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The Honolulu Advertiser
Posted on: Sunday, November 24, 2002

U.S. retailers to face glut of tightwads, experts warn

By Bruce Horovitz
USA Today

The Land of the Free is becoming the home of the tightwad.

Holiday decor greets shoppers at the Beverly Center in Los Angeles. According to surveys, most consumers plan to spend less this year.

Bloomberg News Service

This may be most evident — hold the glad tidings — at Christmas. But a decade-long national trend points toward sizable cuts in what consumers are willing to spend on gifts for any occasion, whether they're for the in-laws at Hanukkah or for Uncle Harvey's house-warming party.

From 1990 to 2000, overall consumer gift spending for people in other households took a swift kick in the keister — dropping 9.8 percent in inflation-adjusted dollars, according to the Consumer Expenditure Survey from the Bureau of Labor Statistics. Although more recent statistics aren't available, experts say the trend is accelerating.

Perhaps no one's holding the wallet tighter than baby boomers.

Talk about cheapskates. During that 10-year period, the nation's 77 million baby boomers — born between 1946 and 1964 — cut back on overall gift giving by 26.2 percent in inflation-adjusted dollars, according to the survey. With the skyrocketing costs of non-discretionary items from utilities to healthcare to college tuition, something had to give. Or perhaps not be given.

"The tightwads are going to get even tighter this year," says Cheryl Russell, editorial director at New Strategist Publications, which publishes books on demographics and consumer spending.

This has left many holiday-dependent retailers and e-tailers from Bloomingdale's to Lands' End to Amazon.com scrambling.

Although most retailers have long planned for a soft holiday, few are aware of the deep-seated consumer quest to save a buck, which is forcing some retailers to rethink holiday planning very late in the game. It's nudging some of the biggest names in retail to consider veritable after-Christmas pricing before Christmas. It's resulted in a near free-for-all in "free shipping" promotions.

And it is placing bargain-hungry consumers firmly in control of what many say will be the thriftiest holiday money can buy.

"My friends call me a cheapskate," says Beatrice Kaufman, 38, an office manager from New Orleans who was fired last year and is now working for one-third of her former salary. "But I don't feel good about a purchase unless I know I've gotten it at the absolute lowest price."

The consumer warning to retailers is clear: If it ain't cheap, it's obsolete. A yet-to-be-released holiday-shopping survey that Harris Interactive took for client Amazon.com reveals that more than twice as many Americans (32 percent) plan to spend less this holiday as plan to spend more (15 percent). And 72 percent of the 1,000 Americans surveyed last month said they are looking for "bargains."

Scratching names from lists

For many at the receiving end this holiday season, it won't be pretty. Last year's $50 gift is, in many cases, becoming this year's $25 gift. And numerous names — particularly those of distant relatives and marginal friends — are being scratched altogether from this season's gift lists.

"I'm going to start a database to make sure no one takes me off their list," jokes Jeff Bezos, CEO of Amazon.com. But Bezos, the celebrated laugher, isn't just laughing about the holidays.

Instead, he's preparing. Amazon is offering free shipping for gifts over $25 — something Bezos says will cost Amazon "tens of millions of dollars." Its new apparel site featuring 400 apparel retailers is offering $30 gift certificates for those purchasing $50 worth of merchandise.

"When there's uncertainty in the economy, people get very rational about their spending," Bezos says.

There's plenty of blame to go around for these rational times. Such as the souring economy. Such as all the 401(k) plans that swelled, then emptied. Such as job insecurity. But the real culprit may be the ongoing boomer financial squeeze — as boomers adjust to rocketing costs of healthcare, prescription drugs, housing and college tuition.

"Boomers have no control over these costs, so their discretionary spending is getting squeezed," Russell says.

Talk about a retail horror story. Gift spending by the average household over the decade fell to $1,083 a year from $1,200, in 2000 dollars. The biggest declines were in traditional gift categories — such as gourmet food, down 44.1 percent, and women's clothing, down 32.1 percent, during the 10-year period, says Russell, whose company's research arm factored the bureau's annual statistics for inflation.

It only gets worse. Eighty-nine percent of consumers say they plan to spend not one nickel more for holiday gifts this year than last year, reports NPD Group, in its polling of 5,000 consumers. For the first time, consumers also rank "value" as the most important factor in buying holiday gifts. Never mind if the gift has pizazz. First and foremost, it must be cheap.

Just ask William Smith. The radioactive-waste program manager from Chattanooga, Tenn., has cut 25 percent of the people off his Christmas list. For many who are getting gifts from him and his wife, Jean, the value may be about half of last year's gifts.

Why? His 401(k) took a huge hit this year. To try to make up for it, he has greatly increased the amount he's contributing and decreased other spending.

"I'm glad we'll be out of town on Christmas Day," he says. "That way I won't have to see the disappointment on my nieces' faces."

Six fewer shopping days

Retailers are at a genuine disadvantage this year. Among other things, there are six fewer shopping days between Thanksgiving and Christmas than last year. They know that shoppers won't hesitate to sit it out until the sales signs sprout at the mall.

"It's a superduper game of chicken," says Wendy Liebmann, president of WSL Strategic Retail. "Everyone is holding their breath on this one."

So what's a retailer to do? Here's how top executives from some major retailers say they plan to cope with this holiday's tightwads:

• Bloomingdale's. CEO Michael Gould says the key to opening wallets is for Bloomie's to stay in constant touch with its best customers. So the retailer is cutting back on newspaper ads and, instead, sending extra mailings and additional catalogs to thousands of its core customers. Some will receive four holiday catalogs.

• Circuit City. The best way to nudge holiday shoppers to buy at Circuit City is to offer a range of products, from $57 DVD players to $15,000 high-definition TV sets, CEO W. Alan McCollough says.

In fact, the same, low-end DVD player that was $77.99 last year retails for $57.99 this year, he says.

As a competitive response, Circuit City is offering free shipping for products ordered on its Web site.

"Spending too much has become un-American," McCollough says.

• Lands' End. The apparel cataloger believes that one of the best ways to appeal to the value-conscious is with quality stuff that's a bargain. That's why its entire cashmere sweater line is being heavily promoted at $20 less than last year. Last year's $148 cashmere sweater now fetches $128.

Free gift boxing also is available on cashmere sweaters, says Executive Vice President Lee Eisenberg.

Another way to attract bargain hunters: sell practical stuff in bunches for less. The Lands' End Web site recently offered $7.50 off any purchase of three turtlenecks.