Christmas ’82: On Sale Now

Christmas ’82: On Sale Now But customers are cautious as they play a waiting game with U.S. retailers

SALE. The word was everywhere last week in recession-weary, unemployment-plagued, pre-Christmas America. It stood alone or with exclamation marks in all its variations: reduced, discounted, cut, specially priced and slashed.

The word flanked department-and specialty-store aisles from Maine to California. It paraded through chic boutiques in Manhattan and Beverly Hills’ Rodeo Drive. It marched through newspaper advertising and charged into glossy supplements. On television, it assaulted millions of viewers.

It was on almost everything, from television sets to dinnerware to cameras and video games, Belgian waffle makers, foot massagers, pots, pans, cutlery and apparel of all kinds. So far at least, the drumfire of discounting is having the desired impact of making at least some stores busy. But much of what is happening so far this season is flash without great substance, chiefly because of the sales. Says Michael Evans, a private economist in Washington: “Consumers are buying more, but they’re spending less.”

Price cutting started earlier, has gone deeper and affected more items than in any Christmas shopping season in memory. Christmas sales began two to three weeks before they usually do, well before Thanksgiving.

By some accounts, the sales effectively began as far back as October, when shopkeepers were coming out of a depressing summer with overstocked shelves after 15 months of recession, rising unemployment and sick sales of everything from cars to refrigerators. Now retailers are hopeful that the price slashing will seduce shoppers, resulting in at least respectable overall sales for 1982. Many shopkeepers count on Christmas for a third to a half of any year’s profits.

Many of them stand to be disappointed. In general, sales are better on both coasts then they are in the Midwestern middle, the “rust bowl,” hardest hit by joblessness and industrial anemia. Almost nowhere, though, are sales truly brisk. Unusually warm weather in the East, which has produced temperatures in the springlike 70s, has hurt them in two ways. It has cut into sales of winter clothing. It also made Christmas seem not so near, reducing what Economist Alan Greenspan calls the “sense of urgency” needed to press people into stores.

Shoppers now coolly wait for prices to come down before buying. If they do not see what they want at the right price, they bide their time until prices drop. Says Ann Colwell, 28, a Dallas publicist: “It’s a consumer-oriented Christmas,” as if somehow it rarely had been until this year. She is waiting for Evan-Picone suits at Sanger Harris to go on sale. When they do, she will buy. Said Martin Tolep, economist for F.W. Woolworth: “By waiting, they’re going to make some retailers frantic.”

Other forces are at work to discourage buying, especially of big-ticket items such as refrigerators and washing machines. Two or three years ago, when inflation was steaming along at double-digit levels, a philosophy of buy-now-before-the-price-goes-up gripped the consumer. Sales of consumer durables held their own. Now, with inflation limping along at an annual rate of about 5%, there is no rush to buy expensive items. In fact, it often pays to wait. Says Irwin Kellner, chief economist at Manufacturers Hanover Trust Co.: “Buyers see that the longer they wait, the better the deals will be.”

Even if Christmas sales do perk up during the next two weeks, most economists expect fourth-quarter retail sales—including automobiles, appliances and general merchandise—to be only slightly ahead of last year’s fourth quarter, after adjustment for inflation. November’s sales, reported last week, rose by an inflation-adjusted 2% above last year, thanks largely to the recent pickup in auto sales sparked by carmakers’ cut-rate financing. The sluggishness in spending puzzles some economists, who see a number of reasons why people should be buying:

> The percentage of consumer after-tax earnings that goes for paying off installment debt has declined from 19% in 1979-80, to 15% now, about where it was in the recession year of 1975. Says Edward Brennan, Sears merchandise-group chairman: “People who are working are in an excellent position to extend themselves on charge accounts.”

> Total consumer buying power, what’s left of income after accounting for taxes and inflation, is actually rising at an annual rate of 2% to 3% these days, vs. a decline of 1% in 1980. That is nowhere near 1973’s 8% gain, the highest in the past decade, but it is a solid improvement.

> Between August and November, the 32 million Americans who own stocks and bonds ran up a mighty $300 billion in profits as stock-market indicators broke all records. While some of the wealth existed only on paper, even that can make investors feel rich and ready to spend.

All these factors may be offset by equally powerful negative forces. The greatest of these is, of course, unemployment, which in November was running at a post-Depression high of 10.8% of the US. work force. Members of 20% of American families have experienced some joblessness this year, says Woolworth’s Tolep.

That does not encourage big spending. It even discourages buying by employed people who are nervous over the safety of their jobs, or who have just been rehired after a period of layoff. Said a shopper in a Kmart in Detroit: “I’m making $4 an hour less in a new job, and I won’t be spending as much.”

What is more, the U.S. savings rate has increased sharply: in the third quarter it stood at 7% of income, vs. 6.4% a year earlier and only 5.8% in 1980. In more robust times, that would be welcome news indeed. It would mean that more money could go into the building of plants to create jobs, the answer to the Reagan Administration’s dream.

Coming now, when times are not good, the increased savings translate into more than $20 billion that is not being spent on consumer goods. Some of the savings doubtless flow from the $28 billion federal income tax cut in July. Says Economist Evan Barrington of Data Resources Inc.: “We keep looking for the tax cut to come through in spending, and it just hasn’t.”

In addition, stagnant house values and sales mean that consumers are not generating cash, as they once did, from capital gains on their homes. Economist Greenspan estimates that in the third quarter the spread between homeowners’ purchase prices and sale prices, at an annual rate, was $36 billion, well below the $113 billion for 1979. The appreciation dip has left consumers less willing or less able to take out second mortgages for shopping sprees.

Nonetheless, Walter Loeb, who follows retailing stocks for Morgan Stanley & Co., estimates that the earnings of major department stores should rise a handsome 8% this year after inflation. Like other analysts, he is bullish on retailing stocks because he knows that if and when the economy turns around the big retailers will feel it first. Since August, when stock prices began their upward surge, retailing stocks have participated smartly and even outperformed the market.

—By John S. DeMotL Reported by Patricia Delaney/Chicago and Stephen Koepp/New York