D.C.

Government shutdown 2013: Retailers hurt after 16-day shutdown

Decrease Increase Text size

NEW YORK (AP/WJLA) - The government shutdown couldn’t have come at a worse time for the retail industry – precisely, at the kickoff to the $600 billion holiday shopping season. It’s now making some shoppers cross spending off their holiday lists.

But while some are scaling back and choosing to save a little more in case we see another post-holiday shutdown, others don’t expect the shutdown to impact their spending much.

When it comes to the big picture, the National Retail Federation (NRF) found that almost one out of every three people will alter their spending – at least slightly – due to the shutdown.

"All of a sudden, consumers were scared," says the NRF. "They weren't sure what was happening in Washington and the uncertainly threatened those holiday sales..."

But it’s still too early to tell exactly how much it's threatening the sales, because the government workers who usually help to tally that information were furloughed during the shutdown.

Retail spending was expected to be up slightly this year over last year, and in the end when they finish crunching the numbers, the NRF believes that will still be the case.

"The impact shouldn't be as bad as we thought... " they concluded.

Retailers, on the other hand, are hoping that short-term uncertainty won't stop Americans from spending during the busiest shopping period of the year, but they're fearful that it will.

"I am not nervous, but I am mindful," said Jay Stein, chairman of Stein Mart, a 300-store chain that sells home goods and clothing. "The biggest enemy of consumer confidence is uncertainty."

Retailers and industry watchers say Washington gridlock already has caused shoppers to hold back on purchases.

The number of people going into stores nationwide dropped 7.5 percent for the week that ended Oct. 5 and 7.1 percent during the following week compared with a year ago, according to ShopperTrak, which measures foot traffic at 40,000 retail outlets across the country. Men's clothier Jos. A. Bank Clothiers and furniture chain Ethan Allen said their customers cut back in recent weeks. And auto sales, which had been strong, trailed off last week, with experts blaming Washington lawmakers.

Retailers say the agreement that lawmakers approved, which funds the government until Jan. 15 and gives the Treasury the ability to borrow above its limit until Feb. 7, may not be enough to alleviate shoppers' concerns.

Robert N. Wildrick, chairman of Jos. A. Bank, which has 623 U.S. stores, said retailers can't afford more uncertainty during the holiday shopping season. "The more this nonsense goes on .... the more scared (consumers) become," he said.

Even before the stalemate in Washington, retailers had reasons to be cautiously optimistic about the holiday season, which accounts for up to 40 percent of retailers' annual revenue. While the job and housing markets are improving, that hasn't yet translated into sustained spending increases among shoppers.

But retailers spend money on ads, order additional inventory and add sales staff during the holidays hoping shoppers will spending freely. If they don't, stores have to discount, which eats away profits.

The National Retail Federation is the nation's largest retail group, and had forecast in early October that sales would climb 3.9 percent in November and December to $602.12 billion, higher than last year's 3.5 percent gain. But the forecast didn't account for the prolonged shutdown.

Jack Kleinhenz, chief economist for the Washington, D.C.-based group, told The Associated Press that he may lower the projection after he sifts through retail sales and jobs data, reports that had been delayed because of the shutdown. The uncertainty could hurt sales.

"It's like having an ongoing fever that you would like to shake but just doesn't go away," Kleinhenz said. "That causes a backup in decision-making from consumers and businesses."

Take Nino Rodriguez, who was already planning to cut back spending on gifts for his four children ages 3 to 21 by about 25 percent to $1,500 as he juggles stagnant wage gains with college tuition costs.

Now, the Chicagoan plans to cut another $500 from the holiday budget because of uncertainty. In particular, he's concerned about having government aid checks suspended for teenage sons who have special needs.

"The doomsday clock is just one second less than what it was before," said Rodriguez, who works in the hospitality business. "All this just heightens our awareness of spending."

This isn't the first time that debt-and-spending stalemates have hurt shoppers' mood during the holidays. Last year, Americans worried about tense negotiations in Washington to resolve the fiscal cliff, a simultaneous increase in tax rates and a decrease in government spending.

Congress and the White House reached a deal on Jan. 1 that prevented income taxes from rising for most households, but many store executives blamed the uncertainty for a slowdown in sales in December. In November 2012, sales were up 4.7 over the year ago period, but rose only 2.4 percent in December.

And in August 2011 when there was market turmoil and political strife over raising the federal debt ceiling, consumer sentiment fell to a 31-year low, according to the Thomas Reuters/University of Michigan survey.

Jeff Landis of Chicago-based Montopoli Custom Clothiers recalls those days when business was quiet and he had to delay ordering fabric and call his wealthy customers. He said he's seeing the same scenario play out now.

"This is a buzz kill," he said.

At least one positive for shoppers is if retailers expect business to be down, they may offer more sales and specials – which may keep both retailers and consumers feeling like they came out ahead in the end.

Recommended For You