Attacks put damper on retail sales

Questions remain about long-term effects on economy

`Hoarding acorns'

Business has risen since plummeting on day of terrorism

September 23, 2001|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

The deadly attacks on the World Trade Center and Pentagon have left American consumers uncertain over the economy, jobs and the stock market, dampening sales at stores across the nation and raising a big question mark about future spending.

"When people face uncertainty, they're a lot like squirrels; they start hoarding acorns for the winter, and they don't spend those acorns," said Richard Giss, a partner in the retail services group of Deloitte & Touche in Los Angeles. "In times of uncertainty, people become very cautious with how they spend money, and it's not a great retail environment."

The immediate effects on retailers were not surprising. Sales plummeted the week after the attacks, as stores closed at least for one day and Americans huddled around televisions.

At Wal-Mart Stores Inc., sales fell 10 percent Sept. 11, as shoppers snapped up batteries, bottled water, candles, flags and food in the morning but largely deserted the stores in the afternoon.

Wal-Mart's customer count rose through the rest of the week, though the average purchase amount continued to lag. Sears, Roebuck and Co.'s sales dropped 50 percent on the day of the attacks and finished that week down more than 10 percent. Overall U.S. retail sales tumbled by 1.4 percent during the week, according to the Bank of Tokyo-Mitsubishi's retail chain store sales index.

Questions remain about long-term effects on retail and consumer spending, which accounts for two thirds of the economy.

"Consumers are currently focusing on basics, buying out of necessity, not desire," said Tracy Mullin, president and chief executive officer of the National Retail Federation, the nation's largest retail trade group.

Sonya Burse, for one, is spending a lot less time window-shopping these days, ever since the terrorist attacks left her uneasy about lingering too long in any mall. And that means she's buying less than before.

But it's more than a newfound fear that has the mother of three grown children running in and out of stores quickly for just what she needs.

"I used to spend hours in the malls," said Burse, a 50-year-old worker in Baltimore's Department of Finance.

Now, she says, "I'm more reserved as far as spending money. You don't know what's going to happen. If we go to war, I don't want to be out frivolously spending."

By the weekend after the attacks, managers at stores and malls started seeing more typical levels of shopper traffic, and food courts were bustling at many area malls. But it's still too early to tell whether shoppers were spending.

"Traffic was almost back to normal by the end of the week," said Nancy Tucker, a spokeswoman for Rouse Co., which owns and manages many of the bigger Baltimore-area malls. "It was a different kind of feeling, people were walking around more subdued."

Sales figures from merchants will not be available until the end of the month.

Nationally, retail sales for September are expected to rise 1.5 percent to 2 percent instead of the previously expected 3 percent, said Michael P. Niemira, a vice president of Bank of Tokyo-Mitsubishi. On Thursday, the National Retail Federation cut its fourth-quarter and holiday season sales-growth forecast to 2.2 percent from 4 percent for general merchandise, apparel, furniture, home furnishings, electronics and appliance stores.

"Since the terrorist attacks are so fresh, and our country's response not yet known, it is premature to make definitive judgments about the economy," said Rosalind Wells, chief economist for the trade group.

"Recession remains a possibility," she said, though she expects stalling growth over the next few months to give way to a rebound next year.

Giss said he expects the longer-term effect on consumers to be both economic and psychological.

"My expectation is it will have a negative impact," he said. "Consumer confidence will take a big hit. That's a key component to retail."

Unemployment is likely to rise, he said, as airlines and other financially troubled companies continue layoffs. Even workers who are spared job cuts end up feeling insecure, which can affect spending. The stock market, too, has left many consumers feeling less well off. Psychological effects could linger some six to nine months or even a year, depending on how long it takes to overcome the economic impact, Giss said.

High-end retailers and sellers of big-ticket items are likely to be hurt most and might have to spur sales by cutting prices and sacrificing some profits, he said. Retailers without sufficient capital will have a tough time surviving; others will cut back on inventory, which could hurt them if demand exceeds supply, he said.

Shadae Williams, 24, was shopping last week at The Gallery mall in downtown Baltimore for clothes for her job as a teacher's assistant at a private school. But she hesitated about buying anything more than necessities.

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