and traditional way of life, making many fear that their identity will soon be lost. Local authorities, though, have denied this is the case. VOA's Say Mony went to investigate and filed this report, narrated by Colin Lovett.
Video

Video Space Program Status Disappoints 'Last Man on the Moon'

One of the films that drew big crowds last week at the annual South by Southwest festival in Austin, Texas, tells the story of the last human being to stand on the moon, U.S. astronaut Eugene Cernan. It has been 42 years since Cernan returned from the moon and he laments that no one else has gone there since. VOA’s Greg Flakus reports.

VOA Blogs

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
0.9220
JPY
USD
119.88
GBP
USD
0.6757
CAD
USD
1.2640
INR
USD
62.626

Rates may not be current.